Real estate, for many people, simply means the money pit we call our home. This property that we occupy gives us shelter and warmth, but it also comes with a pricey monthly mortgage, endless maintenance, and perhaps some expensive property taxes. Yes, your own home may not be making you rich, but that’s because real estate is most effective as an investment when it’s not the structure you live in.
You may be thinking, “That sounds great, but what about the maintenance and the property taxes?” Well, yes, you will have to maintain your investment properties, and you will have to pay any taxes and fees associated with these properties, but there is no investment in the world that does not carry financial and tax implications. What most of us lose sight of when we think of real estate is the unique, expansive set of benefits that come with real estate investments – benefits that can unlock true wealth-building potential. Let’s explore the most important ways you can start
Investing in yourself through investing in real estate:
- Real estate provides long-term tax write-offs: When you invest in real estate, you don’t deduct the cost of your purchase all at once, like you would for business expenses like office supplies or a new computer. The IRS considers real estate to be a capital asset, so you deduct the value of the property (minus the land value) incrementally over multiple decades. This means you are realizing tax benefits consistently, year after year. For residential real estate investments, the deduction takes place over a 27.5-year period. For commercial real estate investments, you deduct over a 39-year period.
- You are earning steady rental income while you wait to sell: As you reap the financial benefits of yearly real estate tax write-offs, you need to remember that your investment in real estate is only a business expense on paper. In reality, you’re earning steady rental income on your business. Some of it you will reinvest into maintaining and upgrading your property, of course, but these expenses will pale in comparison to the income that real estate can generate for you. And here’s the kicker: All of the maintenance you do on your property can be written off at tax time! Furthermore, you’ll probably eventually sell your investment after it has appreciated significantly in value, netting you even more income.
- You are shielded from market volatility: One of the most defining characteristics of real estate is what it’s not – which is to say, real estate is not subject to the extreme market volatility that defines Wall Street. A bear market can wipe out 30% of your financial portfolio easily, but these same forces don’t extend to real estate. A smart real estate investment is an extremely secure, stable investment that’s only going to appreciate with time, even as you realize significant tax savings from being able to write off the costs associated with this investment.
- Real estate can become part of a circular investing strategy: When you invest in real estate, you don’t necessarily want to be tying up all of your cash, right? Well, the solution is to view real estate as part of a grander investment strategy known as circular investing. Rather than buy real estate outright, you should first buy a whole life insurance policy. The reason is that you want to access the cash value of your policy to fund your real estate investments. You can borrow as much of your policy’s cash value as you’d like; in essence, you become your own bank. Furthermore, you can use the proceeds from your rental income to increase the value of your whole life insurance policy. In doing so, you’re keeping your money constantly flowing and in motion, allowing your money to truly be working for you.
Once you start investing in real estate, you join an elite club of people who are living comfortably off a stable, reliable investment. The keys to succeeding are to recognize the long-term tax benefits, the steady source of rental income that real estate investments generate, the buffer that real estate provides against market volatility, and the potential for real estate to become part of a circular investing strategy.
To learn about how to boost your real estate gains by becoming your own bank, visit Paradigm Life’s Real Estate Investing section.
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