Investing

MoneyTree
Advantages

Income

If you have purchased properly you can derive monthly cash flow or income. Over time rents will rise and your cost basis with will increase at a slower rate. This will result in more cash in your pocket.

Depreciation

This is a big tax advantage of owning real estate. The IRS considers the property as a depreciating asset (i.e. the building) and this can be expensed against any income generated by the property.

Equity

Over time the mortgage being paid by the tenants will reduce the principle balance. The equity built up over time will be realized once the property is sold. It can also be realized through refinancing.

Appreciation

Real estate will appreciate over time. This means your property will increase in value over time, patience is the key. The appreciation can be realized upon sale or through refinancing.

Leverage

This is a concept where a small amount of money can control a large asset. The benefit of leverage is the smaller the down payment the larger the percentage return on your money based on the appreciation. Example: 10k invested in a 100k property with a 5% appreciation equals a 50% return. 100k invested in a 100k property with a 5% appreciation equals a 5% return.

Low Volatility

Your property value can go up and down but you will not see the wild swings like you do in the stock market. Even if the property value drops you are still receiving income so you will be less likely to panic.

Disadvantages

Illiquid

Real estate can’t be easily liquidated. I will take time to unload your property.

Active Management

Real estate requires active management, you will be involved in decision making unless you turn over all management of the property to a property management company.