Making Money With Residential Income Properties
LOS ANGELES, CA. You have heard time and time again "If I only had purchased that rental property, I would be worth millions today". Years ago, I discovered that real estate was the best investment to control risk and create wealth.
By: CENTER FOR REAL ESTATE STUDIES
Real estate allows you to control your risk because you can actively participate in the decision-making process. Passive investments such as stocks don't give you this opportunity. Movements in real estate values are less erratic than in the stock market. Most people don't understand the economic forces influencing the market. Since real estate is less volatile, it's easier to control and to understand. Real estate is tangible. You can touch it, you've been exposed to it all your life, and you can identify with it. As a result of this familiarity, you are better able to understand it.
Effectively Reducing Your Taxes
Real estate ownership continues to be the most popular form of investment because of its potential for substantial tax savings. Since you are able to actively participate in the management of real estate, the Internal Revenue Service (IRS) currently allows qualifying individuals to write off up to $25,000 per year against salary and other income. No other investment gives you this capability. In addition, you can defer paying income taxes on profits indefinitely by using tax-deferred exchanges.
Leveraging That Works
Real estate is the only major investment that gives you the ability to acquire ownership with very little money down. This degree of leveraging allows you to amplify profits by using other people's money. The more assets you are able to control, the more opportunities you have to succeed. The degree of leverage is calculated by dividing the total purchase price of the property by the amount of funds used to purchase it. Thus, if a down payment of $10,000 plus a $90,000 loan is used to purchase a property, a 10 to 1 leverage ratio has been achieved. The greater the leverage, the more equity will increase with the change in value of the property.
Residential Income Properties
In the past 20 years, residential income properties have delivered the highest average total investment returns of all real estate types. With a built-in hedge against inflation, it's no wonder that residential real estate has out-performed all other types of real estate investments with relatively low risk. Based on supply and demand over the next 10 years, residential income will out pace all other types of real estate investment. Strong demographic and financial indicators along with changing lifestyles should continue to positively influence residential income investments.