Big Benefits of Investing in Real Estate
Published on: Friday, December 18th, 2015
A Few Big Benefits of Investing in Real Estate
There is no question that fortunes have been made in real estate. From Robert Kiyosaki to Donald Trump to your next-door neighbor, people have made money investing in real estate. Why do people choose to invest their money in real estate? They invest their money because of the tremendous advantages of owning real estate.
They make money when they buy. They make money when they own. And, they make money when they sell. As a real estate investor, you can also take home more of what you make by its favorable IRS tax treatment.
Today, we’re going to explore the top benefits of real estate investing.
Cash flow – Cash flow is the income that is generated by the property after paying all expenses. It is created by rental income. It’s much like a stock that pays a dividend every month you own it. This is the income you can bring home each month after you collect the rent and pay all the expenses of the property. It’s one of my favorite advantages of owning investment real estate.
Leverage – Leverage gives you the ability to own a property even though you may only pay cash for a small percentage of it. Leverage allows you to minimize your out of pocket costs and control larger amounts of property. It also allows you to accentuate your return on investment. It also allows you to control large investment properties with less money. This is a major advantage to real estate over other asset types. See our article on Leverage for a more detailed explanation.
Appreciation – Appreciation is the increase in value over time. Appreciation in investment real estate can occur due to inflation, supply and demand factors, capital improvement, and by raising income or lowering expenses over time. Small changes in an investment property over time can increase an investment property’s value significantly. This increase in value is called Appreciation. Appreciation can be realized by an investor when they sell or refinance their property.
Principal Pay Down – Principal pay down is an automatic benefit you receive if you finance your investment real estate. Every month you receive this benefit when you collect rent from your tenants and make your loan payments. When you make those payments, a portion of the payment goes to pay interest on the loan. The other part of the payment goes to pay down the loan and create equity. When you sell or refinance the property in the future, you receive the principal that has been paid down.
Tax Benefits – One of the biggest reasons people invest in real estate is for the tax benefits. These tax benefits are granted by the government, allow you to keep more of the money you make, and minimize your taxable income. Tax benefits in real estate can consist of depreciation, business expense deductions, tax deferred exchanges, and investing tax free with your Self Directed IRA.
As you can see, there are several great advantages, other than cash flow, that come from commercial real estate investing. Cash (flow) is always king, but the others aren’t too shabby either.