Why Invest in real estate

Why invest in real estate?

Well I have read over and over again that their are more millionaires made in real estate that in any other field. I don't have the data to actually support this, but I can look at a list of rich people and almost all will be involved in real estate.

But why is it so lucrative?

Leverage - in real estate unlike anything else you can invest in, you can gain control a piece of property for very low money down and many times no money down. You can even profit from it with out every owning it with options.

For example: House worth $100,000 can fairly easily be purchased with $20,000 or 20% down and with good credit be purchased with $10,000 or 10% down. And if you are really creative in the way you acquire it, you could obtain control or ownership with no money out of your pocket - we will talk about no money down in a later post.

Appreciation - ok so the market is not that hot right now with actual depreciation. But if you look at historical averages, the property will increase in value in the long term - 5 years or more. Look at the historical appreciation in your area to see how the value of a property can increase.

Someone Else Pays the bills - This is where real estate really gets fun. You acquire a property with very little or no money down. You get a mortgage to pay for it over time. Then you go find someone to rent it from you. The rent pays the mortgage - someone else buys the house for you in essence. You may have a few months of vacancy here and there, but for the most part as the property is appreciating in value, your tenants are reducing the amount you own on the mortgage with their rent payment every month.

Cash Flow- if you are lucky enought to be able to purchase a property at a value and finance it at a payment that is lower than what you can rent the property for, you may find yourself with positive cash flow - rents coming in are higher than mortgage payments going out, you put money in the bank.

Be aware that you do need to put a significant amount in the bank for future repairs or you may end up with negative cash flow if you have to come out of pocket to fix a roof or replace a furnace.

Tax Benefits - all the while that the value of the property is appreciating and your tenants are decreasing your mortgage, well the government is letting you depreciate the value of the property as a loss. Some investors who have large incomes from other sources - say doctors or lawyers for example - they may choose to obtain a property that just breaks even so they can not have any cash flow income on the property and take depreciation on the property for a net loss against their other income. Then when they retire from their high paying job, their income will be very low, their property (ies) will be paid off and they can sell for income, or rent it out for a very high cash flow as they have no mortgage payment to make.

1031 Exchange - further if an investor has a property that they want to sell, they can sell and move the profit and equity to a different property through a 1031 exchange and not have to pay taxes. In theory you can acquire investment property and keep trading up through 1031 Exchange indefinitely and never have to pay taxes on the profit. But talk to your tax advisor on this one.

Hopefully you will get the idea of investing in real estate. If you need any help with any of these concepts or finding property, please visit with us at Tucker One Properties, we may be able to help you. You can find us on the web at www.TuckerOneProperties.com or by phone at 816-523-4400!