If you ask someone who’s been successful investing in real estate what really matters, chances are good that at least one of the following topics will come up in the conversation. Understanding these real estate investing strategies is key to long-term investment success, regardless of where you choose to buy or what type of property it is.
3 Major Real Estate Investing Strategies
1. Tax Reduction
One of the first things that attracts many investors to alternative investments like real estate is the enormous tax benefits ownership can provide. Upon entering the work force, it becomes apparent that a bunch of what we earn is paid out in taxes, and most of us have to work several months just to pay our taxes for the year. But investing in real estate offers a way to redirect some of that tax money and put it toward a nest egg instead.
Here’s how: Real estate investments offer a way to take advantage of unlimited passive losses, as well as standard mortgage interest and tax deductions, in addition to other things like depreciation and componentizing. Of course, there are also real estate investment strategies like 103 exchanges, getting a tax break on capital gains when selling one’s primary residence, and owning or flipping real estate in a self-directed IRA or other custodial investment account, which also allows you to pass the assets on to heirs, who get to enjoy a stepped-up cost basis. Finally, don’t forget about write offs for all sorts of maintenance and repairs to the investment properties.
2. Investing Money with Purpose
It’s not enough to just buy property and call it an “investment.” In today’s ultra-competitive market, you have to invest intentionally and have a clear idea of what type of property you want to buy and why. For example, if you are interested in turnkey, income-producing investments it’s probably not a good idea to buy a multi-family apartment building unless you’re willing to hire an experienced property manager.
Whether you’re hoping to invest in vacation home rentals that provide excellent return on investment and a fantastic place to visit for annual getaways, or plan to buy and live in your first couple of properties with the intent to keep them as future rentals, investing in real estate can dramatically change your net worth for the better, if it’s done with purpose and careful planning.
3. Use of Leverage
Finally, it’s important to understand the proper use of leverage in real estate, which requires the ability to see the difference between good and bad debt, as well as the importance of keeping enough resources put aside to survive any rough patches that might come up. The way this typically works is, you use a bank’s money via traditional financing, commercial financing and/or lines of credit, then later graduate to using private debt.
Take some time to understand the correct ways to use leverage if you want to go this route, including arbitrage, compound interest and how to “play the float” like the banks do. In short, developing the ability to raise capital (use other people’s money) then properly invest it, can be a real game changer.
What are your top real estate investment strategies? If you’re interested in building wealth with real estate, what questions do you have? Please share below!
Would you like to know more about the top real estate investment tactics? Click the link to read 5 Things Every Buyer Should Know About Real Estate Investing and discover why investment properties continue to provide one of the most lucrative investment options available today!