Advantages of Real Estate

When you purchase real estate with traditional financing at 20% down you're able to access the other 80% of other peoples money. In this example, the money is acquired from the bank. The ratio of total money to yours becomes 5 to 1 (100% sales price to 20% down payment or 5 to 1 ratio).

This allows your 1 part money to control all 5 parts of the property and the benefits that come with it such as:

- cash flow - Depending on what the local market rents are its not uncommon to have a property that when rented is able to pay the entire mortgage payment, taxes, insurance, and misc expenses of renting out a property while even having some left over to provide a monthly dividend to you.

- appreciation - potential for the property value to increase depending on the timing of the market

- depreciation - a phantom loss that can be claimed to mask your income from the property which can shield your "cash flows," from potential taxes.

- amortization - if the payments are principal and interest then each payment reduces your loan balance and increases your equity or net worth in the property.

- leverage - the ability to use the property as an "collateral," to obtain financing through either a lien on the property, pledging the equity (if any) of the property to obtain financing, or assigning some benefits of the property in exchange for other goods or services while simultaneously still retaining & controlling the asset.

- use - a real asset that be can be utilized for shelter or as a place of business and has value in and of itself unlike intangible assets which cannot be used directly. Its demand is almost as important as air and food as its third in line, "shelter."

- control - unlike many other assets real estate allows you to control and assign its inherent benefits to your liking

- value creation - the difference between what the market views the property is worth in a specific condition and what it may cost to acquire or improve a property may allow a gap of profitability through value add factors whether it be physical improvements, entitlements, deed restrictions, location, timing opportunity at a distressed sale, etc

- velocity - allows the ability to maximize the value of each dollar invested by having each dollar work in multiple places at one time and providing benefits in many arenas. As an example, Real estate could provide cash flow or funds which can strategically fund a permanent life policy and all the benefits that come with that vehicle, provide funds for a business that provides additional cash flow, and that cash flow then purchases more real estate or other assets which increase the returns and benefits of each dollar and if structured correctly it can compound exponentially especially when the next activity provides more benefits than the prior's cost.