Investor Resources

"Over the last two centuries, about 90% of the world’s millionaires have been created by investing in real estate."

Appreciation: 

Real estate appreciates, not always in a linear fashion but historically the values tend to stay on a steady upward curve over time. In a simple comparison, the appreciation percentage trails the stock market but that comparison does not include any income over time, tax advantages and the benefits of leverage, which in real estate vary from asset to asset and are difficult to compare to other investment vehicles.

Hedge against Inflation:

Real estate is a great hedge for inflation for a number of reasons.

• One: The effect of inflation on debt. As real estate prices rise, it lowers the loan-to-value of any debt. As a result, the equity on the property increases but your fixed-rate mortgage payments remain the same.
• Two: Earning income based on tenants paying leases. Income can rise as your debt remains constant for a period of time. Multifamily is a coveted asset class because most leases are short and rental increases can be done more frequently.
• Three: Real estate can be a good hedge because property values over time stay on an upward curve exceeding inflation. 

Cash Flow: 

Cash flow is the amount of money going into or coming out of an investment property on a consistent basis. Negative cash flow is when an investor is putting cash into a property from a bank account or other sources. Positive cash flow is generated by the tenants paying their leases, which in addition to paying the mortgage may produce a net positive cash return to the investor. The difference between the spread of the revenue generated and the expenses (including the debt payment) of the property will determine the percentage of cash flow in either direction. 

Leverage:

Instead of buying one asset with all cash you could use the cash as a down payment and use debt (borrowed from an institution or bank) for the remainder of the purchase price, giving you the ability to purchase a more valuable asset or multiple assets. In most instances, using the right amount of leverage can increase your cash-on-cash return.

Tax Advantages:

Likely the largest benefit to investing in real estate versus the stock market lies in its tax advantages. 

• Real estate write offs: Taxes, insurance, interest on mortgages and maintenance, and the additional business operating percentages. 
• Depreciation deduction: A real estate investor who holds investment property is allowed to deduct depreciation, which is basically assumed wear and tear. Depreciation acts as an expense on your taxes which lowers your taxable income and possibly reduces your tax liability.
• Capital gains taxes: If an investment property is held over a year, the profit is taxed at the long-term capital gain rate, a significantly lower tax rate than your standard income rate.
• Tax Deferment programs: A more advanced topic we will go over in the next video.