Articles

A plethora of investment options are available to people looking for places to invest their savings. One such option is beginning real estate investing. It is a highly rewarding investment option and if you do decide to become a real estate investor you will enjoy excellent returns on your investment, much more than most other investment options.

First of all, real estate investing has the enormous benefit of financial leverage. Even if you get loans for real estate investing from a bank you can often get into a deal with a 10% down payment which means your returns are instantly magnified 10 times. So let's assume you have $10,000 to invest and you get 10% return on your investment regardless of the vehicle. If you put it into the stock market you will buy $10,000 worth of shares and after 12 months your investment is worth $11,000. If you put that same money into real estate with a 90% loan you earn 10% on the full $100,000 investment and finish with $110,000.

So your $10,000 has been doubled in the real estate investment above whereas it only produced an extra $1,000 in the stock market. Why? Because your lender's money has been working for you too. This is the power of leverage and is one of the biggest advantages of real estate investing. And yet there are even more reasons to become a real estate investor as you will see.

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.