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the unique advantage of real estate investingThe Unique Advantage of Real Estate Investing

The unique advantage of real estate investing is that it allows you to create wealth in multiple ways.

Before we go into this further, let’s look at what a 1st time real estate investor should do:

This Is How You Begin

Here’s what I tell all my clients when they want to begin investing in real estate:

  1. You are starting your own business
  2. Before you buy anything, sit down with an attorney
  3. Before you buy anything, sit down with an accountant
  4. Think long term – take a big picture view

Here’s my point:

  1. If you don’t set this up correctly, it will cost you thousands.
  2. Do you know how to protect yourself legally?
  3. How do you handle tenant issues?
  4. Do you understand what it takes?

Financing Is Different

Banks want a track record of success which 1st time investors don’t have.  As a result, it’s a bit more involved.  You need a great banker who understands income producing property.  As I’ve said, the good news is that a great banker doesn’t cost you more.

Fannie Mae has made it easier to get a loan.  Click on this link to read the article I just published about this.

The Unique Advantage of Real Estate Investing

The unique advantage of real estate investing is that it creates wealth.  If you do the above and set things up right, you’ll end up with a huge gain in several ways.

Passive Income

Passive income is the money you make through investments.  It’s not income from working.  Passive income keeps working for you 24/7  This is a wealth builder because if done right, it just keeps on growing.

Tax Advantages

I can’t talk about this because I’m not a licensed accountant.  What I need to tell you is that there are several unique tax advantages to real estate investing you can’t get any other way.

Equity Growth  

Your tenants pay your mortgage off.  Isn’t that nice?  Over the course of 10-20 years, rent increases create a profitable cash flow while your mortgage is being paid off.  When you retire 20-25 years later, you sell it.  Your gain is several hundred thousand dollars most of us can’t get any other way.

The other option is keep it.  Hire a management company to manage it and keep getting the income it generates.

Tax Free Income

Appreciation + rent increases allows you to “cash out” by refinancing.  This is income tax free.  For example, you buy a $300,000 condo with 20% down for a $240,000 mortgage.  10 years later it’s worth $400,000.  You refinance for $300,000 which your tenant income easily pays for.  After expenses, you have $50-55,000 of tax free income.

1031 Exchange

1031 Exchanges allow you to see your 1st property and use the profit tax free to buy another income producing property.  The idea is that you’ll keep growing your investment into a bigger and/or better investment.  For example, you sell that 2 bedroom condo at a profit and use that profit towards a down payment on a 2 family house.

The Bottom Line

Investing in income producing property for most of us is the only way to create wealth.  Even if you start in your 40’s, 20 years later you’ll have it’s income or a several hundred thousand dollar gain when you retire.  How else can the average person accumulate so much wealth?

An Apology:

In my previous article, I’d said this would be out last night but our dog hurt his leg.  We were up with him all night and are now back from the vet.  Thankfully it’s not too serious.

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