Investing In Real Estate

One of the few assets that have shown continuous appreciation over time. Over the past 20 years we have averaged 4% appreciation growth and is a significant reason why the wealthy hold real estate as a significant asset and inflation proof tool.

Most tangible assets are depleted through usage over their lifespan. The wear and tear reduces the value as time passes. The IRS allows you to deduct a specific amount from your taxable income every full year you own and rent the property.  You cannot depreciate your primary residence.  Depreciation can help investors spread out the purchase price of a property and repairs/capital improvements, over a number of years and allow you to claim deductions during those years. This is a type of deduction that reduces the investor’s taxable income. Being recognized as a real estate professional has significant advantages particularly when taking passive losses on active income. Speak to your CPA about whether you can take advantage of cost segregation or other advanced depreciation methods.

The power of leverage is that it boosts your returns on your financial investments, so that you can build wealth in a sustainable way. The cost of debt financing in a mortgage is usually cheaper than the unleveraged returns a property can generate. Real estate Can be purchased with borrowed money. You don’t have to have 100% of the cash to buy this asset. Down payment assistance programs exist if you wanted to owner occupy a multi-unit property as your first property. Leverage is the primary reason why investors choose real estate and banks are eager to lend on homes and property.

Take your total gross rental income minus vacancy, taxes, insurance, maintenance, utilities, and all expenses gives you Net Operating Income. Then if you have a mortgage or lender debt, you subtract that for Before Tax Cash Flow. Cash flow is the performance on the investment and the money available to distribute at the end of the month or year. Positive cash flow is often set aside as reserves for future development, tenant expenditures, improvements, etc.