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A property that you buy with the purpose of generating financial returns is called an investment property. This property could be land, a single apartment or house, a block of flats, a commercial or industrial building. Investment properties generate profitsthrough rental income, capital growth or both. Investment properties are generally not used for residential purposes.
You can also generate rental income from your residential home by renting out spare rooms, but this is finding compatible and reliable tenants can be tough. So, buying a separate investment property and using this to generate rental income is usually a better option.
Benefits of Buying Investment Properties
- Investment in property is usually prone to less volatility than shares. The investment in this sector is relatively a safe form of investment.
- The value of your property rises in the long term.
- You become eligible to receive tax deductions. You can include depreciation in the value of the investment property due to wear, tear and obsolescence as deductions in your tax returns.
- You can obtain tax variations and enhance your cash flows.
- You can earn from the rental income.
- You can make use of negative gearing. A negatively geared investment property is one in which the interest on the property loan is higher than the rental income derived from the property. By indicating the difference between the interest and the rental income as losses incurred on the investment, you can get deductions in your tax returns. This is the legal remedy to reduce your taxes.
Ways to Finance for Investment Property
Once you decide to buy an investment property, decide how to finance the property. Home loans or mortgages are normally offered by banks, credit unions or building societies. These institutions offer you a loan for a percentage of the purchase price, with the property secured as collateral for the loan. Loans or mortgages are normally secured with either fixed interest rates or variable/ floating interest rates based on the interest rates fixed by that country’s central bank or finance ministry.
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