Over the last year, Salt Lake County home prices rose 31% and the Greater Salt Lake area ranked #1 in the nation for multiple offers. As a result, many considering real estate investment held off on their purchasing plans. Now that the multiple-offer and bidding wars of early spring are not as frantic, price increases are stabilizing, and inventory is rising, it is a good time to revisit Salt Lake real estate investment. Here are 4 reasons why we think Salt Lake City is still a great place to invest in real estate.
#1 Real Estate Investment is Always a Sound Investment
According to an April 2020 Gallup poll, “Real estate, at 35%, remains the most favored investment to Americans, as has been the case since 2013, when the housing market was on the rebound. More than a third of Americans have named real estate as the top investment since 2016.”
Wealth managers will always advise their investors to vary their asset portfolios. In comparison with stock markets, real estate markets are quite stable. Even if income property prices don’t significantly increase every year, long-run appreciation is in your favor. Investing in real estate also offers these additional benefits:
- Investing with debt is safer with real estate. Through a mortgage, or secondary mortgage, you can use debt to finance your property’s cost with relatively low risk.
- Real estate investments can serve as a hedge against inflation. Real estate ownership is generally considered a hedge against inflation, as home values and rents typically increase with inflation.
- There are tax advantages with property ownership. Homeowners may qualify for a tax deduction for mortgage interest paid on up to the first $1 million in mortgage debt and primary residents avoid capital gain taxes if they sell within certain parameters. Secondary and commercial property investors also gain tax advantages with a 1031 exchange (more information below).
- Investing in real estate is easily understood. While the homebuying journey can be complicated, the basics are simple: purchase, upkeep, charge rent, and resell for a higher value.
#2 Salt Lake’s Population Is Only Expected to Grow
Since 1978, the average yearly home appreciation increase in Salt Lake County has been a steady 5.3%. While Salt Lake home prices dropped 20% during the Great Recession (2008–2011), economic recovery outpaced other comparable cities, and prices rose to pre-recession levels by the end of 2014. The Wasatch Front has seen consistent home-price increases since then, with the incline steeply rising over the last five years. If you bought a home in the Greater Salt Lake area just five years ago, chances are your property has almost doubled in value. Utah’s population is only expected to keep growing: predicted to double by 2050. People are flocking to our city and no one is leaving. Demand from out-of-state investors, out-of-state newcomers, Millennial & Gen Z buyers will only keep rising.
#3 The Tax Advantages of a 1031 Exchange
If you purchase and sell rental or commercial properties, you may be able to avoid capital gains through a 1031 exchange. In real estate, a 1031 exchange is a swap of one investment property for one or more properties as long as:
- The properties are similar.
- The 1031 exchange occurs before close and through a certified 1031 exchange company (that follows strict timing rules).
- The properties in question are not vacation properties.
Although you may have a profit on each swap, you postpone paying tax until you sell for cash many years later. Then, if it works out as planned, you’ll pay only one tax, and that at a long-term capital gains rate. Or you can transfer the property to a trust at a significantly lower rate. And investment properties can earn tax breaks through depreciation, or writing off wear and tear on the property. If used correctly, there is no limit on how many times or how frequently you can do 1031 exchanges. A 1031 exchange can be used by savvy real estate investors as a tax-deferred strategy to build wealth. The many complex moving parts require an understanding of the rules, and even seasoned investors profit from enlisting the help of professionals.
#4 Invest in What You Know
The simplest path to wealth is to invest in what you know. If you would like to know more about Salt Lake real estate, give us a call. We can help you brainstorm and develop a real estate wealth plan, then sync you with reliable lenders, tax experts, 1031 exchange companies and other professionals to grow your real estate investments.
Feature image: Olympus Hills property leased through Niche Homes.