Barring any unforeseen declinations in quality, real estate, unlike a car, generally appreciates in value. This means that once a property is purchased, the value of that property steadily increases over time. Residential real estate is especially prone to this process. This is so because residences are comparatively priced. This means that the value of a property is largely dependent on the value of the surrounding properties. Therefore, if one house appreciates in value, then the surrounding properties also increase in worth. An investor can force appreciation by investing in repairs or improvements.
A Somewhat lesser known reason that so many people are learning how to become a real estate investor is the beneficial tax rules governing such transactions. State and federal governments try to encourage investment by writing financial rewards into the tax code. There are two main rewards built in. First, an investor can claim monthly mortgage payments as a tax deduction. Secondly, tax deductions can be made through a process called depreciation. Though a property may appreciate in value, an investor is allowed to make the assumption that it will actually depreciate over the projected useful lifespan of the unit. He or she is then allowed to claim this theoretical loss as a tax deduction.
Another strong reason for becoming an investor is called leverage. Leverage can best be explained through an example. Say you bought a house for ten thousand dollars and then sold it for eleven thousand dollars. Your profit margin would be ten percent. However, if you get an initial loan for the purchase and make a down payment of only one thousand dollars, then your profit margin would be one hundred percent. This method is called leverage and is a great way to maximize profits.
For all these reasons real estate investing is both an easy and very profitable business to get into.