The Benefits of Real Estate Investing

Real estate investing can be a great way to build wealth, but it’s not for everyone. This article will explore some of the benefits of real estate investment and help you decide if it is right for you.

Cash Flow

One of the greatest benefits of real estate investing is cash flow. Cash flow is the amount of money you make each month after paid expenses. If you can afford to purchase a property with little or no money down and an average rental rate of 2% (meaning that for every $100 you rent out, you will receive $2), then your expenses are $0. This means that for every ten rental properties you own, you’re making $200 per month in cash flow. As an added bonus, the more properties you buy with borrowed money (using a second mortgage or commercial financing), the more cash flow you can make since your principal and interest payments will be lower. For example, if you purchase ten rental properties with $0 down and an average rental rate of 2% (meaning that for every $100 you rent out, you will receive $2), and borrowed the money to buy them using a second mortgage or commercial financing at 9%, then your expenses would only $18 per month per property ($0 principal, $18 interest). This means you make $182 per month in cash flow or $2154 per year. Although many factors can affect your cash flow, this example should give you a good idea of the benefits of real estate investing.

Return on Investment (ROI)

Return on investment is how much profit you make compared to how much money you invested. If you buy a rental property for $100,000 and sell it one year later for $125,000, your return on investment is 25%. Although this profit seems excellent, note that there are many costs involved with buying and selling real estate. There are also tax implications. To calculate the actual ROI, you should use the following formula:

ROI = (Profit from Sale) / (Investment) * 100% = ($25,000) / ($100,000) * 100% = 25%. Although the return on investment looks great at first glance, note that there are serious time commitment and tax implications involved.

Tax Benefits

Another great benefit of real estate investing is the tax benefits from depreciation, interest deductions, and capital gains. Many new investors do not understand or know about tax strategies related to real estate, which could cost them thousands in taxes over time. If this describes your situation, talk to an accountant specializing in real estate investing. They can help you determine the best tax strategies for your situation.

Summary

Real estate investing can be a great way to build wealth, but it’s not for everyone. This article has explored some of the benefits of real estate investment and will help you decide if it is right for you. The most important thing to remember is that many factors are involved in real estate investment, so do your homework before making any decisions.