Are you still on the fence about investing your hard earned dollars in to income producing real estate? You can keep sending your money to Wall Street and be subjected to the highs and lows of your money constantly going up and down, and in many cases invested in to something you don’t know anything about. Even worse, it could be invested in a company that goes against your values.
Or you can control your own destiny and invest your money in one of the safest and surest ways of making you more money, which is income producing real estate.
Below I explain all the ways real estate can make you money, and in many cases all at the same time. You definitely don’t get this with your money when Wall Street has it.
- Tax Advantages
I am not a CPA, so I am not going to provide you tax advice. However, I will tell you that when you own income producing real estate you are now operating a business. And businesses get tax advantages that an indovusal W2 employee do not have.
The most taxed income you make is from a W2 job. When you have income producing real estate you can use some of the following to reduce your personal taxes.
A. Depreciation: is the incremental loss of an asset’s value, generally due to assumed wear and tear. As a real estate investor that holds income-producing rental property, you can deduct depreciation as an expense on your taxes. That means you’ll lower your taxable income and possibly reduce your tax liability.
B. Pass through deduction: Allows you to deduct up to 20% of your qualified business income (QBI) on your personal taxes.
C. 1031 exchange: This is when you own a income producing property and you sell it. The money you make above and beyond what you paid for it, you wont have to pay taxes on it as long as you invest that money in another similar property within a certain time period. I recently did one of these myself. Very simple process. Just make sure you let everyone know at the very beginning what you are doing and then find an attorney that can assist you with it.
D. Write offs: This is the biggest tax benefit. You get the opportunity to deduct any of the expenses tied to owing the real estate. All of the insurance, taxes, interest on the mortgage, maintenance, etc. Additionally, you can deduct any of the expenses accrued to operate the real estate business. Thing such as advertising, office space, business equipment, etc.
All of these deductions lessen your taxable income from your W2 job.
As i said, I am not a tax expert so please consult your CPA before purchasing income producing real estate.
- Principal pay down: This is the big one. If you buy the right real estate with the right terms the tenant will pay your mortgage each month. Which means they are paying down the loan for you.
- Market Appreciation: This is the one that is not talked about enough. Real Estate historically doubles every 20 years, and in the case of the last three or four years, this has been exponentially increased. Now, the last few years are historical highs for real estate.
We all know that property values have and will continue to go up. Which means your wealth is going up as well. Because as you owe less, and the property is worth more than you paid. You make money.
Typically the fed tries to keep inflation around 2% a year. Which means your real estate even if there is no market appreciation at all, will typically go up each year by no less than 2%, just because of inflation and the cost of everything has gone up.
- Cash Flow: In an earlier post (see here) I talked about cash flow and cash on cash return. As you can see above with the other ways income producing real estate can help you make more money or save you money, my hope is it is providing you additional income on a monthly and yearly basis as well.
Different people have different strategies when it comes to owning investment real estate. I call it income producing, because I want it to provide some cash flow over and above the costs of owning it, in addition to the other benefits of it. However, some people will invest in an asset and in some cases may take a loss on a monthly basis hoping that the assets value will increase significantly making the losses the incurred early on in owning the asset is wiped out.
Again people have different strategies for their investment goals. You have to decide them for yourself.
My mentor says it like this. “Don’t wait to buy real estate, buy real estate and wait.”
As you can see from all the ways above that real estate can make you money, it is not a get rich quick scheme. When you decide to buy your first income producing property, you must think long term especially in todays market.
Real Estate has created more millionaires than any other business.
What are you waiting for?
To your success and your future.
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