Eight Reasons to Invest in Real Estate!

1.     Predictable Cash Flow: After deducting all operating expenses and mortgage payments, the remaining net spendable income is called cash flow. This amount is predictable, and a good real estate investment should provide you with 6% or greater cash flow.

2.     Appreciates in Value:   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.

3.     Ability to Leverage:   It is the most important point in the real estate business. Leverage is the use of borrowed capital to increase the potential return of an investment. In real estate transactions, leverage occurs when a mortgage is used to reduce the amount on investor capital required to purchase a property. the annual return on a $300,000 property with a $30,000 net cash flow purchased with cash is 10 percent. Now, let’s assume a loan of $150,000 is amortized over 30 years at 5 percent interest, but 75% of the money required to purchase the property is borrowed, even factoring in the cost of making the mortgage payment, the annual return more than doubles to 22 percent. 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 increased equity. This frees up money to buy another investment property.  

4.     Equity Build-up:   Most of the properties are purchased with a small down payment. And this payment is paid from the balance amount provided through debt financing from a lender. Over time, the principal amount of mortgage is paid down slowly at first and then more rapidly toward the end of the amortization period. This principle reduction builds equity.

5.     Value add/Improvable:   One of the most exceptional and alluring points of interest of real estate is that it is improvable. Since real estate is a tangible asset made of wood, block, cement, and glass you can improve the estimation of any property with a bit of "real effort" and "sweat value". Regardless of whether the fixes are basic or corrective, do it without anyone else's help or recruit somebody, the principle is the same. You can make your land worth more by improving it.  

6.     Depreciable:   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 appreciates. The depreciation deduction allows a real estate investor to generate larger positive cash flow while reporting a lower income for tax purposes. This creates a higher return than you may initially realize.  

7.     Lower tax rate:   If you sell your property after a year, the gain is subject to capital gain tax rates which depending upon your tax bracket is generally 15% which is usually less than one's tax bracket.  

8.     Deferrable Gains:   Tax code, under a 1031 exchange, 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.