How to Make Money in Real Estate Investing

Raja” Ahluwalia

Lower Your Taxes
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

Lower Your Taxes
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

For which items can investors get tax breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (assuming the tenant doesn”t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow

There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.

Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow — whether it is pre-tax or after-tax — requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.

Use Leverage

One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.

Benefit from Growing Equity

While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD’s, the return on investment for real estate purchases can often be greater.

The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it’s time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.

(c) Copyright 2005 Madan Ahluwalia. All rights reserved.

ABOUT THE AUTHOR

How to Make Money in Real Estate Investing

Raja” Ahluwalia

Lower Your Taxes
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

Lower Your Taxes
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

For which items can investors get tax breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (assuming the tenant doesn”t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow

There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.

Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow — whether it is pre-tax or after-tax — requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.

Use Leverage

One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.

Benefit from Growing Equity

While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD’s, the return on investment for real estate purchases can often be greater.

The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it’s time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.

(c) Copyright 2005 Madan Ahluwalia. All rights reserved.

ABOUT THE AUTHOR

Real Estate Investing benefits

“Growing instead of Shrinking

First thing to note in the list of real estate investing benefits is that if you look at the real estate market as a time line compared to the stock market, you will notice that real estate is a growing line with few major fluxuations. On the other hand the stock market has high points and valleys that range from quick high’s to sudden drops through out it’s history. It’s harder to look at the time lines of other forms of investing i.e. currency investing, mutual funds, buying gold and silver etc - but one thing is clear, no other market is as profitable or as safe as the investment real estate market. Many people ask me “Why is investing in real estate such a safe investment?” and the answer is as simple as it is complicated, the quick answer is “God isn’t making any more of it” the more complicated answer isn’t as poetic. The reason investing in real estate has so many benefits has many factors, I will go over the basics with you now: 1. Government Tax Breaks - The United States government has setup multiple tax breaks for real estate investors including the very popular 1031 exchange. The textbook definition of a 1031 exchange is:

“”A 1031 exchange or Like kind exchange is defined by section 1031 of the Internal Revenue Code. This code specifies that if an asset, usually some form of real estate such as land or a building, is sold and the proceeds of the sale are then reinvested in a like kind of an asset then no gain or loss is recognized, allowing the deferment of capital gains taxes.”"

The simple explanation is as long as you reinvest the money you made from your real estate investment into another investment you don’t have to pay taxes on said profit. No other form of investing gives you this much freedom with taxes.

2. Anyone Can Invest - Because real estate investing is so profitable and safe it see’s a huge amount of amateur investors entering the market everyday. Why else do you think all these infomercials are on late at night talking about the millions they’ve made overnight with someone’s CD set? O.k. I’m not saying that buying one of those CD sets will make you a millionaire but they are good to learn the basics of real estate investing from. The big problems with these CD sets is they teach making millions in real estate with bad credit or without spending a dime. This is not the case, 99.9999% of the time you will need excellent credit and a good amount of money for the down payment on an investment property (usually 10-20%).

3. Other People’s Money - Why invest your money when you can invest someone else’s? One of the big rules in real estate investing is “If someone is willing to flip the bill - let them”. Banks are more then willing to give out a loan to buy houses because unlike other forms of investing they have something tangible they can keep if you don’t pay up. Banks are usually not as willing to give loans for stock or gold investing because the stock you invested in maybe worth nothing by the time you sell and the bank has nothing OR you take your gold and run across the border. Real estate is almost always going to be worth something (often increasing in value every year) and their hasn’t been a recorded case yet of someone taking a house across the border. Right now the investment real estate market is booming like never before in history and those investing in it are being rewarded more so then in any other time in. If you want more information on this explosive market feel free to visit my website or give me a call and I will answer any question you may have. ”

About the Author

“Phil Laboon is a well known author in the field of Real Estate Investments in Florida, Nevada USA. His articles are very popular & published across internet. He has a vast experience in writing content & articles in this domain.

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