Invest Wisely: Smart Home Improvement Choices

There are many ways to invest in your home, from safe choices such as high-yield savings accounts and certificates of deposit (CDs) to riskier options such as stocks and real estate.

If you're looking for a safe investment, consider a high-yield savings account or CDs. These options offer a fixed interest rate and are insured by the FDIC, so you don't have to worry about losing your money.

For those seeking higher returns, investing in stocks, either directly or through exchange-traded funds (ETFs) and mutual funds, is a popular choice. Stocks have consistently proven to be a great way to build wealth over the long term, offering average annual returns of around 9-10%.

Another option is to invest in real estate. This can be done by purchasing rental properties, flipping properties, or investing in real estate investment trusts (REITs) or online real estate platforms. Real estate offers the potential for stable income and capital appreciation but requires more time and money upfront.

Ultimately, the best investment for your home depends on your financial goals, risk tolerance, and time horizon. It's important to carefully consider each option and choose the one that aligns with your needs and preferences.

High-yield savings accounts

• SoFi Checking and Savings: This account combines checking and savings and earns an APY of 3.80% on the money you keep in the savings portion of the account. There is no minimum deposit requirement to open an account and there is no monthly maintenance fee either.
• Discover® Online Savings: Discover® Bank's APY is strong and its website is easy to navigate. The iOS and Android apps receive high ratings and customer support is available by phone 24/7.
• American Express® High Yield Savings Account: The well-known credit card company offers a savings account with a competitive yield, a $0 monthly fee and $0 minimum balance requirement to open the account and start earning interest.
• CIT Bank Platinum Savings: CIT's Platinum Savings account pays 4.35% APY on balances of $5,000 or more. If your balance dips below $5,000, it earns a lower rate of 0.25% APY. There is no monthly fee for this account and the minimum opening deposit is only $100.
• Capital One 360 Performance Savings™: This savings account earns the same rate on all balances. There are no minimum deposit requirements to open an account and no monthly fees. Capital One also offers a checking account that earns interest and has no monthly fees.
• UFB Portfolio Savings: UFB's savings account has no monthly maintenance fee and no minimum deposit. Its rate of 4.01% APY is competitive and the account offers a mobile app where you can access standard banking functions, including mobile check deposits and initiating funds transfers.

Certificates of deposit (CDs)

When considering investing in CDs, it is important to compare rates offered by different banks and credit unions, as the rates can vary. Additionally, it is worth noting that CDs have a fixed date of withdrawal, also known as maturity, after which you can choose to renew the CD at a new rate or close the account. CDs offer a stable way to grow your savings, with the interest earned compounded daily, monthly, annually, or at maturity.

Overall, CDs can be a satisfying and stable investment option for those looking to grow their savings over a fixed period of time. By offering a fixed interest rate and federally insured deposits, CDs provide a secure way to build your financial future.

Dividend stock funds

When investing in dividend stock funds, it is important to consider the tax implications. Dividend income is generally taxable, but there are ways to minimise the tax burden. For instance, holding dividend stocks or funds in tax-advantaged accounts, such as a traditional or Roth IRA, allows investors to avoid paying taxes on dividends and realised gains.

Additionally, it is crucial to be aware of the risks associated with dividend stocks. Dividends are not guaranteed, and companies may cut or eliminate them due to financial difficulties. A high dividend yield could be a sign of an impending dividend cut, and investors need to be cautious when a company pays an unusually high dividend.

Overall, dividend stock funds can be a good choice for investors seeking income and diversification. By investing in a fund, you reduce the risk of picking the wrong company and benefit from the collective performance of a group of dividend-paying companies.

Rental properties

Choosing the Right Property

When selecting a rental property, look for a location with low property taxes, a good school district, and walkable amenities such as restaurants, coffee shops, and parks. A neighbourhood with a low crime rate, easy access to public transportation, and a growing job market signals a larger pool of renters. Additionally, an area with a growing population or a revitalization plan underway represents a potential investment opportunity. Utilize online real estate sites like Zillow.com and Airbnb.com to find information on investment properties and current rental rates.

Financing Your Rental Property

The process of obtaining a rental property loan is similar to that of a primary residence mortgage, with some key differences. Lenders typically charge higher interest rates on rental properties due to a higher rate of default. Underwriting standards are generally stricter for rental property applicants, with a focus on credit score, down payment, and debt-to-income ratio. A higher down payment of 15% to 25% is usually required for investment real estate. It's important to consider your financial goals and savings when deciding between paying cash or financing an investment property.

Operating Expenses and Maintenance

Operating expenses on a rental property can range from 35% to 80% of your gross operating income. It is recommended to set aside 1% of the property's value annually for maintenance and repairs. Other costs to consider include homeowners insurance, homeowners association fees, property taxes, and monthly expenses such as pest control, landscaping, and maintenance. While these costs can decrease your rental income, a 6% return in the first year as a landlord is considered healthy and should improve over time.

Risks and Rewards

Final Thoughts

Investing in rental properties requires a significant amount of time and effort, and it may not be suitable for everyone. It is crucial to conduct thorough research and carefully consider your financial situation and goals before making any investment decisions.

Real estate investment trusts (REITs)

• Types of REITs: There are three main types of REITs: Equity REITs, which own and manage income-producing real estate; Mortgage REITs, which lend money to real estate owners or invest in mortgage-backed securities; and Hybrid REITs, which combine strategies from Equity and Mortgage REITs.
• Investing in REITs: Most REITs are publicly traded on major stock exchanges, making them highly liquid. You can buy shares of publicly traded REITs just like you would buy stocks. There are also public non-traded and private REITs, which are less liquid and typically only available to accredited investors.
• Benefits of REITs: REITs offer stable cash flow through dividends and can provide attractive risk-adjusted returns. They are a great way to diversify your portfolio since they have a low correlation with other assets. Additionally, REITs can serve as a hedge against inflation.
• Risks of REITs: REITs are subject to market risk and potential high management and transaction fees. They are sensitive to interest rate changes and can be impacted by economic downturns and sector-specific challenges.
• Tax Considerations: REITs are not typically subject to corporate income tax as long as they distribute at least 90% of their taxable income as dividends. However, REIT dividends are taxed as regular income, which could result in higher tax bills for investors in higher tax brackets.
• REIT Performance: REITs have historically delivered competitive total returns, with a track record of reliable and growing dividends. Listed REITs are professionally managed and aim to maximize shareholder value, leading to potential long-term capital appreciation.

Frequently asked questions