It is no secret that real estate can create more wealth than a lot of other industries in the US. This is particularly true when a long-term investment strategy is used. Even modest growth in real estate will have a tremendous positive impact on an individual’s net worth. Long-term real estate investing allows you to capitalize on the two key elements that distinguish real estate from other investment vehicles. These elements are leverage and taxes.
We recognize that many people are interested in real estate investments but do not have the time, knowledge or experience to make smart, long-term real estate investments. Real estate investing can be can be quite intimidating and there are many challenging issues to consider such as:
- First, they are sizable investments
- It is difficult to know which properties make the best investments
- It is difficult to predict future appreciation
- Cost over runs on renovation work
- Being a landlord is not an easy or a gratifying endeavor
We specialize in helping investors purchase real estate investments that instantly create positive cash flow, and have a very positive upside for future appreciation.
Some of the advantage of owning real estate are:
Real estate uniquely offers the opportunity for “leveraged” investing. Leveraged occurs when a large portion of an asset is financed with debt, and a minimal amount of cash is invested in relation to the total asset value. This allows an investor to acquire real estate assets with little cash out of pocket.
Real estate investing offers extraordinary tax advantages not available with other types of investments. You will have little, if any, taxable income from your investment in real estate before you sell it. In addition, when you sell your real estate investments there are many opportunities to defer the gains. Below are some highlights of the tax advantages available to real estate investors.
Basic Deductions: Nearly all expenses associated with the purchase, sale and management of the property are tax deductible. Some of the common deductions related to real property include: closing costs, mortgage interest, travel expenses, repairs & maintenance, property taxes, homeowners association fees, advertising, insurance, supplies, management fees, and utilities.
*Depreciation: Depreciation is an extremely valuable deduction available for real estate investments! The value of the structure on a property (not the raw land) is “depreciated” evenly over 27.5 years. This deduction costs the investor NO CASH and it offsets most, if not all, of the rental income generated from the property. Depreciation can often exceed the amount of income generated and allows the investor to show a loss on the investment, even while it generates positive cash flow. For example, a home is valued at $200,000, and $150,000 of the value is related to the structure. The annual depreciation is $5,455 ($150,000 / 27.5). If the home cash flows $200 a month for an annual positive cash flow of $2,400, the investor will pocket the $2,400 cash and still claim a loss on the investment of $3,055 ($5455 – $2,400).
*1031 Exchange (Like-Kind Exchange): A 1031 exchange offers investors the opportunity to defer taxes on real estate gains by reinvesting the gains in similar real estate investments. When a property is sold through a 1031 exchange, the investor can claim ZERO gains if the proceeds are re-invested within 6 months. This is a powerful tool for the serious long-term real estate investor, as it can produce significant tax deferrals and savings.
* These are guidelines, please consult a tax adviser for qualified tax advise