Real Estate As An Investment ? Discover the ... - Green Real Estate

Real Estate will undoubtedly become a part of an entrepreneur?s portfolio.

In fact, the advantages of real estate make it the largest investment vehicle for most entrepreneurs who have reached a net worth exceeding $1 Million.

Leverage

Property is an Asset. Banks love to lend money to purchase assets.

Real estate investment financing is a big business for the banking industry. You cannot borrow money from the bank to buy stocks and bonds or invest into other ?Paper assets?.

If you want to buy $100,000 worth of stock, you will need $100,000, no question.

However, if you want to buy an investment property for $100,000, chances are you can put down 10% ? $10,000 and borrow the rest. You now control a $100,000 investment without actually having to part with that much money.

If you then sell that property later on and net $110,000, you have received a 100% ROI. You invested $10,000; you netted an additional $10,000, effectively doubling your investment.

If you purchase $100,000 worth of stock and sell it for $110,000, you have only achieved a 10% ROI, with a $100,000 of capital, which theoretically could have bought 10 houses at or below $100,000.

Paper assets such as stocks definitely are vehicles for wealth, but this illustrates one of the many advantages of real estate.

Appreciation

One of the other advantages of real estate is appreciation. In the long term real estate generally appreciates. If you currently own investment property and have owned it for at least the last 20 years, historically the value of that real estate will have grown significantly.

Real estate markets can vary from one metropolis to another, and within those markets are smaller markets that show higher cap rates and profit margins.

I can say from my position here in Chicago as being a relatively stable market in relation to other parts of the US. Even with a modest average of 5-6% appreciation annually in the Windy City, the equity and value of property exponentially adds up.

Passive Income

Income is one of everyone?s favorite advantages of real estate.

Income-producing assets are the cornerstone of long-term financial stability. If you are forced into an early retirement or otherwise suffer a loss of earned income, it is nice to have a source of passive income.

In the best of times it builds your cash reserves while also growing in equity value.

Passive or residual income through real estate has-been and always will-be a reliable income stream for many people.

Depreciation and Tax Advantages

Through depreciation, value is received in the form of lower taxes.

As a self employed professional or business owner, you essentially make your money first, then pay taxes later, ?writing off? your various expenses to reduce your tax liability.

Depreciation is a major write-off on one?s tax returns, leaving more money working for you at the end of the year.

Additionally, the interest you pay on any mortgages is another write off which helps maximize value.

Even for ?W-2? income earners these are two major advantages of real estate.

Deferred-Tax Advantages

Finally, one of the most unknown benefits of investment property is through deferring capital gains with the 1031 Tax Exchange.

When you sell an investment property you pay capital gains taxes.
With a 1031 Tax Exchange, as long as you are buying real estate equal-to or greater than the previous property, you can do it without paying capital gains tax.

So if you?re selling an investment property for $500,000, you?ll need to buy another ?like-kind? property at $500,000, or higher.

It?s the Monopoly strategy.

Remember the last time you played Monopoly? First you build 1 green house and then two, then three and finally three green houses are all lined up.

Instead of building a fourth house, you ?sell? all the green houses and trade-up to a big red Hotel and really rake in the dough.

What you have done is leveraged the total value of the houses, without paying 10?s or 100?s of thousands of dollars in capital gains taxes, to ?trade up? to a larger piece of real estate that can ultimately more generate more profit while incorporating economies of scale by managing more units with less resources.

Beyond these all these advantages of investing in real estate, it is fundamentally a sound investment. Investing in the life?s necessities is usually wise and people will always need a place to live and populations will continue to grow.

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