By Marybeth Matzek
When thinking about mutual funds, 401(k)s and bonds might come to mind. But there’s another investment that delivers both immediate rewards and long-term value: real estate.
According to realtors and investors Lynn Holley and Mari Slobounov of Living in Madison Real Estate Group powered by Keller Williams Realty, this goes beyond your primary residence and includes additional properties, whether you purchase a vacation home, a home you rent out for short-term stays or a long-term lease, or a multi-family residence.
“Investing in real estate can be a lot of work, especially if you are managing a property yourself, but the upside is enormous,” Holley says.
That upside includes monthly income if you’re renting out property and an average property appreciation of 4.5% per year, according to the real estate website Zillow. Depending on where the property is located, that number could be a lot higher. Real estate investors also benefit from multiple tax advantages, including deducting expenses such as mortgage interest, property taxes, maintenance and insurance. Slobounov says investors utilize depreciation, a non-cash deduction that lowers a person’s taxable income on paper, but she says, “It’s always best to consult your accountant prior to making a purchase to fully understand any tax advantages specifically pertinent for you.”
People buy investment property for several reasons, whether it’s a vacation property, a property that could be used as a short-term rental (like an Airbnb) or a long-term rental.
Holley points out communities in the Madison area have different rules about Airbnbs, so investors need to make sure they understand them before any purchases.
“Airbnb has a lot of strict rules to keep that five-star rating so it could wind up being a lot more work than what you expect,” Slobounov says.
In the Madison area, there is a lot of interest from real estate investors, whether it’s long-term investors or first-time investors, Slobounov says. “Properties are definitely getting more expensive, but people can still get a good cash flow from them,” she says. “Buying a property is an appreciating asset. I advise anyone interested in real estate to talk to a tax specialist or an accountant.”
Buyers of second properties should be prepared to put 25% down and have funds in reserve for any home issues that might come up after the sale.
Holley says that, while property prices are higher in Madison, they are often lower in surrounding areas.
“Most investors are excited and have a plan. If you buy right, you can later sell the property and make money on it that you can then put into your next property,” she says. “It’s important to surround yourself with people who have experience.”
SEEKING ADVICE
While real estate can be a good investment, Holley is quick to point out that it’s also not a one-and- done purchase, because a property requires constant maintenance.
“Some people have zero clue about owning investment property. If you’re managing the property — which is usually how it is when you start out — you need to understand leases, deal with tenants and answer midnight phone calls when the toilet doesn’t work …” she says.
Slobounov says investors should be able to handle minor fixes or have people on call who can help.
“One of the best pieces of advice I received when I got into investing was forming an LLC and getting an umbrella insurance policy,” she says.
Holley says her key advice to novice real estate investors is “to find a mentor with experience in investment properties who can walk you through the process and give you advice. You also need to think about the true cost of the investment. It’s not just the purchase of the property. It’s pest control, lawn care and how much of your time will it take to manage the property. These are all things to keep in mind.”
