If you have some extra money in the bank you’re probably feeling like it’s wasted, the bank’s low interest rates mean you are getting nothing for saving it, so how do you put those dollars to work?
If you’ve reached a point where you’re financially ready for a long-term investment, how about an overseas investment option? Long-term investments are a good way to earn passive income to boost what you earn regularly and make life a little more comfortable, either now or in retirement.
Where to invest is not a small decision, especially when there are several options in front of you:
- Real estate – Buying residential or commercial property (or various types of property shares) for lease and resale.
- Stocks – This is when you have partial ownership or equity in a company and can see your money grow as the company profits.
- Bonds – These are loans that a company lends to investors. A company is indebted to you and there is no equity or shares involved.
- Cash equivalents – This is the total value of on-hand cash and current assets. While cash equivalents are good for long-term investments, they’re not ideal for retirement plans because the return on investment (ROI) is pretty low.
While all these options are viable sources of passive income, the most popular investment is residential real estate. Unlike many items on the list real estate investments come with minimal risk, great tax benefits, and consistent appreciation. Real estate is the long-term investment Aussies and Kiwis are jumping on, sending prices soaring, so it’s refreshing to know there is a ready and widely available property market waiting in the U.S.A.
There are a number of benefits to investing in the U.S.A. The perks for residential real estate there are very different to the investment setup you might be familiar with in Australia or New Zealand.
- There are little to no stamp duties
- Mortgage rates tend to be more long-term, giving you more time
- It’s more flexible in general
- Housing prices are significantly cheaper
Because the U.S.A has a denser market there are more residential properties up for grabs and more people actively looking to purchase and rent quality homes, making both flipping properties and leasing them easy sources of passive income.
Prices are currently climbing with U.S.A residential real estate doing well, but it’s comforting to know that even if the spike slows down you’ll still have a stable source of passive income since even in slow periods your investment continues on a gentle climb.
What makes an investment “long-term”?
Long-term investments are ones that are held for more than one year. To see a good return, the usual stance is: the longer the better with people holding on to their investments for decades, even lifetimes. It’s an investment strategy that’s best suited to those who don’t need fast access to their funds and are prepared to wait it out, (perhaps a decade or two) until their investment fully matures.
This is different from short-term investments where investors expect their ROI immediately or within a few months. You can choose this option if you need to meet financial goals ASAP or need fast money to fund other projects. In most cases, these investments are high risk/high gain, while long term investments are usually more predictable rather than risky.
A smart investor understands that long-term investments aren’t going to pay off instantly. A slow rise in value is part of the long-term investment process.
5 advantages to long-term U.S.A real estate investment
If you are already looking at options for residential real estate properties in Australia it’s well worthwhile considering the U.S.A market tool, the benefits will surprise you. While foreign residential real estate investment can seem daunting, these five advantages may help you “think abroader”:
1. Capital appreciation
Property gains genuine value with time in the U.S.A — whilst it can be generally mild compared to Australia and New Zealand, their market is currently appreciating rapidly as more people in the U.S.A are looking for housing and will pay the prices the market sets because of increased demand.
While some people are worried that the U.S.A market may crash, as it did previously during the infamous housing bubble of 2007, better measures have been put in place to control lending so that the property market continues to climb with genuine financial backing.
Investors are benefiting from the wealth effect of the U.S.A market and will continue to as long as demand for housing increases.
2. Tax Benefits
A long-term investment in a U.S residential property comes with special tax benefits. Tax deductions apply on mortgage interest, insurance, property tax and cash flow from the properties themselves.
Repairs, maintenance and even travel expenses can be eligible for tax deductions. While these are attractive, make sure you get a tax professional so you can ensure that you get the best possible deal.
3. Passive income
One of the biggest benefits of U.S. Property. Leasing out your property provides passive income all year round, so long as you keep the investment going and look after it. A big bonus with passive income is that it will keep ticking through without much effort or input from you. In terms of capital gains, the property will appreciate on its own, offering you a better ROI the longer you keep it, in addition to the lease payments every month.
4. Great returns (with minimised risk)
Real estate is considered one of the safest investments worldwide. Because it’s so stable and the population will continue to grow in the U.S.A, people will always be looking for housing, keeping those money wheels turning.
Compared to other long-term investments like stocks and bonds, real estate offers certainty. Property rarely sees the sharp peaks and sudden troughs of the stock market, typically showing a slow and steady climb year-round. As well as traversing the ups and downs of stocks you also need specific skills in order to really get the most out of your investment.
Real estate investment doesn’t require any special skills and it’s suitable for entry-level investors.
5. You’re the boss
A residential property investment is something you’re in full control of. Instead of relying on a company for shares and having them take control of what comes next, you’re the one in charge—you’re the boss. Unlike stocks, once you invest in property, you don’t have to worry about a volatile market that may cause your net worth to dilute overnight. You make your own decisions and take action when you see fit. If you feel a renovation needs to be made, you call the shots. If you want maintenance looked at, you’re at the helm.
Ultimately, it’s your decision and your team on the ground will carry it out for you.
Real estate is an ideal long-term investment because of its steady pace and predictable appreciation with time. While it’s not for those who want instant gratification, it’s a solid way to grow your wealth slowly with the added benefit of passive income from tenants while you wait.
If you want to learn how to start making money from residential real estate in the U.S, give us a call.