The era of sticking to ways, in every aspect is long gone. Nowadays having a college degree isn’t the route, to a career. Younger generations are delaying marriage. Starting families or sometimes not even opting for these milestones at all. Another shift can be seen in the trend of investing in properties instead of following the conventional path of starting with a small home and moving on to a larger one later.
Today some buyers are bypassing the step of buying a home and jumping straight into purchasing an investment property even while they continue renting themselves. However, venturing into this territory means paving your way as there may not be as many precedents to guide you. Deciding whether to invest in a property before buying your residence is a significant choice.
Fortunately, more and more people are gradually considering this option. Regardless of where you stand on this decision-making journey it’s essential to weigh the advantages and disadvantages of acquiring an investment property as your home.
Factors to ponder when contemplating purchasing an investment property as your residence;
There’s deliberation involved when contemplating whether to invest substantial funds in an income generating rental property.
One of the factors to consider is that you may need to commit for the term as initial returns are typically modest. This is particularly relevant if your initial investment costs are high if you have limited funds, for a payment or if you intend to furnish your property.
According to Edward Mermelstein, an consulting expert in equity and luxury real estate gaining experience will lead to better returns and a deeper understanding of the favorable tax implications that real estate investors usually enjoy.
The specific city you are eyeing will greatly influence your decision. Acquiring an investment property in New York City or Los Angeles presents challenges compared to Cleveland or San Antonio. Since each locations real estate market varies it’s crucial to research any regulations or laws that could affect your choice.
For instance many cities offer programs tailored for first time homebuyers, like Minneapolis homestead program. You should determine whether these programs extend to first time homeowners not using their property as their residence if that aligns with your strategy.
The advantages of purchasing a property before buying your home
Everyones circumstances are unique so the specific benefits and drawbacks of acquiring a first home as an investment property will vary for each individual.
However generally speaking some of the advantages of investing in property, before owning a residence include;
The opportunity to invest in a market from your area. This can be particularly beneficial if your current city or region has real estate prices allowing you to invest in an asset outside your vicinity.
The income generated from your property can be used towards acquiring your home. If you have a neighborhood or dream home in mind that’s currently out of reach an investment property can pave the way to achieving that goal. Once you start earning returns that money can be utilized for a payment, on your residence.
You have the chance to invest in an asset before committing to a home or location for yourself. Renting often means handing over money to someone every month. However having some funds set aside for investment doesn’t necessarily indicate readiness to make long term commitments.
If you’re uncertain, about where you’ll be in five or ten years investing in a property could serve as a way to allocate your funds until you’re prepared to take action yourself.
Investment property owners can benefit from tax advantages. Owning estate offers some of the most favorable tax benefits available allowing landlords to deduct mortgage interest, various maintenance and repair expenses and more. However it’s crucial to determine your level of engagement. “Are you an investor or a real estate ” questions George D. Lambert on Investopedia. “Your classification as one or the other dictates how your income and losses are handled.”
Drawbacks of purchasing an investment property as your residence
While the advantages of buying an investment property may be appealing there are downsides to consider before taking the plunge. Some common concerns associated with investing in a property than a personal home for your first residence include;
The expenses involved in maintaining a rental property. Any issues, with your property will fall on your shoulders to address.
That means any repairs will be a cost, on top of your rent for your place. Plumbing, heating and electrical problems can quickly accumulate, especially if your property is in a city or state where you have to rely on local professionals for the work.
Capital gains taxes come into play when you sell a property. Unlike when you sell a home you’re living in you’ll need to pay capital gains taxes on any profit made from the sale.
While still renting there’s often a sense of uncertainty for tenants. The possibility of being asked to move out at the end of your lease can be quite stressful as finding a new place on notice is challenging. Similarly if there are renters, in your investment property it won’t be available until their lease expires, potentially leading to some situations.
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