Real Estate

Since 1968, appreciation levels for real estate have been 6 percent per year, including during the downturn in the economy beginning in 2007, according to the National Association of Realtors.

Once you have built up an equity position in an investment property, you can leverage that investment for cash in one of two ways: Secure a second loan against the increased equity or refinance the original loan amount plus the increase equity. This frees up money to buy another investment property.

Most real estate is purchased with a small down payment with the balance of the money being provided through debt financing from a lender. Over time, the principal amount of the mortgage is paid down,slowly at first, and then more rapidly toward the end of the amortization period. This principal reduction builds equity.

One of the most unique and attractive advantages of real estate is that it is improvable. Because real estate is a tangible asset made of wood, brick, concrete, and glass you can improve the value of any property with some “elbow grease” and “sweat equity”. Whether the repairs are structural or cosmetic, do it yourself or hire someone, the principle is the same. You can make your real estate worth more by improving it.

When real estate is purchased, the cash flow is lower and the principal reduction on the mortgage is less. Over time the mortgage is paid down, or paid off, and the cash flow increases. In some respects it’s a forced savings program, yielding a greater amount as time goes by which is a perfect investment for retirement as it increases in cash flow down the road.

Tax codes allows various deductions for the normal expenses incurred in owning real estate, such as property upkeep, maintenance, improvements and even the interest paid on the mortgage. The deductions can offset income and reduce your overall taxes.

Depreciation is a non-cash expense permitted by tax code that depreciates the value of your investment property over time. However, the value of your investment property actually appreciates. The depreciation deduction allows a real estate investor to generate a larger positive cash flow while reporting a lower income for tax purposes. This creates a higher return than you may initially realize.

If your investment property is sold after a year, the gain is subject to capital gains tax rates which depending upon your individual tax bracket is generally 15% or 20% which is usually less than one’s personal tax bracket.

Our tax code, Permits the gain on the sale of an investment property to be transferred from the property being sold to a new property being purchased, hence deferring the payment of any tax on the sale of the property