Wednesday, August 22, 2012

Real Estate Investment Time Again?

In my opinion, there is no quicker, easier or safer way to build wealth than through real estate. In fact, the laws of this land are written heavily in your favor to purchase real estate, user real estate to lower your income taxes, and to keep most or all your investment gains. The same can’t be said of any other investment vehicle.

Buying Property
Boy, is it easy to qualify for a home loan. Would you loan a stranger $250K? Banks do it all the time. The hardest part of getting a conventional loan is the down payment, but banks will even loan you the down payment! There are many programs out there in our local Syracuse area geared towards first time homeowners that can get you into a property. They can’t wait to hand over their money. So take it.

Owning Property
Homeowners can deduct interest on mortgages and property taxes on their primary residences. On investment properties, government forces owners to depreciate residential property over 27.5 years, even though in reality the property is appreciating. So that means if the rent minus all expenses puts real money into your pocket year after year, your taxes can legally show a loss. For example, a condo which cost $275K is depreciated at $10K per year. Let’s say that every month, the positive cash flow from that property is $500, or $6K income for the year. But because the property “depreciated” $10K, my loss on the books is $4K, and consequently, my taxable income is reduced by $4K.

Selling Property
Homeowners can keep capital gains tax-free (up to $500,000 for married couples filing jointly or $250,000 for singles), provided that the home was the primary residence of record for at least two of the prior five years. The exclusion can be taken every two years. On investment properties, Section 1031 of the Internal Revenue Code allows owners to roll the gain from the sale of the old property to a new property without paying tax, provided that the new property is equal or greater in value to the old property and all of the proceeds from the sale of the old property are invested into the new property. We're seeing this happen all the time out here in New York.
So with all these benefits, if you aren’t into real estate, you should ask yourself why.

This post was contributed by William Cross Reality, providing Syracuse real estate.

26 comments:

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