Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Real Estate Investing- Save Money on Taxes

One of the most reliable and profitable investments you can make is to buy real estate. Whether you purchase commercial buildings, residential homes, or so-called “mixed use” property that can function as both a residence and a business location, there are many options and opportunities for a return on your capital.

And there are special government programs designed to facilitate your venture - grant programs for helping fund affordable houses, small business loans for minorities, low down payment options for veterans or active members of the military, and tax breaks for those who renovate and restore historical buildings, to name a few. Just by owning your own home, for example, you are guaranteed certain tax advantages in the form of deductions and exemptions. And those perks perform as “passive” investments, by saving you dollars that you would otherwise automatically part with each year at tax time.

Here are three of the most popular tax benefits enjoyed by homeowners:

Tax-free Capital Gains

If you have lived in your home for two years or more prior to selling it, you can qualify for a 100% exception on the profit you make at closing on your investment, thanks to legislation enacted in recent years. And you can do it as many times as you want - banking tax exempt profits on your home as often as five times a decade.

Mortgage Interest and Property Taxes Many loans taken out to help pay for a home come with tax deductible interest payments. Yes, consumers would like to see interest rates stay low, because this helps them leverage the loan into equity. But many borrowers fail to realize that as rates rise, so do deductions that are tied to those interest rates. So in times of rising rates, tax deductions related to home ownership help to offset those costs.

Home Improvement Expenses

If you buy a home as a fixer-upper, you may be able to deduct the cost of repairs at tax time. And if you decide to sell the home you’re living in, you may be eligible for deductions for things like landscaping, painting, wallpaper, and carpet purchased within a few months of the sale.

And if you want to expand your real estate investment beyond simple home ownership, you can do what many first-time investors do, which is to purchase a home that also doubles as an income-producing property. You can, for instance, buy a duplex and rent half of it while you live in the other half or create an office space in your garage and deduct it as your home office. If you purchase two houses you can live in one while leasing the other one to help pay both mortgages. Or you can simply buy a residence that doubles as a business, as many Bed & Breakfast proprietors have chosen to do. Ask your tax planner to explain the benefits of owning your home or purchasing property for investment income. You may be pleasantly surprised to learn that the benefits are some of the best in the entire tax code.

But keep in mind that investments in real estate are not as limited as they used to be. The traditional options of buying property to live in, lease to others, or barter as a time-share are still viable and practical ways to help grow a nest egg. But there are also numerous other methods for leveraging investments in real estate, and many of them don’t even require an actual acquisition of real estate property.

You can, for instance, purchase a mutual fund that invests specifically in real estate assets, and in that way participate indirectly in the real estate market through shareholder ownership of stock. Or you can trade various real estate related options, trusts, and funds, and reap benefits from property equity without ever actually owning any buildings or land.

Whatever investment approach you choose, it is wise to take help from professionals who can assist you along the way. Attorneys who specialize in real estate, tax planners, Realtors, insurance brokers, and building appraisers and inspectors are among those experts who can offer guidance and insight to investors, to help them avoid risks while capitalizing on the potential that real estate offers to both experienced and first time investors.

About the Author

Troy Fullwood, self made millionaire, nationally known investor, real estate guru, speaker and coach; would like to share with you creative ways to building your own “Money Tree.” In 1997, Troy founded a company called Pinnacle Investments. The main focus is buying first lien performing and non-performing commercial and residential real estate notes.

Real Estate Investing- Save Money on Taxes

One of the most reliable and profitable investments you can make is to buy real estate. Whether you purchase commercial buildings, residential homes, or so-called “mixed use” property that can function as both a residence and a business location, there are many options and opportunities for a return on your capital.

And there are special government programs designed to facilitate your venture - grant programs for helping fund affordable houses, small business loans for minorities, low down payment options for veterans or active members of the military, and tax breaks for those who renovate and restore historical buildings, to name a few. Just by owning your own home, for example, you are guaranteed certain tax advantages in the form of deductions and exemptions. And those perks perform as “passive” investments, by saving you dollars that you would otherwise automatically part with each year at tax time.

Here are three of the most popular tax benefits enjoyed by homeowners:

Tax-free Capital Gains

If you have lived in your home for two years or more prior to selling it, you can qualify for a 100% exception on the profit you make at closing on your investment, thanks to legislation enacted in recent years. And you can do it as many times as you want - banking tax exempt profits on your home as often as five times a decade.

Mortgage Interest and Property Taxes Many loans taken out to help pay for a home come with tax deductible interest payments. Yes, consumers would like to see interest rates stay low, because this helps them leverage the loan into equity. But many borrowers fail to realize that as rates rise, so do deductions that are tied to those interest rates. So in times of rising rates, tax deductions related to home ownership help to offset those costs.

Home Improvement Expenses

If you buy a home as a fixer-upper, you may be able to deduct the cost of repairs at tax time. And if you decide to sell the home you’re living in, you may be eligible for deductions for things like landscaping, painting, wallpaper, and carpet purchased within a few months of the sale.

And if you want to expand your real estate investment beyond simple home ownership, you can do what many first-time investors do, which is to purchase a home that also doubles as an income-producing property. You can, for instance, buy a duplex and rent half of it while you live in the other half or create an office space in your garage and deduct it as your home office. If you purchase two houses you can live in one while leasing the other one to help pay both mortgages. Or you can simply buy a residence that doubles as a business, as many Bed & Breakfast proprietors have chosen to do. Ask your tax planner to explain the benefits of owning your home or purchasing property for investment income. You may be pleasantly surprised to learn that the benefits are some of the best in the entire tax code.

But keep in mind that investments in real estate are not as limited as they used to be. The traditional options of buying property to live in, lease to others, or barter as a time-share are still viable and practical ways to help grow a nest egg. But there are also numerous other methods for leveraging investments in real estate, and many of them don’t even require an actual acquisition of real estate property.

You can, for instance, purchase a mutual fund that invests specifically in real estate assets, and in that way participate indirectly in the real estate market through shareholder ownership of stock. Or you can trade various real estate related options, trusts, and funds, and reap benefits from property equity without ever actually owning any buildings or land.

Whatever investment approach you choose, it is wise to take help from professionals who can assist you along the way. Attorneys who specialize in real estate, tax planners, Realtors, insurance brokers, and building appraisers and inspectors are among those experts who can offer guidance and insight to investors, to help them avoid risks while capitalizing on the potential that real estate offers to both experienced and first time investors.

About the Author

Troy Fullwood, self made millionaire, nationally known investor, real estate guru, speaker and coach; would like to share with you creative ways to building your own “Money Tree.” In 1997, Troy founded a company called Pinnacle Investments. The main focus is buying first lien performing and non-performing commercial and residential real estate notes.

Beginning Real Estate Investing? Your First Decision Is a No Brainer - Should I Buy Or Rent?

Your first real estate decision is a no brainer! Truth is, you’ll live for free by buying instead of renting. Just the facts please. OK, here’s the facts and figures:

If you buy a home and live in it for 5 years you will have lived for free. Your mortgage payments, related closing costs, insurance and property taxes will be returned to you through tax savings and profits after you sell the property. Here’s how it works: (to make it easy we’ll use a $100,000 property even though this figure might seem very low for a home where you live, there are still many places where this is a realistic figure)

Price $100,000
Down Payment - 5,000

Mortgage $95,000
Interest Rate x 10%

1st Year Interest $9.500
Property Tax +1,000

1st Year Expenses $10,500
Income Tax Bracket x 33%

1st Year Tax Savings $3,465
Appreciation @6% + $6,000

Tax Savings and Appreciation $9,465

Your Interest for the first year was $9,500 and your property tax bill was $1,000, which together total $10,500, but your investment return from tax savings and appreciation was $9,465. If instead you were paying $600 a month for rent you would lose $7,200 a year or $36,000 in 5 years because renters don’t get any tax deductions nor can they take advantage on any of the property appreciation. These benefits go to the owner.

You as owner would have paid $760 a month for a total of $45,000 in mortgage payments during those 5 years. Add to that another $5,000 for property tax and your total would be $50,600 or $10,120 a year. These numbers are higher than the renter paid… but wait!

As the owner you would have saved an additional $3,465 a year in tax savings from tax deductible interest and property taxes. Also, your appreciation on the property is a conservative $6,000 (@6%) many cities have higher appreciation rates.

So you spent $10,120 a year and got back $9,465 in cash and equity. Realistically you only spent $655 a year or $3,275 to live in a place for 5 years.

But don’t forget, part of your mortgage payment went toward paying off about $4,000 of your principle of that 5 year period, which is more than the $3,275 you spent out of your pocket.

Would you rather be the owner of that home or the renter?

Real Estate Investing- Save Money on Taxes

One of the most reliable and profitable investments you can make is to buy real estate. Whether you purchase commercial buildings, residential homes, or so-called “mixed use” property that can function as both a residence and a business location, there are many options and opportunities for a return on your capital.

And there are special government programs designed to facilitate your venture - grant programs for helping fund affordable houses, small business loans for minorities, low down payment options for veterans or active members of the military, and tax breaks for those who renovate and restore historical buildings, to name a few. Just by owning your own home, for example, you are guaranteed certain tax advantages in the form of deductions and exemptions. And those perks perform as “passive” investments, by saving you dollars that you would otherwise automatically part with each year at tax time.

Here are three of the most popular tax benefits enjoyed by homeowners:

Tax-free Capital Gains

If you have lived in your home for two years or more prior to selling it, you can qualify for a 100% exception on the profit you make at closing on your investment, thanks to legislation enacted in recent years. And you can do it as many times as you want - banking tax exempt profits on your home as often as five times a decade.

Mortgage Interest and Property Taxes Many loans taken out to help pay for a home come with tax deductible interest payments. Yes, consumers would like to see interest rates stay low, because this helps them leverage the loan into equity. But many borrowers fail to realize that as rates rise, so do deductions that are tied to those interest rates. So in times of rising rates, tax deductions related to home ownership help to offset those costs.

Home Improvement Expenses

If you buy a home as a fixer-upper, you may be able to deduct the cost of repairs at tax time. And if you decide to sell the home you’re living in, you may be eligible for deductions for things like landscaping, painting, wallpaper, and carpet purchased within a few months of the sale.

And if you want to expand your real estate investment beyond simple home ownership, you can do what many first-time investors do, which is to purchase a home that also doubles as an income-producing property. You can, for instance, buy a duplex and rent half of it while you live in the other half or create an office space in your garage and deduct it as your home office. If you purchase two houses you can live in one while leasing the other one to help pay both mortgages. Or you can simply buy a residence that doubles as a business, as many Bed & Breakfast proprietors have chosen to do. Ask your tax planner to explain the benefits of owning your home or purchasing property for investment income. You may be pleasantly surprised to learn that the benefits are some of the best in the entire tax code.

But keep in mind that investments in real estate are not as limited as they used to be. The traditional options of buying property to live in, lease to others, or barter as a time-share are still viable and practical ways to help grow a nest egg. But there are also numerous other methods for leveraging investments in real estate, and many of them don’t even require an actual acquisition of real estate property.

You can, for instance, purchase a mutual fund that invests specifically in real estate assets, and in that way participate indirectly in the real estate market through shareholder ownership of stock. Or you can trade various real estate related options, trusts, and funds, and reap benefits from property equity without ever actually owning any buildings or land.

Whatever investment approach you choose, it is wise to take help from professionals who can assist you along the way. Attorneys who specialize in real estate, tax planners, Realtors, insurance brokers, and building appraisers and inspectors are among those experts who can offer guidance and insight to investors, to help them avoid risks while capitalizing on the potential that real estate offers to both experienced and first time investors.

About the Author

Troy Fullwood, self made millionaire, nationally known investor, real estate guru, speaker and coach; would like to share with you creative ways to building your own “Money Tree.” In 1997, Troy founded a company called Pinnacle Investments. The main focus is buying first lien performing and non-performing commercial and residential real estate notes.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.