Today’s market offers investors a variety of investment means. One of the most rewarding opportunities is real estate investing, which can produce a very good income stream. If you choose to become a real estate investor, you will enjoy several benefits not associated with other types of investments.
Financial leverage is an enormous benefit to investing in real estate. Even if you need to take out a bank loan for your real estate investing, you will often find deals with 10% down payments, so your returns are already magnified ten times. Assume you have $10,000 to invest and can get a 10% return on your investment in any type of investment. In the stock market, $10,000 worth of shares will be worth $11,000 a year later. In real estate, your $10,000 investment, combined with a 90% loan, brings you 10% on the full $100,000 investment, so you finish with $110,000.
So in real estate your $10,000 investment has been doubled, where in the stock market it only produced an extra $1,000. Why is this? Because the lender’s money has been working on your side as well. This is called leveraging and it is one of the most powerful advantage offered by real estate investing. And there are yet other reasons to become a real estate investor that you will also see.
Another incredible reason to begin investing in real estate is the tax benefits. One of the best tax breaks of real estate investing is the REQUIRED depreciation by the IRS on the property. This represents a “paper loss” when in most cases the property (including the land) is actually appreciating. So in essence you pay taxes on a reported profit figure that is significantly lower than your actual earnings – very nice.
A more beneficial tax benefit could be the 1031 Exchange. The IRS code 1031 allows investors to defer payment of taxes on capital gains made through property sale provided that the proceeds are invested in another appropriate property. This great incentive therefore is a step by the government to urge investors to stay in the market.
Another advantage of investing in real estate is the flexibility of sale contracts. You can get very creative with your sale contract offers. There is no limit on what you can exchange for a property, instead of just cash. This can mean greater returns and some fantastic win-win scenarios.
- Scott Roemermann
This entry was posted on Friday, December 18th, 2009 at 9:12 am and is filed under Finance, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.
