Many people thinking about investing ask our real estate brokers why they should choose real estate over other forms of investment. In general, there are five main benefits of owning real estate:
Cash Flow: This is, quite simply, the net revenue you generate with your property. After you collect the rent off of the property and then pay all mortgages, taxes, insurance, and general maintenance costs, the profit left over is your cash flow.
Tax Benefits: You are able to deduct a portion of the value of your property from your income on your federal tax return. Additionally, any income you generate in the form of rent is considered “passive” income and therefore does not factor into your self-employment taxes.
Appreciation: Many real estate investors enjoy the benefits of properties going up in value. When this happens, you can sell of a property for significantly more than you paid for it in the first place. In this way, real estate can serve to protect you from inflation.
Leverage: Real estate investors generally find themselves leveraging other people’s money into income for themselves. This is done by getting mortgages, turning a purchased property into profit while paying back your loan over the course of thirty years. A well-planned property investment can therefore grant you the full benefits of owning real estate without any money coming out of your own pocket at all.
Mortgage Benefits: A mortgage is going to require that you pay interest when you pay it back, but each payment is building up equity on your property and therefore creating wealth for yourself.
At RE/MAX Pacific Realty Commercial, it is our job to maximize your potential benefits. To do this, we approach each case with the following questions:
- Is this a property that would appreciate better than others?
- What kind of cash flow potential does this property have?
- How much leverage would this property give an investor?
- What would the tax benefits of this property be?
- Will the investor get mortgage deduction or reduction benefits?
- How might the cash flow, appreciation, tax benefits, or leverage be improved?
- What kind of mortgage would help leverage someone else’s money instead of the investor’s in order to get the same return, or a better return on the investment?
On “Bargains”: “Bargain” is a term you hear a lot in the world of investment. It seems like a logical idea when it comes to real estate; after all, getting a bargain means paying less money into your investment and potentially maximizing your return. However, CCIM doesn’t care much for the bargain-hunting strategy, as there is really no such thing as a “cheap” or an “expensive” price for investors.
In truth, “bargain” is not a measurable concept for the benefits listed above. This is a street term employed by regular real estate agents, but it is not largely employed by the more trained experts that you can find at CCIM. We believe that you should be buying whatever properties you can best meet your goals with, regardless of price, and that we can help you along the way towards achieving these goals.