Why Should You be in the Real Estate Business? Here are 5 Reasons
When you invest in residential real estate, you are getting more than a home or a piece of land upon which to build a home. Real estate investment has become a popular and highly lucrative way for people to make money, and it is not uncommon to buy a house or land without any intention of living there. Some people simply buy and hold property, waiting for it to appreciate in value before re-selling it.
Having cash for a down payment is the quick and easy way to enter the real estate market, but it’s not your only option. Many people have found ways to start investing in real estate with little or no money of their own. Options include borrowing money as well as a number of more unusual and creative paths to ownership. Now, let us explore some reasons why you should be in the business of real estate:
1. You can grow, tax-free.
Buying rental property based on speculation of its value is a dangerous tactic since cash flow is the key. However, appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider a 1031 exchange, charitable trust, or an installment sale to lesson your tax liability further.
2. You can gain more leverage.
Real estate is one of the few investment vehicles where using the bank’s money couldn’t be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.
3. You can build tax-free cash flow.
It’s no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free. That’s right! The far majority of the time an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.
4. There are increased tax deduction strategies.
Rental property affords investors with another incredible opportunity to convert personal expenses to potentially valid business deductions. Don’t forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.
5. Rental real estate is a forced retirement plan.
Americans are terrible savers. We lack the self-discipline to put a monthly deposit into our IRA, SEP or 401k as small-business owners. However, buying a rental property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don’t give up on it and build.
The far majority of us will never get rich overnight. It takes long-term investing and a diverse portfolio to build true wealth. Don’t forget real estate as an important part of the equation.
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