Real Estate Investing: Three Ways To Benefit

Investing in today’s market takes many forms. Real estate investing can be one of the most rewarding. Due to the lucrative nature of investing in real estate, it can the source of a very good income. Real estate investors find this investment vehicle to offer amazing benefits.

The first benefit of investing in real estate is enormous: financial leverage. Even if the money for your real estate investing is borrowed, with a 10% down payment, your returns are instantly magnified 10 fold. Regardless of the investment vehicle, with an investment of $10,000, the return on your investment will be 10%. For example, if you chose to invest in the stock market by purchasing $10,000 worth of shares, within the first year your investment is worth $11,000. Now, investing that amount in real estate, with a 90% loan at 10% earnings on the full $100,000 investment, results in $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.

There is, perhaps, an even greater tax beneft in the 1031 exchange as defined in section 1031 of Internal Revenue Code. What this essentially allows is for an investor to delay the payment of capital gains taxes after the sale of a property as long as the gains are reinvested in another appropriate property. Here the government basically encourages an investor to stay in the market because of this great incentive.

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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