Two of my favorite assets to own are, without doubt, life insurance and real estate. Both are powerful assets for cash flow. Today, I want to look more closely at real estate, and how it pays to invest.
My good friend Keith Weinhold laid it out in a very digestible way, and now I’d like to share it with you. So let’s dive into the 5 ways real estate actually pays you, and why it’s such a valuable asset for so many.
1. Positive Cash Flow
Once you’ve put the work into a property, you’ll reach a point where you’ve paid all the monthly expenses, and there’s still money left. This is positive cashflow, and Cashflow is King.
20 years ago, I experienced this for the first time. I had just bought my first property, and after paying everything that month, there was still money left over. I had a smile as big as the Cheshire Cat, because I was in a position of positive cashflow. And then I thought, “How many times can I do this? This is amazing.”
That’s the joy of cashflow investing, as we do in the Cashflow Ninja community.
2. Value Appreciation
When done correctly, investment real estate will appreciate in value. Even commercial real estate appreciates based on the operations, right? So again, if done properly, it will appreciate over time.
That means, not only do you have monthly cashflow, but you get to benefit from the appreciation of the asset.
The third reason real estate investing pays is when you have tenants, because the tenants actually pay down the loan. This is an amazing benefit, because now you get to leverage people’s money twice.
You have OPM — other people’s money — from the bank loan, and then you get OPM from the tenants to pay down the loan. So through the power of leverage, you’re in an extremely powerful position.
4. Tax Advantages
A benefit that many of you should be excited about is tax advantages. Right now, in the United States, real estate is probably one of the most tax advantageous assets for investors.
We’ve all heard of depreciation, but what does it actually mean? Consider a single family property. That property is going to age — the building and it’s fixtures are going to age, and things will lose value over time. But as mentioned above, the value of the property itself, especially investment property, will go up if done properly. So you can actually utilize the tax advantage of depreciation because the building is getting older.
Other advantages include mortgage interest deductions on the property, which is especially great with single family properties. And a strategy called a 1031 exchange allows you to sell a property and then roll it into a new property, preventing a taxable event from occurring (capital gains).
So as you can see, there are some incredible tax advantages.
5. Inflation Profiting
By owning investment grade real estate, you can partake in something my friend Keith Weinhold calls inflation profiting. Think about it — as I’ve covered before, money loses value over time.
Let’s say you’ve bought a single-family property, with a fixed 30-year mortgage at a low rate. You have 30 years, then, to pay that off. (And as I mentioned before, your tenant pays that down for you).
The mortgage payments themselves are depreciating each year. $100 today will be worth less in the future than it’s worth today. That’s why it’s more efficient to have a 30-year mortgage whether it’s an investment property or a personal residence. When you’re at the end of that mortgage, it’s going to feel a lot easier on the wallet.
So I’d like to give a shout-out to my friend Keith Weinhold from Get Rich Education, who distilled the benefits of real estate into these key points. This is why real estate is such an important asset class, and why the Cashflow Ninja community loves real estate.
Live your Freedom, Live Your Legacy, On Your Own Terms,
M.C. Laubscher is a husband, dad, podcaster & Cashflow Specialist. He helps business owners and investors create, recover, warehouse & multiply cashflow. You can learn more about exclusive cash flow strategies in M.C.’s new video series at https://www.yourownbankingsystem.com/
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