Whether you own your own home or rent an amazing apartment you don’t want to leave, you can still take advantage of buying San Francisco real estate while the market is soft. Because of rent control, there are some limitations; however, there are market sectors that are less regulated – properties built after 1979, most condominiums, single-family homes, and others. If you invest in San Francisco property with the intention of renting it out, then it is important to keep up with the rent control ordinances and follow the rules.

It is common to buy and hold stocks, so why not do the same with real estate? I am not suggesting flipping the property or a get-rich-quick scheme; slow and steady wins the race. If you look at the history of real estate values in San Francisco, you will see a steady upward climb. As with stocks there can be bumps in the road, but in the long term, real estate in San Francisco has always been a great investment.

Here are five ways to make a profit by investing in real estate. Please consult with your tax professional to see how each may apply in your particular situation.

1. Tax-deductible interest. All of your investment property mortgage interest is tax deductible, which is important to remember at tax time. 

2. Depreciation. Again, at tax time you can take a 1/27.5 deduction on the value of the building (not land). For example, if your investment building value is $800,000 then you will get a depreciation write off of $29,091 each year for 27.5 years. This is not cash out of your pocket but depreciation assigned by the tax code.

3. Appreciation. Even though the tax code calls for depreciation, in San Francisco it is most likely your property will actually appreciate in value, in spite of anything you may hear about the current market. Appreciation has historically been a big part of property ownership and will likely be again in the future.
 
4. The 1031 exchange option. As an investor you can postpone paying tax on appreciation when you sell if you choose a 1031 tax-deferred exchange into another investment property. Although you cannot do this with your principal home, you can exercise this option repeatedly with investment properties.

5. Rental income. If your investment property is a rental, depending on your property’s expenses, you may actually create a positive cash flow and generate additional income.

Some people avoid investment property because they think it will be too much work to manage, but there are professional property management companies that can take care of maintenance, rent collection and other matters. Although you will pay a fee for these services, consider that the longer you own, the higher the rent, so the less the property management fees will impact your bottom line.

If you have ever considered purchasing real estate investment property, now might be a good time to consider making the move.

Stephanie Saunders Ahlberg has been a real estate agent for over 30 years and joined Hill & Co. in 1983, where she has consistently been among the top 10 salespeople. She can be reached at www.realtyinsanfrancisco.com.