There are other, more lucrative ways to invest money than keeping it in a savings account. According to CNN, the average annual percentage yield (APY) of U.S.-based savings accounts is just 0.06 percent. Entrepreneurs who are looking to get the best return on their money should consider an alternative investment vehicle, such as real estate. Following these five tips will help entrepreneurs make smarter real estate investments that drive profits.
Create a strategy
First and foremost, entrepreneurs should create a strategy for investing in real estate. Buying and restoring neglected properties, for example, often yields profit margins of 10 percent to 15 percent. Another investment strategy is to purchase property so that it can generate rental income. Once you have a strategy in place, you can begin making your investments.
Maximize tax deductions
Entrepreneurs of all businesses are allowed to deduct products or services used to facilitate their business’s operations from their taxes, and real estate investors are no exception. Many real estate investors are surprised to learn that the Internal Revenue Service (IRS) allows them to write off depreciation. Other deductions available for real estate investors include interest on loans, repairs, property taxes, and transportation.
Target the right area
Location can make or break a real estate investment. Purchasing a home or property in a location with declining property values and an increasing crime rate, for example, may lower the value of an investment. On the other hand, areas in which property values are increasing and crime rate decreasing will have a positive impact on investment returns.
Use the debt snowball method to pay off loans
Due to the high cost of real estate, most investors finance their purchases using loans. When seeking loans, however, investors should use the debt snowball method. This method involves paying off the loan with the highest interest rate first while making the minimum payment on all other liabilities. After off the high-interest loan, the investor can focus his or her attention on the next-highest loan.
Form of a network of professionals
Real estate investing isn’t a one-person operation; it requires a team of people. Investors should form a network consisting of real estate agents, lenders, appraisers, home inspectors, contractors and notaries. When the investor needs a service, he or she can reach out to the appropriate professional.
The real estate market offers high yields for savvy investors. Whether an investor plans to flip homes or generate rental income, following these tips will help them succeed.