Choosing Your First Real Estate Investment

Everyone needs a place to stay throughout adulthood, and real estate offers you a unique opportunity to combine your basic need for shelter with the possibility of making a profit. Think about it. The home you purchased to live in can eventually be sold for more than you paid for it, or it can be converted into a rental unit to produce monthly income for years to come. Show me a stock or mutual fund that can do that!

For most people, buying their own home is the first real estate investment they will ever make. Even though it requires a significant down payment, owning a home is usually more cost-effective long-term as you end up building equity, or ownership in the house. Think of all the money you can spend over the years in renting a home, and this money is in a sense wasting away while you rent.

Is your home really an investment? Some commentators state that your home cannot be considered investment property because you’re not renting it out for monthly income. They also state that you have to pay the mortgage, property taxes, and other expenses each month or year. How can this be considered an investment if you keep having to pay money out of pocket? Well, in our opinion, your home must be considered an investment because you are gaining ownership over time (otherwise know as equity). Your home has a good chance of appreciating over the years, and you can sell this home and move into a smaller home when you choose to retire. You can use the profit to help you enjoy your retirement years.

At the time of this writing, the tax law allows you to make significant profits on your home without having to pay taxes on these earnings. A single taxpayer can make a capital gain of $250,000 without paying taxes on this amount, while a married couple can make $500,000. You must have lived in the home for at least two years out of the past five years in order to qualify for this tax exemption (though the 24 months do not have to be continuous).