The Financial Upside of Investing in Real Estate

Last week we talked about leveraging your investments, so today I wanted to give you an example of what that could mean with real estate investing.

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Last week, we talked about using leverage to have renters pay your mortgage, increase your equity, and give you cash flow over time. Today, let's continue that conversation with an example.

Let's say you have $50,000 to invest and you choose something like stocks or a mutual fund. If those stocks rise by 10%, you'll make $5,000, which is great. 

Now say you used that same $50,000 to invest in buying a $300,000 house, which you rented out. If the market increased by that same 10%, the great part is that your gain isn't based upon what you put in, but upon the overall price of the property. 

Now your $300,000 property is worth $330,000, and your gain is $30,000. Your initial $50,000 is now suddenly worth $80,000.

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By investing in real estate, your value grows at a larger scale.

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Now, this is a very simplistic example to make it all easier to understand. Keep in mind that there are different strategies for this type of investment depending on where you're at in life. 

You might be retired (or close to it) and want to be a little more conservative with your investment. Or, you might be young and have a lot of time to grow your investment. 

If you have any questions about the benefits of investing in real estate or about the different strategies you can employ, you can always give me a call or send me an email. It would be my honor to help you.

How Real Estate Can Help You Build Your Net Worth

You can use real estate to build your net worth without having to put in the extra hours of work. Here’s how.

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Imagine you won an extra income every single month without putting in the extra hours of work. Wouldn’t that be great? There’s a way you can do it, and it’s by building wealth through real estate. 

Specifically, I’m talking about how to use leverage, which means using real estate income properties to leverage your time so you can earn income that renters pay. Over time, you will have those renters pay down your mortgage and you will see that value of your home increase. Your equity and cash flow will grow as well. 

At some point in time, you will have a stream of cash flow that will provide for you and your family and have equity that will increase your net worth. Your net worth is simply your assets versus liabilities. 

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Over time, you will have a steady stream of cash flow and an equity that will increase your net worth.

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For example, if you have a house worth $500,000, that’s your asset. The liability is the mortgage you owe on the property (let’s say it’s $250,000). Subtracting the difference between the two gives you your net worth, which in this case is $250,000. 

It’s our goal to make sure that net worth increases each year along with your cash flow. In the next few videos, I will show you a strategy to help you gain wealth. Stay tuned, because you won’t want to miss it. 

In the meantime, if you have any questions or want to know the value of your home, don’t hesitate to reach out to me. I’d be happy to help you.

How to Use Rental Properties to Increase Your Net Worth

By buying real estate and using it as a rental property, you’ll have an asset that’s appreciating in value and increasing your net worth.

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As you know, we’re well into the holiday season. This means everybody’s out there filling out their shopping lists. As for me, I try not to buy things that depreciate in value. Being in real estate, this gave me an idea for people in the market looking to buy a car and how they can appreciate their value.

You see, my wife and I recently bought a truck, and our plan was to make a down payment on the truck. Instead, we financed the entire purchase of the truck. Rather than putting a down payment on the truck, we used that money as a down payment for a real estate property. This way, the income the property was making for us as we rented it out would actually pay for the car itself.

If you tried the same thing, sometime in the near future when the car is paid off, you’d still have an asset that’s providing you income every single month. Not only that, but over the long term, you’ll have an asset that’s appreciating in value, thus increasing your net worth.

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The income you can make from renting a property can pay for other things.

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This is in contrast to the more common method of using that money to pay off the car and watch it depreciate in value the minute you drive it off the dealership lot. It’s never the best idea to use an income-producing property to pay off liabilities such as cars that depreciate in value, but it’s a better method than actually taking that money and just paying off a car that doesn’t appreciate in value at all.

There are many ways you can appreciate your value, so if you’re thinking of buying, selling, or investing in real estate, give me a call or send me an email. I look forward to collaborating with you!

What Are the Benefits of the 1031 Exchange?

Today we're talking all about investment properties and the 1031 exchange. This tax code allows you to reinvest proceeds from the sale of an investment property into a more lucrative investment while deferring capital gains tax.

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Recently, I received a great question that I wanted to address from a financial advisor who has a lot of clients asking him about the 1031 exchange.

The best way to explain what a 1031 exchange is would be to give you a live example. The 1031 exchange is selling an investment property and moving the proceeds of the sale into another investment property and deferring the taxes. You're making your money work for you rather than being taxed one-third of that money.

I currently have friend and client with an investment property we're helping sell. By using the 1031 exchange tax code, we're able to use 100% of the proceeds of that sale to buy another investment property. In his case, that's an apartment building. He's tripling his gross income with the building he's buying while deferring capital gains taxes at the same time.

Another client of ours has owned an investment property for a long time, but she's thinking about selling it to pay for her daughter's college. One strategy she could use is to sell her current investment property and buy two smaller units — one close to her that she can easily manage and another that is close to her daughter’s college. Essentially, her daughter will be one of her tenants.

She will have two investment properties providing income and cash flow, and by the time her daughter graduates from college, the home may have appreciated enough for her to once again take advantage of the 1031 exchange.

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You're making your money work for you and deferring capital gains tax.

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Now, each individual has a different situation when it comes to investment property and the 1031 exchange. You want to be sure to talk to your CPA or tax preparer to ensure you're doing the right thing and, more importantly, talk to your real estate professional.

If you have any questions for me as a real estate professional about investment properties and the 1031 exchange, give me a call or shoot me an email. I'd love to hear from you!