Profiting From Real Estate
Appreciation: Real estate tends to increase in value …. year after year. It doesn’t necessarily go up the same amount every single year, but based on past history, real property usually doubles about every ten years. When you factor in the benefit of leverage, you quickly realize the impact on your net worth of even a 10 or 20 percent down payment.
Leverage: Real estate allows you to use someone else’s money (usually a bank) to make a greater return for yourself. Say you put $20,000 as down payment on a $100,000 property and the bank lends you the other $80,000. If the property value doubles in ten years, your $20,000 down payment has grown to $120,000. And that doesn’t even take into account how much that $80,000 you borrowed has been paid down, or the monthly cash you might have received.
Depreciation: The tax law allows you to deduct “depreciation” of your property against your regular income. This is referred to as a “non-cash item” which means that you get the deduction without putting out any actual cash as, for example, would be the case if you paid for some plumbing repairs. There are, of course, limitations and formulas that apply, but many investors realize significant tax savings this way. Naturally this is an area in which you would want to seek the advice of your tax professional.
Income: Real estate can provide direct income. The spendable you receive each month is directly related to the size of your original down payment. Obviously, the less you owe the bank, the smaller your loan payment and the more cash you have for yourself. Income also tends to increase as rents go up the longer you own the property, And, of course, the money you don’t have to pay in taxes is also that much more in your own pocket.