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Why People Invest In Real Estate

Written by Dian Herdiana on 5:36 AM

Many people know that real estate investing is very lucrative. For that reason alone, will make people want to get their share of the pie. They know that this is a great way to build wealth, not only for them, but they can also pass it down to their future generations.

In addition to having monthly rental income, there are other factors that contribute as to why people invest in real estate. Some of them include:

• With appreciation of rental properties, there will be increased value. In turn, this could help with the selling and reinvesting in properties that already have a higher value. Appreciation of rental properties can also make way for an equity line of credit for future use.

• Speaking of equity, you as an investor can invest in sweat equity, which involves making improvements to your real estate property. It doesn’t have to be so far out where you end up spending a lot of money.

This can help the value of your property go up faster than it would have if you had not made improvements. So, if you spend $3,000 on cosmetics and miscellaneous items, then the value of the property could be double or more of the amount you spent on improvements.

• Being a real estate investor during inflation times is not necessarily a bad thing. Even though rental payments increase during this time, your mortgage loan payments should remain the same. Because of this, you can have an increase in cash flow.

Another thing about inflation is that you can also gain more renters (if you have vacancies) because some people may not be able to secure mortgages during that time. Since you will have a greater demand for renters, the rent will also increase. This is part of the agenda of supply and demand.

• Using “Other People’s Money”, or “OPM”, is a good reason for people to invest in real estate. You can find a bank that will secure a loan for you for your real estate investment(s). The better your credit is, the better chance you have of securing a good fixed rate loan with low interest rates.

You can also look at zero-down loans, but that can be more risky. You would have to pay more in your mortgage payments because you didn’t include a down payment. So when the property appreciates, it will benefit you along with the monthly cash flow.

• Real estate investing is considered a business. You can use the expenses from it and deduct them from your taxes. Anything that your purchased, had repaired, any fees and anything else related to the investment in question.

Even if you have properties that are out of the regional area where you have to travel, those expenses can also be deducted from your taxes. If nothing else, being able to deduct expenses from your taxes is like a marriage made in heaven.

• Have you heard of getting cash that is tax free? Say you have an increase in rentals and you end up having a positive cash flow. The surplus can be used for other things. If it’s the right time, you may think about wanting to refinance the rental properties.

If you do that, you could secure a higher mortgage about $20 - $50,000 more than the original. You would pay off the initial mortgage, and have a nice surplus afterwards. The surplus would be considered tax-free money.

• The 1031 Exchange is named after Section1031 in the Internal Revenue Code. It discusses how real estate investors can hold off on capital gains taxes when selling one of their properties. There are three conditions that have to be met before the 1031 Exchange can go into effect:

1. It is a real estate property investment and not a main residence for the investor.

2. The real estate property can be swapped for a property of the same or similar kind.

3. In regard to replacement, there must be certain time frames in place and adhered to.

When an investor uses profits from another property sale and invest them in another property, they can hold off on capital gains for future real estate transactions. More than likely, the investor will work on getting additional equity and more income and profits from additional property rentals.

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