There are many ways to invest in real estate. Most investors buy single family homes and rent them to tenants. Others buy small 2 to 4 units properties, and some will favor apartment buildings. Buying commercial real estate is another way to invest in real estate. Assuming you have already made the determination that you are interested in being a landlord, the next question you will ask is ‘is this particular property a good place to invest my assets’. Answering that question involves several factors. Cash flow is usually a critical factor, as are leverage and anticipated appreciation. All these must be considered when evaluating investment property. Read the articles below and let us help you make the final determination. We have ample investment experience and investment analysis tools to help you evaluate property.
Building Wealth in Real Estate
Real Estate without the Hype
Real estate offers an opportunity for building substantial wealth for the average investor that is not available in any other type of investment. It does not take special inside information or special insight, but a disciplined, steady investment plan. The focus should be on building assets – building wealth.
What about income you ask? If one investor has $1,000,000 in assets and another has $100,000, which will be able to generate the most income (current cash flow)? It’s clear that the greater the assets, the greater the potential for income. Therefore, the focus of this paper, and the focus of a good investment plan should be on building assets, so that the future potential for income is enhanced. The assumption is that income is a future, rather than present, goal. (You may wish to refer to Generating Cash Flow.)
Every dollar saved in taxes is another dollar growing for you
To illustrate the dramatic effect of erosion from taxes, imagine two investors who each invest $10,000. They both earn an 8% average annual return and are in a 30% marginal tax bracket. Both investors allow their gains to compound for 20 years. The first investor pays income tax at 30% each year on the gain, before reinvesting the remainder. The second investor structures his investments to postpone the gains from taxes. After 20 years the taxed investor’s assets had grown to $29,736 and the tax-sheltered investor’s assets were $46,610. That’s a difference of 60% more for the tax-sheltered investor.
How to turn your real estate assets into a greater stream of cash
Most of our interest in real estate as an investment vehicle is directed at building assets, not in maximizing cash flow. As a vehicle, real estate is especially suited for building substantial assets, due largely to the ability to leverage the investor’s capital by borrowing. This enables the investor to control and receive the benefit of appreciation from a larger asset than could be controlled without leverage.