Building wealth through property is one of the most tried and tested ways of building wealth, and has become even more popular in recent years. As we age, we feel more confident when we have a secure and stable way of generating an income, and property can provide just that.
While investing in real estate is a proven and true method of earning money, like any other business, it requires sound guidance, methods, and determination. In this post, we’ll explore how you can use real estate to build your wealth, and how to make the most of this investment.
What Does It Mean to Invest in Real Estate?
Investing in real estate can mean a number of different things. One of the most common ways people build wealth is through property appreciation and rental income.
Property Appreciation
This is one of the most common ways most property owners make their money. Appreciation refers to the increase in the value of a property’s value that is realised when a property is sold. Location, development, and improvements are the primary ways that residential and commercial real estate can appreciate in value.
A relatively common way to increase your Return on Investment is to refinance the property (if you borrowed money to purchase it). This will lower your cost basis for the property, thus increasing the amount you clear from it.
When looking at residential properties, location is often the biggest factor in appreciation. As a neighborhood grows and develops the value of the property climbs as well. Unfortunately, this trend can also work in reverse, with home values falling as a neighborhood decays.
Real Estate Income
Similarly, many people also build wealth in the form on income from rent for both commercial and residential properties. This price often increases in relation to inflation, demand and the purpose of the property.
A vast majority of residential property income comes in the form of rent. Here your tenants pay a fixed monthly rent price in order to use or live in the property. A desirable location is critically important to ensure that you can secure tenants easily.
Much like residential properties, commercial properties can produce income in the form of basic rent. However, the main difference is that they can pay additional fees in the form of option income. For example, many commercial tenants will pay fees for contractual options like the right of first refusal on the office next door. Tenants pay a premium to hold these options whether they exercise them or not.
The Bottom Line
Real estate can be a great way to build wealth and comes in many forms. However, it’s important to remember that like any other business, there is risk involved. For many first-time real estate and property investors, navigating and understanding the complexities of tax.
Based in Brisbane, Affinitas Accounting is a team of experienced and licensed accountants who provide tailored investment property tax services and solutions that take the stress out of your real estate investment.For more information on how the team at Affinitas can help you with your investment property tax, get in touch today!
