Learn more about the benefits of investing in properties, and how you can gain from being knowledgeable about the 1031 exchange real estate.
3 Benefits Of Investing In Real Estate
1. True Cash Flow
What investors get from real estate investment is net income, which, in the most literal sense of the phrase, is what’s considered “cash flow”. On the other hand, “net income” refers to property payments sans mortgage and operating expenditures.
In a nutshell, one advantage of real estate investment is how it’s capable of generating said financial flow.
Even better, this financial flow will, as time passes, only be strongly reinforced via your mortgage payments.
2. Constant Turnover Of Income
When you deal with real estate investment, there’s always the possibility of property appreciation. “Appreciation” refers to how the value of a property increases over time. Unlike other tangible and/ or financial assets, this is something distinct in the real estate industry.
It can be achieved by making improvements in building structures themselves, in the land they are built on, and the land they are surrounded by (as long as these still fall within the parameters of the properties’ deeds).
Apart from this, trends in appreciation in the local real estate market are profitable as well. According to real estate management, the median increase is somewhere at a 4.0% gain, on a year-over-year basis.
But what’s even more inviting is investing in business properties. Property rentals are a means of gaining regular cash flow without you having to lift a finger! Granted, you as the owner will be responsible for the property’s upkeep, taxes, etc. In the long run, it will prove a steady source of income.
Equity in the context of real estate is explained as the “difference of your current mortgage debt and the actual value of your property”. Here’s an example. Let’s say that your mortgage loan is $200,000 and the actual value of your property is $100,000. Subtract the latter from the first and you get a difference of $100,000— this is called equity.
The equity amount will continue to rise as you just as continuously pay your mortgage. Once you pay off your mortgage, you can use its equity to reinvest in additional properties and put a green light on constantly gaining returns from your new investments.
Tax Deductions And Deferrals
Now, here’s a benefit that you shouldn’t ever miss out on— tax deductions and/ or deferrals, and all under the legal umbrella of the Internal Revenue Services.
This is where the 1031 exchange enters in all its splendour. Costs that fall under ownership, operations, property management, and the taxes therein can be deferred to a later date.
In a few instances, they can be deferred to the point of avoiding paying taxes by continually buying and selling properties (ask your QI or Qualified Intermediary to advise you about what types of real estate can count under 1031).
Though the latter is quite the rarity, deferring capital gains taxes especially when you have other financial plans and/ or responsibilities presently, will be very helpful indeed. Capital gains taxes can be put on hold for a certain number of years, which gives you the opportunity to focus on separate financial earnings and expenditures at the moment.