Why Real Estate Investing is the I.D.E.A.L Investment

[Nick Harris]

There are five key benefits to investing in real estate and I am sure you have seen this acronym before and this will be review but if not, I find this helpful for myself and I love sharing it with you.

I = Income 

D = Depreciation

E = Equity 

A = Appreciation 

L = Leverage

Income: 

Income In real estate, income is known as "Cash Flow". Income is one of the core benefits of investing in real estate. One of the great things about investing in real estate is that you receive monthly income from your properties. The bigger the margin of rent to expenses, the more income. The more doors/units, the more income.

Depreciation:

Depreciation is just one of the tax benefits that come from investing in real estate. Depreciation occurs because the US government requires investors to spread out their depreciation over the span of 27.5 years which creates an annual depreciation expense. Let's take a look at a scenario when depreciation is used and not used
Scenario #1 (No depreciation used)$20,000 taxable income x 24% federal income tax rate = $4,800 taxes owed Scenario #2 (Depreciation is used) $20,000 taxable rental income - $7,000 depreciation expense x 24% federal income tax rate = $3,120 taxes owed

Equity:

Equity If you use a mortgage to purchase your rental properties and your rent covers all expenses, your tenant is technically buying your property for you. This is essentially using OPM (Other People's Money) to build wealth over time.

Appreciation:

Appreciation Over time, real estate properties tend to appreciate, or go up in value, at about the same rate as inflation (3-4%). This type of appreciation is known as "passive appreciation". There is also "active appreciation", which can come from buying a property under market value or by forced appreciation or adding value to the property.

Leverage:

Leverage allows you to use debt to purchase a property that is 75-80% higher in value than the capital you put down to purchase the property. This means that on a $100,000 property, you can pay $20,000 to own that asset worth $100,000. As long as your tenants are paying down the rest of that payment and interest, you are utilizing leverage.


Nick