"90% of all millionaires become so through owning real estate." - Andrew Carnegie
Why should you become a real estate investor? There are, after all, many different ways to make more money in life. Statistics re leased by the foremost authority on personal finance, the Inter nal Revenue Service, revealed that the majority of personal wealth of US taxpayers is held in real estate. Has the thought of running your own business, being your own boss, or calling your own shots ever crossed your mind? The IRS further points out that the most likely way for anyone to become independently wealthy in one lifetime is through entrepreneurship and through owning your own business. Opportunity seekers can spend countless hours researching the best paths for making money. If you are one of those people, you can stop your research. Becom ing a real estate entrepreneur provides you with the highest probability for economic prosperity.
One of the reasons why real estate is so good for making money is that it is the IDEAL investment.
Income: Real estate can provide you with steady, tax advantaged income, often referred to as cash flow. You can rent real estate to a tenant. Overtime, rental payments from that tenant can payoff your mortgage, cover any property management and maintenance costs, and can still leave enough for you to have a steady income as well. Although there are other invest ments that provide steady income, such as bonds, and stocks that offer dividends, real estate typically provides a larger amount of income than bond coupon payments or stock dividends and is more tax advantaged.
Depreciation: This term is used for tax purposes and is of great value to real estate investors. To illustrate the concept of depre ciation, think of the life span of a t-shirt. After being worn and washed, over the course of several years, it deteriorates. Al though you may have t-shirts that have lasted decades, the av erage t-shirt probably lasts a couple of years. For determining how much you will pay in taxes on your real estate investment, the IRS has recognized that the structure of a property (not the land, just the structure) deteriorates too, and they set the life span of a residential rental property at 27 12 years. Does a well maintained house simply crumble to the ground after 27 ¹/2 years? Of course not. But for determining how much you will be paying the IRS, whatever you bought the property for (mi nus the land), can be depreciated over 27 12 years.
Example: You buy a $100,000 single family home and the land is worth $10,000. That means, for tax purposes, your tax basis (what you bought the structure for) is $90,000. When you di vide $90,000 by 27 12 years, you get a tax deduction of $3,272.73 per year for depreciation. If that same single family home has a positive cash flow of $270 per month, or $3,000 per year, you get to add an additional expense to that property in the form of depreciation for $3,240 and therefore, in this ex ample, you don't have to pay any income taxes on the $270 per month you were bringing in! This is how real estate rental in come is so incredibly tax advantaged.
With all the tax increases and unfair taxing rules, why would the government continue to allow this deduction for real es tate investors? The government is giving people an incentive to be real estate owners. They want you investor. be a real estate
Equity: When you buy real estate, you have the opportunity to purchase property at a price lower than its market value. When you get a good deal, the difference between what you bought it for and what it is worth is called equity. The old say ing, "In real estate, you make your money when you buy," ap plies here. When you buy a property well below market value, you instantly get equity.
By comparison, publically traded stocks are purchased at mar ket value. The market may be undervaluing or overvaluing the stock at the time of purchase, but either way, at the exact mo ment a stock is purchased, the price paid is what the market will pay for it. With real estate, however, you can buy a proper ty well below market value and literally turn around and resell that same property for tens of thousands of dollars more a few moments later. We do this quite often, actually.
Appreciation: Over the course of the last hundred years, stud ies have shown that overall, residential real estate has kept pace with inflation. In some areas, residential property values have even appreciated above and beyond inflation. For wise and educated investors, appreciation is an added financial bonus to being a real estate owner, not the reason to buy prop erty. Since predicting the future has proved to be a difficult task, buying real estate based on the other factors outlined ear lier is a far better decision then betting on if or when a proper ty will appreciate. You can only benefit from real estate appre ciation if you own it. Therefore, owning as much real estate as you can wisely can you give the best profitability of gaining from appreciation.
Anastasia Lozhkina , REALTOR®