Maduka Nweke, [email protected] 08034207864, 08118879331
Rarely do many people appreciate the scope of real estate and really do not understand the various ways such investments can boost returns. Some believe that real estate stops at building of estates and homes for rent or sale. Of course, there are more to it that meets the eyes of those who are not creative. A lot of people are into real estate to build, some are in it to sell, while many more are in it for other lucrative job opportunities. The moment you think of real estate, there are a lot of things that come to mind including buying land, inviting surveyor, planner, using architect and the use of building materials.
When you think about buying real estate, the first thing that probably comes to mind is your home. But physical property can play a part in a portfolio too, especially as a hedge against the stock market. However, while real estate has become a popular investment vehicle over the last 50 years, buying and owning brick and mortar is a lot more complicated than investing in equities and bonds. In order to understand the topic more – real estate – there are some factors to examine as the leading options for individual investors. Some of these are:
Basic rental properties: This is an investment that is as old as the practice of land ownership. A person will buy a property and let it out to a tenant. The owner, (the landlord), is responsible for paying the mortgage, taxes and maintenance of the property. Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the US Census Bureau, real estate in the country has consistently increased in value from 1940 to 2006. While there was a dip during the subprime mortgage meltdown of 2008 to 2010, however, it has now rebounded and has been increasing overall.
Once the market starts to rebound, investing in real property also becomes a more appealing idea, either as a career or a great side job. Like any other endeavour, though, there is a right way and a wrong way to go about it. In these regards, bank rate determines what is believed as full-time real estate investors and with professionals, such as bankers, to identify the types of traps into which real estate investors most often fall. It is observed that most business owners shrug off this concept after the downturn in real estate values, but a lot of facts are there that will hold your interest in investing in real estate. Some of them are listed below:
• Gain more leverage: Real estate is one of the few investment vehicles where using the bank’s money couldn’t be easier. The ability to make a down payment, leverage your capital, and thus increase your overall return on investment is incredible.
• Grow, tax-free: Buying rental property based on speculation of its value is a dangerous tactic since cash flow is the key. However, appreciation over the long-run is certainly realistic and at the least you should be considering a tax-deferred strategy. In the future, you may even consider an exchange, charitable trust or an instalment sale to lesson your tax liability further.
• Tax-free cash flow: It is no secret that because of depreciation and mortgage interest deductions (if you leverage your capital), your cash flow should be tax-free. That is right because majority of the time, an investor will never pay taxes on their cash flow and can wait for capital gains on the sale of the property in the future.
• Tax write-offs against your other income: Depending on your classification as an active investor or real estate professional and your income level, there is a good chance your rental property will not only give you tax-free cash flow, but an overage of tax deductions you can use against your other income. With that said, this is something you could discuss with your tax professional before investing so your expectations will be realistic.
• Increased tax deduction strategies: Rental property affords investors another incredible opportunity to convert personal expenses to potentially valid business deductions. Don’t forget that rental real estate is a business. This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.
• Rental real estate is a forced retirement plan: Because real estates are long lasting tangible products, it is possible that one can build a house at the age of 50 years and the proceeds from the house can be there for the person to reap even post his death. This is more when the property owner also owns the land. At this time, the children of the owner could, as a matter of fact, decide to lease the land to someone who is not a family member for use. However, buying a rental property is a significant commitment that you are required to commit to and maintain. You will always be grateful in the long-run when you don’t give up on it and build future cash flow and wealth. There are a lot of successful entrepreneurs and almost everyone of them has taken profits from their businesses over the years to invest in rental property. Based on this fact and the list above, it is consistently urged that clients should buy one rental property a year and already have clients with rental properties earning them money they never imagined they’d have.
