Most real estate investors want to make investments that will maximize their return and provide tax advantages without a lot of risk. One of the best ways to achieve this goal is by investing in income-generating properties.
Benefits of Properties That Generate Income
When you purchase a property that is already generating an income, you have a built-in safety net. You are spending money on the investment but you can start earning money right away. This makes it a much safer investment than those where you have to wait until the sale to see a return.
You can research the property to see how well it has done before you invest so you will know how stable the return is. This makes it a low-risk investment if you do your research.
In addition, these properties come with tax benefits that provide deductions for depreciation, repairs, and interest payments. You can also receive a deduction of 20 percent on income, thanks to the Tax Cuts and Jobs Act of 2017. With the built-in income, the low risk, and the tax benefits, these properties are great investments for many people.
Property Value and Property Class
No matter which property class you choose to invest in, the benefits remain the same. It is best to stay with the type of property that you have experience in whether that is commercial, single-family homes, or an apartment building. The risk factors vary between property classes but the benefits remain the same.
There are several ways to determine property value with this type of investment. One type is the fair market value, which is based on capitalizing the net operating income. This gives the investor control over what the property is worth because it can change by cutting expenses, making improvements, raising rent, or any number of other factors.
Location is always a key factor in determining how well your income-producing property will do. A market that is experiencing growth will be a better investment than one that is stagnant or has falling prices. Always choose properties in a growth market.