The Combined Advantages of Investing In Real Estate

Sometimes each member of a team is not that strong, but when combined together on a team, they win. Real Estate Investing is like that.

Think of the parts.

First, you have a hard asset. You have a house, duplex, or apartment. This is not something made of blips on a screen. It is like gold or silver; it is a collection of natural resources. There is real labor that turned the natural resources into a collection of wood, wires, paint, metal, concrete, and glass and put it on a real piece of land.

This real asset won't go away overnight. No matter what happens in the Asian markets overnight, your house will still be standing. Of course, if something were to happen to your house like a local fire, you have insurance. You have a hard asset that is insured for the full replacement value. What a deal.

Second, you can borrow money to buy that hard asset. How hard is it to buy stocks on margin? What amount of leverage can you get from your brokerage firm? Who buys stocks on margin? Who actually recommends that you do so? On the other hand, most people buy their house on margin. You can put down 10% or 20% of the purchase price and control this hard asset. Can you do that with gold? Imagine going to the gold dealer and telling him you'd like $100,000 of gold but you only want to pay him $10,000. But you promise to pay him a little each month toward the rest. What would the interest payments be on that deal?

Third, your bank will give you a low interest rate on a long-termed fixed rate loan. Depending on your credit and your current debt, you can get a 30-year, low interest, fixed-rate loan on your hard asset. Now you can tie up your house for 30 years and pay for it bit by bit, month by month.

Fourth, you get a tax deduction on the interest of your loan, the repairs on the house, the costs of utilities, and more. But that is only the beginning of your tax advantages of your rental property. You also get a depreciation tax advantage. The government knows that things on your hard asset like the roof will break down over time, so the government gives you an additional tax break on the building. On our $100,000 example, this additional tax advantage can amount to another $3700 in tax breaks per year for 27 years.

So what do we have so far: a hard asset, an ability to buy on margin, a long-term loan, and significant tax breaks. Can you do that with stocks or bonds or gold?

Here is one more advantage: someone else will pay off your loan, pay for your maintenance on your hard asset, and pay for the management of the property. Your tenant.

What other investment can you think of that gives all of the above advantages and then pays for itself?

Treat your tenants like gold, for they are your customers who keep your business running. Without good tenants, those who pay on time and take care of your property, none of this happens. But with good tenants, all of this happens.

Here is the power of mortgages:

Get a hard asset. Get a long-term loan. Get a good tenant. Pay it off over time. Repeat!