The short answer is Yes! Real estate investing, when done correctly, is recession-proof, and opportunities abound in a down market. In fact, our investor clients are able to succeed in any market, up or down, whether prices are overheated or flagging.
If you are a real estate investor considering when would be the best time to purchase an investment property, you would be wise to follow trends both nationally and in your target markets to determine when is the right time to buy for you. There are many types of real estate investments, and seasoned investors can pivot between property types, locations, and financing options to find the best and most profitable transactions.
We have many investor options such as fully debt-serviced loans for rental properties, asset-based loans, interest-only payments, and fix-and-flip or construction loans, which can all be leveraged to make smart buying decisions even in an overheated market with accompanying higher interest rates. We also offer hard money options and have the lowest rate guarantee.
One factor to consider is the purchase price.
Successful investors locate “smart buy” properties regardless of whether the market is up or down, and should work with an experienced mortgage broker with a complete tool kit to match the investor with the best financing possible. Cash-out refinancing may also be a smart move to secure new properties in a depressed market when prices for buyers become hot and purchases are primed for future increases in home valuation.
An investor’s job is to identify properties with great upside, whether the property serves to grow their portfolio as a long-term asset, generates rental income, or is the perfect fit for a quick fix-and-flip transaction.
However, finding the right property is only half the job.
An investor needs smart financing to lower their exposure as much as possible, keep monthly payments manageable, and prevent borrowing costs from eating into their profits.
At HP Mortgage LLC, a large percentage of our clients are investors, many with repeat transactions with us. We are told that we have a greater suite of options than any other mortgage company that they have worked with, and our service is second to none. Oftentimes, we assist clients with the purchase of a new property, as well as refinancing their entire portfolio once they learn about all the products we have to offer.
There are also tax reasons for investors to consider buying in this market.
Real estate tax deductions are potentially huge, as the investor is able to deduct expenses such as property management, maintenance, property taxes and insurance, mortgage interest, and the cost of repairing buildings.
Qualified business expenses such as office space, advertising, equipment, legal fees, accounting fees, and travel are all deductible.
The ability to depreciate costs over time.
Real estate investors are able to deduct depreciation as an expense. Depreciation is the incremental loss of the value in an asset, such as for wear-and-tear on an automobile or building. Tax code allows the investor to take the depreciation deduction for the entire expected life of a property, with the length depending on whether it is a residential or commercial property.
Ability to use a pass-through deduction
A pass-through entity such as a sole proprietorship, partnership, LLC, or S-corp is allowed to take a 20% deduction of qualified business income on the individual’s personal taxes. Investors whose businesses are structured as pass-through entities would be wise to take advantage of this provision soon, as it is currently set to expire in 2025 per the Tax Cut and Jobs Act. In order to take this deduction, now is the opportunity for a short-term investment (under three years) in real estate property.
Avoid paying FICA tax.
When you’re self-employed, you generally need to cover both the employer and employee portion of the FICA tax, which funds Social Security and Medicare.
But if you earn rental income, that money is not classified as earned income! Therefore, profits made from rental income are exempt from paying the payroll tax. This is a huge benefit, especially for our borrowers who purchase properties that are debt-serviced, or properties in which the rental value covers the cost of the mortgage. These are highly competitive and convenient financial products for investors, and HP Mortgage LLC has vast experience in assisting investors with this type of loan, whether it is your first investment property or you are a seasoned investor with a large portfolio.
Capital gains tax benefits
If you are an investor that holds a property for over one year before selling, you will take advantage of a long-term capital gain tax rate that is much lower than the standard income rate that is paid on short-term capital gains. Today’s investor should consider holding their investment through the one-year anniversary of their purchase date, although there are exceptions in the fix-and-flip market in which the profit turnaround offsets any negative effect to your tax bill.
Please discuss all these tax considerations with your tax professional when deciding whether real estate investing is for you.
Investors need an experienced mortgage broker who understands the real estate investment business.
While sales price or asset valuation is the bottom line, a good investor recognizes the value of working with an experienced mortgage broker to reduce lending costs as much as possible, freeing up funds to buy more properties, improve existing properties, or refinance existing property loans, such as those investors who are currently in hard money loans and want to lower their interest rate. HP Mortgage LLC works with many successful investors who bring us repeat business, and we enjoy helping our investor clients reap the rewards of their well-planned investment! You will be amazed at the suite of products we can offer to grow or revise your real estate portfolio. Give us a call today!