Why Real Estate Investing Makes (Dollars and) Sense

You might have heard of programs that promise to help you get rich quick through real estate investing. Unfortunately much of what they’re selling are high-risk tactics that aren’t a good fit for the average investor.

However, it’s possible to make steady, predictable, low-risk income by investing in real estate in Mammoth Lakes. Here are a few tried and true real estate investment tactics that can be used to increase your income.

Why invest in real estate?

The basic principle of real estate investment is that everyone needs a place to live. Housing is often the largest single expense for Americans. But there are other reasons why real estate is a great investment choice:

1. Appreciation

Appreciation is an increase in your property’s value over time. Over an extended period of time, the value of real estate rises. Of course, recessions occur, and market ups and downs are natural, especially in a ski town like Mammoth Lakes. But in the vast majority of markets, the value of real estate grows over the long term. While no investment is without risk, real estate is a pretty solid choice to invest in if you have a long timeline.

2. Hedge Against Inflation

Inflation is the rate at which the general cost of goods and services rises. As inflation happens, the money in your bank is essentially worthless because your purchasing power has decreased. But real estate prices also rise when inflation increases, so money invested in real estate often rises with (or exceeds) the rate of inflation.

3. Cash Flow

One of the benefits of investing in real estate over the stock market is its ability to provide monthly cash flow if you rent it out. Whether you rent it out as a nightly vacation rental or to a long term tenant, you’re likely to receive regular income. If you invest wisely, the income from rent or vacationers might cover the mortgage, the HOA and maybe even any repairs and maintenance needed.

If you end up with a little extra cash each month, you can pay off the mortgage faster. Even if you just break even, your equity will increase as you pay down the mortgage each month. Once the property is paid off, you’ll have residual cash flow for years to come. When the time comes to sell, you can benefit from the property’s appreciation — this can be a great way to save for your retirement or fund a child’s college education.

4. Leverage

A unique thing about real estate is that you can leverage your investment. If you purchase a condo in Mammoth Lakes for $200,000, you might put 10% down and borrow the rest in a mortgage. Even though you’ve only put in 10%, you have the ability to earn a profit on the entire $200,000. If the property appreciates, you still only have to pay the bank back the original amount, and if you sell it for a higher amount, you keep the profit.

5. Tax Advantages

One of the top reasons to invest in real estate is the tax benefit. There are many ways a real estate investment can save you money each year on taxes, including depreciation, serial home selling, 1031 tax exchanges and tax-deferred retirement accounts. Be sure to ask a tax professional about your current or future real estate investments.

Types of Real Estate Investments

While there are many ways to invest in real estate, I’m sharing three primary ways average investors earn money through real estate.

Remodel and Re-sell

There are countless “reality” shows that make fixing and flipping homes look easy. This is a higher-risk tactic, but there are tons of programs out there promising to have the magic formula. If you choose this process, you need to be prepared financially to cover additional expenses that may arise.

A good real estate agent can help you identify Mammoth Lakes properties that might be good for this type of investment strategy and help you avoid some of the pitfalls that could derail your plans. Keep in mind that skilled labor, contractors, construction professionals, etc. are harder to come by and often more expensive to hire in Mammoth Lakes than they are in more urban areas.

Traditional Long-Term Rental

A more conservative choice for investing in real estate is purchasing a long-term rental property. This is a way to generate cash flow that covers your expenses, while taking advantage of the property’s long-term appreciation value and the tax benefits. It’s a good way for first-time investors looking to get started.

Mammoth Lakes has a shortage of long-term rentals, so investing this way is a good idea — there are several Facebook groups that make advertising for tenants an easy process. The Mammoth Lakes Chamber of Commerce is also working on a homeowner-tenant matching program.

Short-Term/Nightly Rental

In Mammoth Lakes, short-term (or nightly) rentals have boomed for decades, but there’s been an even bigger increase since the rise of Airbnb, HomeAway and VRBO. Short-term rentals over several benefits over traditional rentals, which many investors find attractive, including flexibility and higher profit margins. An experienced Mammoth Lakes realtor can guide you to properties that are likely going to have the biggest return on your investment. Check out what you need to know if you’re considering buying a vacation rental property in Mammoth Lakes.

Is real estate investing too good to be true?

You’ve probably heard stories of someone who struck it rich with a well-timed real estate purchase. But like any investment strategy, if there’s a high potential for earnings, there’s usually high risk. Still, a well-executed real estate investment in Mammoth Lakes can be one of the best choices for your money.

Regardless of the route you choose, make sure you’re working an experienced local real estate agent who knows the investment market well and can guide you through the process.

 

If you’d like to talk, call me anytime at (760) 914-4664.

 

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