Investing in real estate is one of the best ways to boost personal wealth. If you want to become a millionaire, or a billionaire, I think that a laser focus on this asset class is the best way to achieve that. In comparison to the highly cyclical nature of the stock market, low-interest-bearing savings accounts and other ways, real estate is able to provide a relatively stable investment vehicle that will not only raise the instability of the business market but, historically speaking, has increased significantly in value in each decade. Let’s explore a couple of real estate investment’s greatest benefits.
Even if you were to live in your investment property and not rent it out, the long-term appreciation would actually allow you to stay in the property in time for free. For example, let’s say you are buying a home worth $500,000 which will have a valuation of $1.5 million in 30 years’ time. Assuming you sold the property at that time, at the time of sale the principal, interest, taxes and maintenance you paid on this property over the preceding years would be superseded by the new value.
The cash flow you will receive from day one by buying real assets is the No. 1 value to any real estate investor. Besides being able to create liquidity in your property by making tenants pay your hard expenses (mortgage, insurance, taxes, etc.), you will gain net profits from positive cash flow every month.
Purchasing real estate property also provides tax benefits, allowing you to have no taxes on your land income in some cases. It’s important to note that owning your home will earn you up to $500,000 in tax breaks for a married couple, or $250,000 as an adult.
As an investor in real estate, you may also be eligible under the tax code to deduct certain expenses related to your investment properties, such as interest paid on your mortgage, maintenance costs etc.
Leveraging, or using the bank’s money to maximize the return on your investment, is your mate, and should be instrumental in your decision to purchase real estate rather than invest in any other asset class. If you invest with excellent credit in residential real estate, you should receive a conventional loan with as little as 5 percent down to 10 percent. To put that into perspective, you could realistically acquire $1 million in real estate with as little as $50,000 to $100,000 in capital. Conversely, you should expect to achieve a loan-to-value ratio (LTV) of 75 percent or more in a tier-one market if you are purchasing a multi-family home. In other words, your capital of $250,000 will allow you to purchase a multifamily building of $1 million.
Deferable Taxable Gains
By using a 1031 exchange, investors can defer tax liability on capital gains by folding the profits from a property you are selling into an acquisition of real estate, thereby delaying any taxes due on the sale of the original property.
While the pandemic has sent the global economy into a tailspin, it could also be the single most valuable driver of new real estate market wealth creation and prosperity. All it takes is to learn what to look for and make the most of the opportunity.