Why Real Estate Today?

[Celia Moore]

DID YOU KNOW?

Real estate offers many opportunities the stock market simply cannot. When a stock is purchased the bet is placed the price of the stock will increase. If the value of the stock does increase you have won the bet, this is a gamble I was taught never to make with real estate. Though our firms policy is to never bank on appreciation, the beauty of real estate is that if held long enough it always will. If we do not make the purchase of investment real estate solely on the anticipation of appreciation why should we buy it?

Cash Flow

Cash flow is only one of many ways that real estate offers a return on investment. The beauty of a well purchased property is that it can provide income during the entire investment period. A yield on this single component can exceed average stock or bond dividend yields.

Leverage

Leverage is the great investment return multiplier. Loan to value allows real estate investors to pick the risk to reward ratio that suits their particular situation. Young investors often choose higher loan to value ratios foregoing cash flow for higher appreciation. This strategy offers the potential for a greater return on investment. As investors get older they often are more interested in cash flow and safety, a lower loan to value suits their situation.

Interest Deductions

Not only do you have the ability to use leverage in real estate investments, you are able to write off the interest paid for this leverage. Just one of many tax benefits that real estate offers.

Mortgage Paydown

Stocks and bonds may pay dividends, but they require appreciation of value to create a profit for the investor. Leveraged real estate makes an investor money simply by existing. Whether the property goes up or down in value over time, the investment can be paid off by your tenant!

Depreciation

When an investment property is acquired the improvements on the property are depreciated. For example if a rental hose is acquired there will be an allocation of purchase price made toward the dirt and another made to the improvements. The depreciation schedule for a rental house is 27.5 years. The depreciation schedule used can dramatically alter the return on investment.

1031 Exchange

Finally, when it comes time to sell your investment a 1031 exchange allows you to exchange your old investment for a like-kind new one while deferring the taxes on the gain!

A real estate investment can be tailored to one’s investment objectives. A properly trained real estate broker will be able to create an investment strategy that suits any investment objective. Give your broker a call to get started.