I find it essential to remind people why investing in real estate is a great choice. As you read these articles, you can see the different ways real estate could be a consideration as an investment choice for you. Here, I want to go through a few more advantages of real estate as compared to investing in something like the stockbroker.
Depreciation is an important consideration in real estate. Depreciation is permitted in real estate and allows you to depreciate the value of your investment property over time. This benefits the investor because the value of your investment property actually appreciates. This depreciation benefit allows a real estate investor to generate more cash flow while reducing taxes. This results in a higher cash-on-cash rate of return than you may initially realize.
Lower tax rates are important. When investment properties are sold, the gains/proceeds are subject to capital gains tax rates. Depending upon your individual tax bracket, they are generally 15 percent or 20 percent. However, in securities, the proceeds are treated as ordinary income and taxed at the higher personal income tax bracket rates, whereas in real estate, you have an additional tax advantage.
Taxes can be deferred. Under the 1031 exchange regulation, our tax code permits the capital gain (profits) on the sale of an investment property to be transferred from the property being sold to a new property being purchased, deferring the payment of any tax on the sale of the property.
Real estate has a flexibility component. Depending on zoning regulations for the property you own, there may be options to subdivide it into two properties, where you can sell or develop the second property for a profit. While finding property for buy and hold acquisitions is relatively easy, finding properties with development options can require additional resources and be more challenging.
When the economy struggles, stocks typically go down, and investors usually lose. But you can take a slightly different strategy in real estate. You are more prepared when and if all hell breaks loose. The property you own is always backup shelter and much easier to hold on to in troubled times. On the other hand, when a company falters, it’s hard to hold on to stocks with losses. In real estate, provided you can make monthly payments, the bank is not going to call in the mortgage because of market shutters. And if the strategy works, you’ll be able to continue holding your property until its value increases again.
Choosing real estate as your primary investment strategy leads to continued financial growth after retirement. Following their corporate career, many investors have put together a nest egg for their retirement. There is great value in a combination of security-investment-paying dividends (income) and rental property to generate shortfalls. Whether its securities or real estate, your real estate portfolio value will continue to improve. This will make you worth more each year.
Keeping up with the Joneses. Real estate is a collective win, meaning that if your neighbors improve their land, then that increases the value of yours. As homeowners in the neighborhood perform home improvements, your property gets the benefits of their improvements. That’s because the neighborhood has improved, and therefore, the value of the homes in the neighborhood increase.
As you can see, there are several viable reasons why real estate could and should be a preferred investment opportunity for you and your retirement. I am not saying there is no value in stock investments, but I am saying that there is a whole new world out there that you might not have considered. Real estate is a fundamentally more straightforward process for almost everyone. In many ways, we have been trained to believe it is complicated and untouchable, but that is hardly the case.
If you own a home, you’re investing in real estate. It’s easy to purchase, it’s easy to finance, and there are no insurmountable financial barriers to entry. It’s easy for most investors to improve their properties versus improving their stock values. And in the end, it has more tax advantages. While Wall Street is becoming more and more of a mystery to most Americans and becoming the game of financiers, real estate investing is looking better and better for the average American.
This is one of a series of articles based on my book, Modern Wealth Building Formula – How to Master Real Estate Investing. I have a passion for helping others secure their future. As the professionals say, “The best time to start is now!” Please follow me as I continue to give you insight and strategies for achieving your retirement dreams. We can do this together!