Why Invest

Real Estate is an investment that allows you to use borrowed capital or debt to increase your potential return (or potential loss) on investment (“ROI”). An investor can capture appreciation on the total value of the property rather than just the down payment made on the property.

Here is a simplified example-

Consider two investors that each have $100,000 to invest in real estate.

• Investor A buys a $100,000 property with all cash.
• Investor B purchases a $500,000 property by putting down $100,000 (i.e. 20%) and finances the remaining $400,000.

In this hypothetical, assume the properties appreciate 10% over a certain period of time. The value of Investor A’s property would increase to $110,000 whereas Investor B’s property would increase to $550,000. The ROI would be dramatically different for each investor.

• Investor A would gain $10,000 as the property appreciated 10% from $100,000 to $110,000. This would result in a 10% ROI.
• Investor B would gain $50,000 as the property appreciated 10% from $500,000 to $550,000. This would result in a 50% ROI.

This is the potential power of using leverage when investing in Real Estate. However, it is also important to note that leverage in real estate can work against you if the market goes down.

Some Real Estate properties can offer positive cash flow which means the rental income produced by the property is enough to cover the mortgage, insurance, property taxes, property management fees, and maintenance/operating expenses.

If your property generates sufficient rental income, your tenants over time will pay off your mortgage debt. When the mortgage is paid off, you will have the opportunity to earn a substantial amount of passive income.

Owning investment properties gives you the opportunity in the future to increase rents and ultimately increase cash flow. In general, as prices rise so does the cost of housing which means investors can help defray higher costs with higher rents which serves as a hedge against inflation.

Owning investment properties allows you to take deductions, depreciation, and to defer tax liability through 1031 property exchanges. Please consult with a tax lawyer or tax accountant to learn more details about the latest tax benefits of owning investment property.

Investment risk can be minimized because there are multiple avenues to benefit or realize profit from your investment such as renting in the property, living in the property, selling the property, or refinancing the property.