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Real estate investing

12th December 2020

Real estate has some serious advantages over other investing strategies. Here’s the top 5 reasons to start investing in real estate.

REASON #1 TO START INVESTING IN REAL ESTATE: IT’S A HEDGE AGAINST INFLATION

For many of these traditional investment options, inflation is a serious concern and a serious problem.

When it comes to stocks, bonds, mutual funds, and CDs, investors need to consider how constant and compounded inflation factors into the equation. Even if the value rises over time, those increases may or may not keep pace with inflation.

The average annual inflation rate is about 2%. If your investments aren’t gaining more than 2% a year in value YOU’RE LOSING MONEY.

Real estate investing has a natural hedge against inflation.

Property naturally reacts in proportion to inflation. When inflation rises, rents and home prices also rise. The end result is that your investment is always in-step or ahead of the real-time marketplace trends and values. That keeps you from having to worry about the long-term value of your real estate investments should you choose to buy and hold.

REASON #2 TO START INVESTING IN REAL ESTATE: THE POWER OF LEVERAGE

Another huge perk real estate offers you is the ability to leverage funds.

In real estate investing, you’ll be able to put down a small percentage of the purchase price or zero dollars if you opt to wholesale, or use other people’s money, and walk away with the investment in full.

In other words, you’re buying hundreds of thousands of dollars in real estate for a fraction of the price.

Real estate is the only investment vehicle where you can put just $20K down and own a piece of property worth $100K. Many new real estate investors opt for exit strategies that require little to no capital, taking full advantage of leverage to make their investing goals an immediate reality.

Should you opt for an alternative method and need to finance your purchase, you’ll also have the added benefit of building equity. Each payment you make toward that loan helps you boost your wealth and create equity.

REASON #3 TO START INVESTING IN REAL ESTATE: THE CASH FLOW!

Real estate has the unique ability to create significant long-term cash flow. For many, this is the single-biggest reason to invest in real estate. There’s no limit to your annual or ongoing returns. It’s not uncommon for long-term real estate investments to return 15%, 20%, 30% or more yearly.

If you’re wholesaling, hone your search and negotiating skills and it’s not hard to flip a contract with a jaw-dropping assignment fee of $10K, $20K or even $50K or more in just a few weeks time.

REASON #4 TO START INVESTING IN REAL ESTATE: DIVERSIFICATION

Real estate investing has also become central to countless investors’ diversification strategies. Since the 2008 recession, stock market participation has experienced a double digit dip, with just half of Americans investing in the stock market today.

People lost big during the recession, so now they’re being smarter and more strategic about their investment portfolio. For many of Americans, that means integrating real estate into their financial mix.

Given the significant differences and influences in real estate versus traditional investments, it’s easy to see how integrating properties can safeguard your wealth in the short and long-term.

Bringing in real estate investments instantly diversifies and balances your portfolio. By integrating a variety of assets and investments, you’re mitigating risk while setting yourself up for maximum returns.

REASON #5 TO START INVESTING IN REAL ESTATE: THE TAX ADVANTAGES

Then, there are the unparalleled tax benefits of investing in real estate. Not only are there lucrative (legal) ways to mitigate losses, but there are seemingly endless tax incentives, write-offs, perks, and deferments. These include:

Significant Deductions

As a real estate investor, it can feel like there’s no limit to your welcomed write-offs. Tap a real estate-friendly accountant, advisor or bookkeeper and they’ll be able to steer you toward a variety of deduction opportunities, including some that may be market or exit strategy-specific.

These deductions could include:

Travel Expenses, Employees, Freelancers, Vendors and Independent Contractors, Office Expenses, Marketing Fees, Self-Employment Taxes.

Depreciation On Investment Properties

Over time your property will naturally lose value because of basic wear and tear.

That’s depreciation.

While everyone expects depreciation on a property, wear and tear leads to necessary repair work or cosmetic upgrades (like paint, hardware, and tiles). Once incurred these costs can be deducted.

In the meantime, though, you can deduct depreciation using the Modified Accelerated Cost Recovery System (MACRS).

On a single residential property, for example, an investor can deduct depreciation for 27 ½ years. For a commercial property, that number jumps to 39 years. Even if you’re making money on the property, you can still deduct for depreciation.

Capital Gains Considerations

Whenever you flip a property, you’re generating capital gains.

Capital gains are profits generated when a property or major investment is sold.

Typically, these profits are taxed as short-term capital gains or long-term capital gains depending on how long you held them.

And, from there, there’s also a capital gains exclusion, enabling homeowners to forego paying taxes on some profits from their real estate transactions. If losses are greater than gains, you can also offset other income!

Taking Advantage of The 1031 Exchange

While not as well-known, the 1031 Exchange is a great way to keep your real estate investing moving forward while mitigating some of the hefty expenses. Under this tax code, investors can “swap” one real estate asset for another, without paying taxes on the sale.

In other words, if you take advantage of a 1031 Exchange, you can take the gains from one investment sale and immediately apply it to another purchase and not pay taxes until you sell this second property.

I hope this will help you invest in your first property.

Comment Below and Let me know, and of course feel free to contact me any questions you might have about getting started.

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