Significant Financial Benefits of Investing in Real Estate
There are several ways that investors can earn financial returns on investment properties.
• Rate of Return and/or Cash Flow
• Federal Tax Benefits
• Leverage of other People’s Money
• Principal Pay Down
One of the major advantages of investing in real estate is that all five of the above options are available to real estate investors. Real estate offers flexibility and financial returns like no other investments. This is one of the significant benefits of investing in a commercial property loan or real estate development loans.
• Cash Flow – Cash flow includes the amounts left over after collecting rent, paying mortgages, taxes, insurance and repairs. Cash flow is the overall profit the property is making. Real estate allows property owners to make substantial profits, especially when owners own more investment properties.
• Federal Tax Benefits – The federal government allows property owners to depreciate or deduct portions of property values from incomes. For property owners that qualify for significant depreciation and work full time as a real estate agent, Realtor® or real estate professional, this benefit can be very helpful. Rental income is passive income and not subject to any self-employment taxes. So, for self-employment professions, this tax benefit allows them to decrease their overall tax burdens, which is why many real estate professionals prefer to invest in real property rentals.
• Leveraging OPM – When investing in real estate investments, most investors rely on other people’s or companies’ funds to complete transactions. Whether it is a bank mortgage or a real estate deal financed by a hard money lender, this allows investors immediate funds to purchase real property investments. Most people do not have the necessary monetary funds to dedicate towards purchasing real properties. Having a lender allows them to make down payments and continue paying monthly payments, which are affordable and help them to build equity in the property.
• Principal Pay Down – When using OPM options, payments are made with interest. Each payment includes a small amount of the loan principal, including interest. The closer property investors get towards paying off the property, the more equity they build in the property and the higher principal pay down is gained.
• Appreciation – Real estate prices fluctuate, just like any other moneymaking market. Over the long term, real estates generally appreciate sand increases in value. Prices have always been shown to rebound over long periods of time and as tangible assets, real estate is protected against inflation.