One of the things that I noticed as I started learning about money and investments is that most great, lasting wealth seemed to have been made through real estate investing. Where real estate wasn?t the great driver, such as the Internet and telecommunications booms of the early 90?s, the smartest people redirected cash earned into real estate holdings.
It is still a good idea to use this approach today. No matter what you do for a living, I encourage you to consider getting involved in real estate investing. There are a lot of ways to do it, and we will cover some of them in future articles. For now, let?s examine some of the reasons why real estate works so well for those looking to build long-term wealth.
1.Income. Real estate investing offers you the chance to earn both active and passive income. Unlike your job, where you trade your hours and effort for cash, many real estate investments allow you to leverage capital. Your money makes you more money. Your earnings can actively involve your time and energy (such as managing rental properties) or you can trust others to manage your holdings (REIT?s and some limited partnership structures). Your choice should reflect your goals and lifestyle preferences.
2.Tremendous Tax Benefits. The benefits of owning property can have to do with the write-offs against the rental income. Your costs in marketing your property, cleaning and maintaining it, insuring it, screening tenants, etc. can be deductible. Other deductions typically include insurance payments, taxes, depreciation and interest expenses on any mortgages used to secure the property. While you can?t write off the principal payments on your mortgage, these payments can be figured into your depreciation calculations and benefit you thereby.
3.Asset Appreciation. Another great feature of real property is asset appreciation. That is, the underlying asset that is actively generating income and tax savings for you is also increasing in value and building your net worth. This should work two ways: the principal portion of your payments is reducing your debt and the marketplace is raising the value of the property. For example, market values of homes in my town increased by 9% last year. Some markets routinely see double-digit increases. On average, Houston real estate appreciates by 3-5% annually.
4.Stability. Investing in real assets can shield you from some of the fluctuations that exist in the stock and bond markets. While real estate does have cycles (just like any other asset class), demand for single-family housing - whether for rental or purchase - is fairly consistent. Relative to other investments, its fluctuations aren't as broad. While it may not hit the high highs of tech stocks, for example, it typically doesn't bottom out as dramatically either. This feature can be tremendous in a well-balanced portfolio.
5.Involvement. This is the fun part. Investing in real estate offers you a chance to ?kick the tires? more than virtually any other investment. This can make it a lot of fun. But, it?s not just fun; it?s protection. No one will be closer to the performance of your money than you. And that?s a good thing.
If you need help evaluating opportunities or financing your projects, contact me today. I have a free ?Deal Evaluator? in Microsoft Excel format that I will send you free when you e-mail me. Many real estate investors have found it helpful.
I wish you great success.
Mark Anthony McCray, author of the upcoming books, ?The 31 Rules for Succeeding as a Mortgage Broker? and ?The 31 Rules for Prospering Financially? (http://www.the31rules.com), is the Founder and CEO of Houston, TX based First Capital Mortgage Company (http://www.dealsdone.net). First Capital is a commercial mortgage banking and brokerage firm that has helped its clients leverage millions of dollars in financing for their real estate acquisitions, developments and investments over the years. Write to Mark at mark@dealsdone.net or call 713-267-4040 for more information about the author or First Capital?s services.
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