Real Estate Investing 101

Investing in real estate remains one of the best long-term investments available.

Most people, however, miss the words “long-term”. Too many people hanging on to the past “flipping” strategy are realizing that unlike stocks or bank investments, real estate is not so liquid.

Only in an ultra-high appreciating market does short-term flipping work. There simply is too much expense in closing costs and real estate fees associated with finding a buyer. Not to mention the risk of having to pay for two homes at the same time.

You can improve your odds by understanding that buying long-term investment properties has always yielded good returns due to several reasons:

1: Leverage

Most people use only a small percentage of cash toward the total purchase price. Thus, if you were to invest $10,000 in a stock or bank and received a 10% return in one year, your net profit would be $1,000.

However, the same $10,000 could be used as a down payment on a $100,000 piece of real estate. Then if your property went up 10%, your return on your $10,000 would be another $10,000, ($100,000 x 10%) or a 100% return on your investment.

Now there are many other factors to take into consideration which are better explained one on one. However, the fundamentals are still the same. What is different is while potential profits rise, potential loss also rises unless you have time on your side.

2: Taxes

One of the largest expenses we face every year is taxes. While most people will take the time to cut out a coupon worth only a few cents, we routinely remain ignorant to legitimate ways to cut thousands of dollars from our taxes.

One of the most valuable is home ownership. The IRS while allowing you no deductions as a renter, does allow you to reduce your taxable income by the total amount of the interest and taxes you pay on your home. That can reduce the monthly expense of home ownership by as much as 25% or more.

Add to that owning and selling your home is still one of the greatest tax breaks available to everyone. Once you own and live in your home for two years, you can sell the home totally tax FREE! You don’t, like in the past, have to do anything. There are limits but they are high and usually don’t come into play.

Frequently Asked Questions

Q: So what is the first real estate investment you should make?

A: Buy a home to live in.

OK. Let assume you own a home, now what? The simplest investment is to purchase another single family home. They are fairly easy to rent and the easiest to resell in the future. Currently with the low cost of homes and ultra low interest rates you can even show a positive cash flow right from the start. The high costs of taxes, insurance and the current glut of homes for sale (and rent) have driven the average cost to pay for the home in excess of what a normal rent would be. Now, that in it self can still be worth the effort.

Remember you need to think long term. If I asked you, when the best time to buy stocks is, most would say right after a correction. Real estate is just the same, and we have just come through such a correction. If I told you that a house would be worth 30% more in three years it would be clear that buying now would be the right time.

While I can’t say when, I know that values will eventually stablize and begin to appreciate. Then two factors will come into play:

1) As the market improves, the rents can be readjusted usually annually;
2) The property itself will be rising in value.

These two actions will improve cash flow and overall investment return. Also, someone else is not only paying the interest (that you are writing off) but many times paying off the actual loan balance. While that is small at first, it still adds up.

This is just the tip of the iceberg as far a Real Estate investing goes. Give me a call for a free in home consultation. Think you are ready for the next step?

Then become an ERIN member. ERIN or the Eaton Realty Investment Network is the opportunity to invest with others in quality commercial investments with reduced risk and increased chance for profit.

Contact us whenever we can be of assistance. We look forward to working with you!

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