Beginning Real Estate Investing - The Power Of Leverage
There are many ways people can invest in today's investment markets. One of the most rewarding ways is by beginning real estate investing. Investing in real estate can prove to be a very good source of income. If you decide to begin investing in real estate you will enjoy some amazing benefits which are favorable to this investment vehicle.
Investing in real estate can be very lucrative. If you leverage your down payment to earn a return on the entire value of the property, you could earn a lot more than investing in the stock market. For example, assume that you invest $10,000 in a down payment on a house, and you borrow the remaining 90% from the bank. If you earn a 10% return, you will finish with $110,000. On the other hand, if you were to invest that $10,000 in the stock market and also earn a 10% return, you would finish with only $11,000.
Compared to stock investing, real estate investing gives ten times more returns. Mind boggling, isn't it? Before you start to wonder, "How on earth is that possible?", let's answer it for you. When you take a loan for buying a property, it works towards maximizing your returns by the concept of "leverage". Though there are several other reasons for real estate investing, leverage does make investing in real estate lucrative to potential investors.
Tax breaks on account of depreciation of property is an important reason for beginning real estate investing, at the earliest. While in reality the value of property is appreciating in its value, due to increase in the value of land, you get to claim a tax deduction on some notional tax loss, or in other words your taxable income is significantly lower than your real income. Great!
1031 exchange as defined by section 1031 of the Internal Revenue Code is a better tax benefit scheme as compared to others. The essential feature of this rule is that an investor can delay payment of tax on any capital gain from the sale of a property as long as the proceeds are reinvested in other appropriate property. This incentive by the government in effect encourages the investor to remain invested in the market for longer duration.
One final benefit of beginning real estate investing worth mentioning here is the flexibility of sale contracts. Unlike the stock market you can get very creative with your offers. You can exchange virtually anything for a property instead of cash which can mean greater returns and some spectacular win-win arrangements.
If you become a real estate investor, you can look forward to stupendous profits. But how does real estate investing work that it begets such returns? Beginning real estate investing, if you leverage your down payment to earn a return on the entire value of the property, you profits soar a lot more. Required depreciation allowed by the IRS brings the actual tax liability down every year but on the contrary the actual market value appreciates. So you pay less tax on the reported profit figure which is lower than your actual earnings. You can exchange virtually anything for a property leading to some spectacular win-win arrangements.
Published May 31st, 2007
Filed in Advertising, Business, Real Estate
