Why Invest in Rental Real Estate?
Take a minute and think differently about your financial situation. You have three buckets that get filled from different activities. Bucket #1 is income from your job. Bucket #2 is the money you earn from the appreciation in your home. Bucket #3 is the money (cash flow) from investments in businesses or income producing property you own. If you only have one bucket contact me immediately - you need emergency financial assistance! If you only have two buckets, contact me as soon as your stock returns can provide needed income!
Now we need to focus on two aspects of your buckets. First, how much time you spend trying to fill each bucket. Second, how much of each bucket Uncle Sam wants from us. Most people, I think you would agree, spend most of their time filling bucket #1. Now, look at your tax return and figure out how much of each dollar you get to keep after paying taxes. What is left for you? 69 cents if you are lucky or maybe less!
Bucket #2 is your home. Thankfully, Uncle Sam has given us a great gift. You can now exclude $250,000 in gain from taxes per person when you sell your primary residence. This is a change in tax law that took effect in 1997 and protects each dollar in this bucket from taxes.
Bucket #3 should be filled with cash flow from income-producing property.
There are four huge benefits to owning rental property:
First, positive cash flow, actual in-your-pocket money!
Second, your tenants are paying your mortgage, that is, over time they are buying you a home!
Third, the tax laws allow a deduction for depreciation of the property, which may actually lead to a paper loss and therefore reduce the tax payable on your ordinary income!
And fourth, the appreciation of the real estate in value from its original purchase price! There is even a way to move from one investment property to another without paying the capital gains. The 1031 or Starker exchange can help create a fantastic investment portfolio.
Contact us if you have any questions, comments or interest.