Buy and hold stocks is common place, but what will the future of the market look like? Why not invest in real estate instead? Here are five ways that you can make money with investment properties.
1. Interest is all tax-deductible: in the US
Yes, all of your mortgage interest is tax deductible. This may not sound like much, but consider at tax time what an impact this could make on our bottom line, especially if you have an interest-only loan or an option-arm where what you are paying out is primarily interest and little principal at all.
At tax time you take 1/27.5 depreciation on the value of the real estate you own. It is considered that in 27½ years that the real estate will have depreciated it’s entire value. Again, not significant? Well, consider a single family home priced at $275K. That’s and even $10,000 at tax time. Meanwhile your property is actually appreciating in value. Can you say “Free Money” boys and girls? Let’s all go give the Fed chairman a great big hug
Let’s not forget about our old friend “appreciation”. Just look back at any old newspaper or magazine articles saying that paying $7,000 for a house is just ridiculous. Or that prices are averaging $20,000 now, there’s bound to be a “bubble”. Well, let’s admit, if prices were at 7K, or even 20K now, you’d buy as many as I could get my hands on. The facts show us that there is only so much Earth. Land and the real estate on it, is a limited commodity. It is also a commodity appreciating in value, some areas faster than others. You can buy in a slow market and still do well. If you’re savvy enough to buy in rapidly appreciating markets, you will do even better more quickly
4. Reduce tax on the money you make:
Well, let’s just say for arguments sake that you are savvy and did invest in a nicely appreciating market that is now peaking or taking a natural break from the peak and you decide you’d like to sell. There will be some end-user paying retail price that will be happy to scoop up your place at the appropriate price and now you have profits in the form of equity. If you don’t need it for something urgently, you will most likely want to reinvest. Well, Uncle Sam is nice enough that if you purchase “like properties”, he will defer taxing you until a later date. Whenever you stop the investment cycle and take that money out, you will be taxed on it, but not a moment before. Theoretically you could keep 1031ing forever!
Oh yeah. Then there’s that silly little matter of rent. Whatever property you are holding, chances are you are leasing it to someone or a group of someone’s for their use. If you’ve invested in a particular manner, you will produce some cash flow for yourself in addition to all the other perks.