Lakefront Property Investment

Real Estate as an Investment

Real Estate as an Investment

One of the most common questions we get asked as a real estate brokerage is something similar to “What do you think is going to happen with the market?” It’s an understandable question of course. If you could buy more house for the same amount of money just by waiting six months, who wouldn’t? Or conversely, if you knew your new house was going to appreciate by 10% over the next six months, who wouldn’t write an offer immediately? Unfortunately we just can’t say with any certainty what themarket will look like out into the future.

But the conversation doesn’t end there. Waterfront real estate can be a good investment even if short-term price changes are difficult to project. Below are a few key considerations we often discuss with our clients:

Long-term stability – Much like the stock market, housing values are often at an all-time high. That’s the nature of any investment that steadily increases in value over a long period of time. If your plan is to buy and sell within a few years, then you may not benefit from this stability. But the longer you hold the property the less likely you are to take a significant loss. And the most stable properties in the Northwoods of Wisconsin? Houses with frontage on premier lakes. When the market does go sideways, there will still be people who want to own and vacation on the most in-demand lakes. They aren’t building any more of them, after all. Put differently, the
first homes to lose value will be those on the least desirable lakes.

Income potential – To continue the stock market analogy, lakefront properties have the potential to pay dividends while you hold the asset. Dividends get paid without any effort, and there is some work to do in order to earn rental income. But if that cashflow is desirable to you, it’s often an option with lakefront homes. Just remember to check each lake’s rules regarding
renting if you go that route. Whether rentals are allowed on a lake can be found on each lake page.

Diversification – If you’re considering real estate as an investment, this probably isn’t the first investment you’ve made. Your stock and bond portfolio is likely already diversified. Adding real asset holdings may provide a useful hedge against a market downturn, because real estate markets and specific properties are unique enough that they can move independent of larger macroeconomic trends.

Tax advantages – Everyone’s tax situation is different, but there are a couple of advantages that apply to nearly everyone. First, as a real estate investor that holds income-producing rental property, you can deduct depreciation as an expense on your taxes. This lowers your taxable income and reduces tax liability.

When you decide to sell your investment property for a gain, you (still!) may not have to pay taxes on that gain. One of the more common transactions we help clients with is a 1031 Transfer. Internal Revenue Code Section 1031 provides allows you to postpone paying tax on the gain from the sale of an investment property, if you reinvest the proceeds in a similar
property.

Enjoyment – I always remind clients thinking of buying an investment property that there is potential for more than a great rate of return. Even if you’re renting out a house, there will always be a few weeks or weekends when you’re able to enjoy the property like your renters do. Not a lot of other investments can provide entertainment on the weekends.

If you're interested in discussing an investment in real estate, please contact me, and I will share some of my favorite opportunities.