Andrew And Associates

How to Maximize Your Real Estate Investment

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It’s no secret. Investing in real estate has produced more millionaires and personal wealth than any other investment opportunity. Although you may not get super high appreciation on your investment properties, there is one thing common about real estate, particularly land… they are not making more of it. As population increases and growth demands rise, the value of real estate continues to climb. The key to success in real estate is to do your homework and insure the numbers work in your favor. There are many ways you can profit from real estate. Here are four ways.

First, use investment properties to lower your taxes.  Tax incentives for investors are very good.  Many investors use deductions from their rental property to offset some of their wage income.  Other investors use the expenses and deductions to make up for their rental income. While this may not make up for all the payment income, tax breaks usually help make up the difference.

An investor may claim deductions for operating, managing and financing a rental property. For example, you can deduct interest payments on the mortgage, insurance, maintenance, repairs, real estate taxes, property management fees, travel, advertising and operating expenses for a rental property. If you pay the utilities, they can also be deducted. All these deductions are subtracted from the adjusted gross income on your personal tax statement as long as they don’t exceed your income payments. One more thing that is very important. You can use depreciation of the property over time, regardless of the value of the property.

You profit from positive cash flow. When you receive more money from the rent of your property than the expenses you’ve incurred, the result is positive cash flow. Your main objective should be to determine whether you need positive cash flow before or after taxes. Let me explain. If you have a positive cash flow before taxes, this will be considered current income on your tax return. It is usually harder to find rental properties with a pre-tax positive cash flow. Many rental properties will have more expenses than income. This is why it is so important to do your homework to see if the numbers work in your favor.

When your income prior to tax is negative, the result is a positive after-tax cash flow. However, depreciation expenses usually offset the positive after-tax cash flow. There is an eligibility test used to determine if you can shelter some of your taxable income and thus reduce your income tax. You must also make sure that your tenants pay their rent on time and take care of the property. You must have income to produce a positive cash flow. When you rent, screen your renters carefully. Check their credit, employment history and previous landlords to identify your best possible renters.

Maximize your leverage. You’ve probably heard the saying, “If you want to make money than use ‘Other Peoples Money’”. This is true. You should pay as little of your own cash as possible. This makes your income stretch further. Leverage is simply using someone else’s money to increase your equity. Equity is the difference in what you owe for a property and what that property is worth. The careful building up of your equity is what determines the value of your investment dollars.

Finally, as equity increases, so does your investment. Historically, real estate has always appreciated over time. There may be ups and downs in the real estate market, but as a rule the return on investment from real estate has always been greater than other types of financial investments. With every payment you make, you pay part of that payment toward principal. This increases your equity. As that principal is paid down, you equity increases even if the property does not increase in value. The key to successful investing is to use a knowledgeable professional to help you identify properties that meet your specific investment criteria. You need to know how much equity you have and learn to leverage that equity as you purchase additional properties. Once you successfully do this, your personal wealth and real estate portfolio will significantly increase.

Choose your agent wisely. Always work with a full-time professional real estate agent to maximize your potential profit. Don’t be afraid to ask many questions of your agent. That’s their job. Find out how much they know about the homes that have recently sold and are on the market in the neighborhood you’re considering for purchase. Be sure your agent listens closely and asks you questions about your investment objectives. It is very important that your agent have a clear and full understanding of what you are looking for so he/she can assist you in finding the very best real estate investment properties.

Do you have questions or need advice you can count on or just want to discuss this further?

Don’t waste any more time; pick up the phone and call me now!  I’m here to help!

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