On news of yesterday’s discouraging stock market sell-off, I found myself thinking of all the reasons duplexes are a safer place to invest money than Wall Street.
Yes, I know that flies in the face of everything you’ve heard about real estate the last 5 years.
But, if you buy a duplex that makes financial sense in the first place (and don’t speculate on appreciation), here are 10 reasons investment property is a wise move:
- People Need A Place To Live. If a family has lost their home to foreclosure, they still need a place to live. In fact, everybody does. And if someone has damaged credit, job uncertainty, mistrust of the real estate market or simply isn’t willing to make the long term commitment of home ownership, they’re going to rent.
- The Bank Will Lend You Money To Buy It. In spite of the foreclosure crisis, banks must think real estate is a pretty good investment. After all, if you put up a little of your money as a down payment, the bank will let you use theirs for the rest. They won’t agree to that arrangement at all when it comes to your Apple stock.
- Thanks To Leverage, You Can Buy More Than One. Unlike stocks, because you don’t have to pay for all of the property at once, you can diversify by purchasing more than one duplex (provided you qualify for a loan, of course).
- Interest Rates Are At Historic Lows. Not only can you use other peoples money to buy investment property, but you don’t have to pay them much for the use of that cash either. In fact, doesn’t it make sense to pay someone 4.5-5.5 percent to use their money to make 13 percent cash back on yours?
- Interest Rates Are Still Tax Deductible. While there’s been talk in Washington of reducing or eliminating the mortgage interest deduction, for now, the IRS still allows you to deduct a percent of the total interest you pay on your property.
- Depreciation. The IRS also allow you to take a depreciation credit on your duplex, which is something you can’t do with either stocks or your single family home.
- Positive Cash Flow. Thanks to declining values in the real estate market, duplexes in many neighborhoods where negative cash flow was the norm the first few years of ownership, are now selling for prices where they not only pay their own way, but create positive cash flows for their owners. Better yet, many foreclosures that need minor amounts of work are generating double digit cash on cash returns! Whether you use this extra money to buy stocks, or save it to acquire another duplex, you end up ahead.
- Tenants Buy You The Property. If you efficiently manage your property, the rental income you generate from your duplex should easily cover your mortgage and expenses. Even if your duplex never goes up in value, at the end of the mortgage, you will have the equivalent of the original purchase price in equity — kind of like a savings account.
- You Control The Results. While we can’t control everything in life, you can reasonably manage the outcome of your rental units by making sure they’re well maintained, clean and a terrific value. That way you won’t have any difficulty keeping your duplex’s rental units occupied and generating rent.
- Duplex Investing Isn’t Subject To The Emotions Of Others. Have you ever noticed how feelings like fear and hope seem to drive the stock market? One day, there’s fear of an economic meltdown and stocks tumble. The next, a jobs report offers cautious reason for optimism, and they rally? Rental income isn’t like that. People need a place to live, and will always need a place to live, regardless of what others are afraid might happen.
- You Can Buy Real Estate With Your Self-Directed IRA. Even if you don’t have enough in your savings account, you may have enough socked away in your retirement account to buy a duplex and realize a larger return than you’re getting with Wall Street.
Who ever would have thought? Duplexes are still a great investment.