As entrepreneurs become successful with all of their business endeavors, the smart ones think about effective investments for their profits. Most of us go with the traditional 401k and IRA route, but here at Thrive, we highly recommend the savvy business owner to make rental real estate a necessity within their portfolio! Many of you will shake this idea off because of what you’ve heard about the real estate market going down, but according to updated research by the Fiscal Times its quite the contrary: home prices are poised to rise another 5.2 percent through September 2017, rent in most large metro areas are expected to increase by 1.7% and first time buyers are more welcomed than they have ever been since 2007! So now that we got that out of the way, let’s talk more on why real estate NEEDS to be on your mind when it comes to investments:
- Leverage on Capital – Even if you don’t use financing to purchase rental properties doing a cash out refi after purchase and pulling out 70% of the equity is a piece of cake, make a down payment, leverage your capital, and eventually increase your overall return on investment makes Real Estate that much more valuable. It’s simply the easiest way to leverage money in the best possible way.
- Grow Tax Free – Looking at rental properties from afar and making a guess on its value isn’t the smartest move since cash flow is the goal. However, appreciation for long haul is definitely realistic and at the bare minimum we suggest considering a tax-deferred strategy. For the future, we suggest you take into consideration a 1031 exchange, charitable trust, or installment sales to lower your tax liability.
- Tax free source of Income – Due to mortgage interest deductions (if you’ve achieved capital leverage) and depreciation, your income should be TAX-FREE. Amazing right? For the most part, investors in real estate won’t pay taxes on cash flow and can wait for capital gains on sales of properties in the future.
- Tax write-offs – In addition to tax free cash flow, you can also get a plethora of tax deductions you can use to balance out your other sources of income! Tell us again why you’re not thinking real estate? Of course, this should be spoken about with your accountant or tax professional before you make an investment to find out if you meet this criteria.
- Tax Deduction Strategies – Rental properties offer investors a multitude of opportunities to transfer personal expenses into real business deductions. We recommend that you always remember real estate is a business at the end of the day. Meaning traveling to check up on a property? Write off. Paying friends and families to take care of your property? Write off as well. Investing in real estate can increase your tax benefits and the future sales of your properties.
- Rental real estate equates to Retirement – According to Marketwatch, Americans are some of the world’s worst savers. We don’t set aside money, so having real estate is a method of secure saving that you have to commit to. There are a lot of successful entrepreneurs out there, and if you ask most of the smart ones they’ll all tell you that they have at some point transferred profits from their business into real estate. Most of us won’t ever acquire wealth overnight because it takes long-term investing and a mix of investments to create real wealth, we advise you to just make real estate an integral part of that mix. If you have an IRA, you can simply transfer that to a Self Directed IRA and use part of your funds to invest in Real Estate. If you have a 401k you may want to take a close look at the long term performance projections, the 50 year average for the S&P 500 is only around 7%. Real Estate is one of the best ways to secure an incredible retirement. One mistake we see new and old investors alike make is when they choose to invest in Real Estate they look only to what’s right in front of them, or in their own backyard. Think of investing in Real Estate like you would the stock market, you’re going to look to invest your money where you will see the greatest possible return. If investing in Coca-Cola for examples makes sense financially for you, you could care less if they are located in your city. Look into having that same approach with Real Estate. You can learn more about that here.