Time might be the one thing money can’t buy. No matter how much money you have, you will never be able to get back the time you spent accumulating your impressive bank account. What you can do, however, is create more time for yourself in the future. And if real estate has taught me one thing, nothing can rival the amount of time investing in real estate awards savvy entrepreneurs. In fact, it’s quite common for people to become real estate investors for the sole purposes of owning their own time.
Not surprisingly, the most common reason people start investing in real estate is because of the money they have seen other people accumulate — and for good reason. If for nothing else, real estate is an investing vehicle capable of realizing impressive profits for those that are willing to put in the work. Few investing platforms, for that matter, can match the earnings potential synonymous with today’s best investors. That said, it only makes sense that cash flow is a priority for those who want to get started in real estate.
But what exactly is cash flow? As it’s name suggests, it has everything to do with the income of a respective investor. In its truest form, cash flow represents the amount of capital left over after all the bills on a subject property are taken care of.
While not as widely advertised as its cash flow counterpart, tax incentives associated with owning real estate can quickly eclipse even the most ambitious pay days. In fact, there are scores of investors that will swear tax benefits are more beneficial than cash flow. When someone asks you “why you should get started in real estate,” it’s hard not to point out how advantageous some of today’s tax breaks can be.
For starters, it is entirely possible to deduct any interest you pay on a mortgage. According to Investopedia, “Homeowners can deduct the portion of their mortgages attributable to interest payments on their tax returns. These payments are higher during the early years of the mortgage and gradually decrease as the mortgage is paid off.”
While less popularized, but no less beneficial to homeowners, there is one tax deduction in a class of its own: depreciation. For what it’s worth, depreciation can turn a good investment into a great one. According to Investopedia, depreciation allows investors to “recover the cost of income-producing rental property,” the whole cost. Through depreciation, rental property owners can write off a portion of the home’s cost for up to 27.5 years.
The important thing to remember is that nobody is going to hold your hand through the process. Any attempt to take advantage of the tax benefits that coincide with real estate should be met with a proactive mindset. More specifically, there is only one way to ease your tax burden through real estate come tax time: due diligence and a working knowledge of what is within your rights to deduct. As always, consult a tax professional before you decide to make any deductions of your own; just know that real estate is ripe with great tax incentives.
Equity & Appreciation
In a sense, both equity and appreciation go hand-in-hand; it’s rather difficult to have one without the other. That said, real estate investors should appreciate a great equity position on any property they own. Few things can combine to benefit an investor more so than these two indicators. But what is it about them that remains so attractive? Why should you get started in real estate for the purposes of realizing equity and appreciation? Let me explain.
If history tells us anything, it’s that homes appreciate in value much more often than they depreciate. While this may be hard to believe after experiencing one of the worst recessions in American history no more than a decade ago, consider how far we have come. Home values are roughly within two percent of their 2006 peaks, and that is after a significant downturn. If you were lucky enough to buy in 2012, you are likely the beneficiary of some impressive appreciation rates. If you waited until later, there is always the option of improving your equity position.
Every time you pay the mortgage, you are growing your equity. But real estate investors have the added benefit of allowing someone else the privilege of paying off their mortgage, essentially turning their property into a savings account — a very big one. When you buy a property with the help of a mortgage, you have a monthly obligation to pay down the principal. However, nobody ever said the payments had to come out of your pocket. It’s entirely possible to rent out a property to a tenant, and use the rent they pay you to pay off the mortgage. Landlords can very easily improve their equity position in a property without using their own money every month.
It’s important to note, however, that neither equity nor appreciation should be your sole reason for investing in real estate. If for nothing else, these two things are more or less contingent on the state of the market as a whole. The amount of equity you have in a property and how much it appreciated by — or depreciates in some circumstances — are more reflective of market conditions than anything else. Property owners are more or less along for the ride, but what a ride it can be. With that in mind, equity and appreciation shouldn’t be counted on, but rather appreciated when they work in your favor.
So why should you get started in real estate? Quite honestly, there are countless reasons, but those I mentioned above are the most popular. If you want to get into real estate for the sole purpose of proving you can do it, feel free to do so. Perhaps you want to create a legacy to leave for future generations of your family. Whatever the reason is, make it yours and aim high. Only then will you truly know why you should get started in real estate. Follow us Diamond Dust Property Management or call (561) 541-4409 to get started in real estate.