Real estate is one of the most exciting investment opportunities. However, unless you are committed to active engagement, this investment opportunity may not be for you. What makes this investment unique is that as one of my friends described it, more than two thousand years ago, they stopped creating land according to the biblical story in Genesis. Besides the limited supply of real property, there are at least four ways of generating wealth or improving your finances through real estate. Let’s consider some of the four.
Cash Flow
Real estate investments allow you to generate positive cash flow if you decide to become a landlord. Cash flow, in simple terms, is the money left over after you have paid all the monthly bills associated with owning that rental property. Positive cash flow begins with identifying the right property and, determining what type of rental income it presents, making the necessary improvements for rental purposes. Several other factors and calculations are essential to help you generate positive cash flow, but the key is making sure your numbers are solid. And by the way, if you do decide to become a landlord, you’ll need to develop a team of support professionals who can provide services when required.
Appreciation
A simple definition of appreciation is the increase in the value of an asset over time. Whether you decide to flip or buy, hold or rent out your property, appreciation is the natural tendency for real estate prices to rise over time. I would refer to this a natural appreciation. This just happens because of inflation, inventory shortages, and other market conditions over time. There is also an investor appreciation where investors purchase property, and improvements are being made on those properties. Then they are being resold at a greater price, increasing the value of homes in those communities. As an investment, you have to consider locations where prices are likely to increase if this is your strategy. But generally, even if you do nothing, natural appreciation will occur, and you can experience a gain or profit from your investment.
Paying Down Loans
Real estate provides the opportunity for someone else to pay your bills while you become wealthy! When it comes to investing in real estate, most people will borrow money to purchase additional or investment property, resulting in monthly mortgage payments. But as most of you know, those early monthly mortgage payments go towards paying down the interest and not the principal. However, the amounts you receive in monthly rent will be applied towards reducing your mortgage balance which is one of the fastest and surest ways of increasing your wealth.
Tax Savings
Well, no conversation concerning investments will be complete without mentioning taxes. The federal government and Internal Revenue Service provide much more options for real estate investors than other sectors or areas of the economy. While I will not detail all your benefits, there are qualified business expenses you can write off, depreciation cost, pass-through deductions, capital gains, opportunity zones, and 1031 exchanges, to name a few. As you consider your next investment option, think about real estate and whether or not it is for you.
WHAT’S UP!
Today’s what’s up is about what happened this week and the Federal Reserve raising the interest rate. This week’s rise in interest rates by 0.50% means that everything got a bit more expensive (your car note payments, mortgage interest rates, and your credit card balances), and that’s the bad news. The good news is that the yields on your savings accounts and other investments may increase. While not all banks follow or increase your saving interest rates when there is an increase by the Federal Reserve, this may be the time to see what other banks or in-vestments are paying, given the Federal Reserve increase. Why leave your money in the same place or the same type of investment vehicle when you can get more someplace else? Respond and react to changes as they occur. And that’s what’s up!
Ruthven R. Phillip, Esq., is a tax attorney, Stewardship and Philanthropy Ministry Assistant, and CEO of Give2Getrich, LLC. Give2Get Rich, LLC 2022. All Rights Reserved. Any distribution or reproduction of part or all of the contents in any form is prohibited.
