Real Estate Benefits Of Investing

Reap the real estate benefits that come from investing in real estate. Real estate is the IDEAL investment and a great legitimate home business, here is why.

Income

Income is the first one of the real estate benefits that comes from investing in real estate. Investment properties generate income. Even land can in some situations. Rent is the primary source of income. You can rent out apartments, single family homes, retail space, parking lots, mobile home park lots, condos, warehouses, farms, and industrial buildings, to name a few.

Other sources of income from rentals, include laundry facilities, parking, garages, storage, etc.

The biggest challenge in rental properties is getting enough rent to create a positive cash flow. If you cannot collect enough rent to cover your expenses, you will have an alligator. Alligators, or negative cash flow, can eat you alive. So buy right to avoid this critter.

Depreciation

Depreciation is the second one of the real estate benefits that comes from investing in real estate. Depreciation is a "paper loss" the IRS allows real estate investors to take to offset the real depreciation caused by wear, tear and obsolescence.

Currently, residential property can be depreciated over 27.5 years on a straight line basis. Commercial property is depreciated over 39 years on a straight line basis.

For example if you buy a duplex for $200,000 whose land value is $50,000, you can depreciate $150,000 for 27.5 years for a depreciation "write off" of $5,454.55 annually.

Land cannot be depreciated. Condo units can be 100% depreciated because there is no land value. So for tax reasons, you want more building than land.

All buildings will depreciate. Real estate appraisers will measure the amount of depreciation when they do a market value appraisal.

Laws can change anytime Congress convenes, so check with your CPA or tax advisor for current IRS rules.

Equity Buildup

Equity buildup is the third one of the real estate benefits that comes from investing in real estate. Every time you make a loan payment you can be creating equity buildup. A fully amortized loan consists of two parts, principal and interest.

The more principal that you pay, the quicker equity buildup occurs. The nice thing about equity buildup is, your tenant is the one who is actually paying you for this equity buildup. So treat them nice. They are your customers.

The equity in your property can become collateral for a loan to buy more property or to pull out as "tax free" money. Loans are not income, therefore they are not taxable.

Appreciation

Appreciation is the fourth one of the real estate benefits that comes from investing in real estate. Historically, real estate in a free market system will appreciate over the long term in good locations.

"Buy land, they aren't making any more" as Will Rogers use to say. The law of supply and demand is the main cause of appreciation. As the population increases, there is more demand for a finite amount of available properties. This drives prices up.

Inflation will also drive the value of your property up while the building depreciates through functional obsolescence. Older properties and properties in bad locations will not appreciate as fast, if at all, in comparison with desirable properties in desirable locations.

Remember, the three most important things about real estate is location, location, and location.

Leverage

Leverage is the fifth one of the real estate benefits that comes from investing in real estate. When real estate investors speak about leverage, they are referring to the amount of money it takes to control or own a property. The more leverage you have (the less money you invest), the higher your ROI, or rate of return, on your investment is.

Let's say, for example, that you buy a duplex for $200,000. You put 10% down, or $20,000. Your down payment is your leverage. You are controlling an asset worth $200,000 with only $20,000.

If the value of your property increases 10% in one year from $200,000 to $220,000 what is your gross ROI? Well if you paid all cash, your investment would grow only 10%. If you put 10% down or $20,000, your ROI would be 100%. Put nothing down, your ROI would be infinite.

Leverage is a two-edged sword. If property values decreased in a market down cycle, then you would lose an equal amount if you have to sell in a down market. So be careful.

Learn how to protect your real estate portfolio by not holding title of every property in your name or business entity. If possible, diversify by owning property in different market places. That way, if a major employer leaves town, the resulting decrease in value will not affect all of your holdings.

Conclusion

As you can see there are many real estate benefits that comes from investing in real estate. But the only way to take advantage of them is to own or control real estate. So start your legitimate home business today by investing in real estate.

As Robert G. Allen would say, "Don't wait to buy real estate, buy real estate and wait." I agree with him, when he describes real estate business as the "IDEAL" wealth creator.

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