Articles of Interest

There are many avenues through which people can get started investing these days, and one of the most profit yielding investments is real estate, which can generate a very handsome income indeed. If you are considering beginning real estate investing, you can look forward to some stupendous gains that are associated with this investment alternative.

One of the biggest advantages of investing in real estate is financial leverage. If you get loans for real estate investing from banks, you typically can get it with 10% down payment as your contribution, which means your returns would be magnified 10 times. If you, let's say, have $10,000 to invest and all asset class give a return of 10% per year, then investing these $10,000 in stock would result in $11,000 at the end of the year, with a gain of just $1,000. While on the other hand investing the same $10,000 in real estate worth $100,000 (with $90,000 as bank loan) would result in $110,000 with a total gain of $10,000.

As you see from the example, your $10,000 has been doubled using real estate investment, whereas it could only produce an extra $1,000 in the stock market. You can understand the reason for this - your lender's money is working for you too. That is the power of leverage and is one of the greatest advantages of investing in real estate. As you will see, there are many more advantages to begin investing in real estate.

Tax breaks on account of depreciation of property is an important reason for becoming a real estate investor, at the earliest. While in reality the value of property is appreciating in its value, due to increase in the value of land, you get to claim a tax deduction on some notional tax loss, or in other words your taxable income is significantly lower than your real income. Great!

1031 exchange as defined by section 1031 of the Internal Revenue Code is a better tax benefit scheme as compared to others. The essential feature of this rule is that an investor can delay payment of tax on any capital gain from the sale of a property as long as the proceeds are reinvested in other appropriate property. This incentive by the government in effect encourages the investor to remain invested in the market for longer duration.

One of the great benefits of investing in real estate is derived from the flexibility of sale contracts of property. Unlike stock investing, you can be very creative with your offers while buying and selling real estate and you can exchange property for a lot of things other than just cash. This leads to some spectacular win-win arrangements.