Today’s market offers investors a variety of investment means. One of the most rewarding opportunities is real estate investing, which can produce a very good income stream. If you choose to become a real estate investor, you will enjoy several benefits not associated with other types of investments.
First, investing in real estate has an enormous benefit of leveraging financially. Even borrowing money for real estate investing from a bank you may often get a deal with a down payment of 10%, this means your returns may be instantly increased tenfold. Assuming you have $10,000 for investing and you get a 10% return on that investment regardless of the investment vehicle. Putting this in the stock market will buy you $10,000 in shares and 12 months later your investment is worth $11,000. Putting the same money in real estate with a 90% loan you end up earning 10% on the entire $100,000 investment and end up with $110,000.
The power of leverage is one of the biggest advantages which real estate investing offers. In the example above, $10,000 has been doubled in the real estate market, whereas it only increased by $1,000 in the stock market. This occured because the lender’s money is working for you too. And this is only one of many reasons to become a real estate investor.
Another good reason for investing in real estate comes from the tax benefits. One of the greatest tax breaks associated with real estate investing is the REQUIRED depreciation of the property by the IRS. This is representating a ‘paper loss’, but in most cases the value of the property (including land) is increasing. In essence you end up paying taxes on a reported figure of profit that is actually lower than you real earnings, which is very nice.
A more beneficial tax benefit could be the 1031 Exchange. The IRS code 1031 allows investors to defer payment of taxes on capital gains made through property sale provided that the proceeds are invested in another appropriate property. This great incentive therefore is a step by the government to urge investors to stay in the market.
One final benefit of investing in real estate worth mentioning here is the flexibility of sale contracts. Unlike the stock market you can get very creative with your offers. You can exchange virtually anything for a property instead of cash which can mean greater returns and some spectacular win-win arrangements.
- Scott Roemermann
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