Why Would You Consider Real Estate Investing?

By: David E. Williams

There are many avenues through which people can get started investing these days, and one of the most profit yielding investments is real estate, which can generate a very handsome income indeed. If you are considering beginning real estate investing, you can look forward to some stupendous gains that are associated with this investment alternative.

Investing in real estate can be very lucrative. If you leverage your down payment to earn a return on the entire value of the property, you could earn a lot more than investing in the stock market. For example, assume that you invest $10,000 in a down payment on a house, and you borrow the remaining 90% from the bank. If you earn a 10% return, you will finish with $110,000. On the other hand, if you were to invest that $10,000 in the stock market and also earn a 10% return, you would finish with only $11,000.

Your $10,000 has been doubled in the real estate investment but returned only $1,000 from stock market. This is because of the fact that you have used your lender's money through real estate investment. This is the best part of real estate investing as it gives you power of leverage in the investment. There are more strong and valid reasons for you to begin investing in real estate.

Another reason for beginning real estate investing is the tax benefits. The IRS actually requires you to depreciate your property and this "paper loss" on the property brings the actual tax liability down every year but on the contrary the actual value of the property and the land is appreciating in the market. So you actually end up paying taxes on a reported profit figure that is significantly lower than the actual earnings.

Perhaps an even better tax benefit is the 1031 exchange as defined by section 1031 of the Internal Revenue Code. Essentially this allows investors to delay paying any capital gains taxes when a property is sold as long as the proceeds are reinvested in an appropriate property. The government is basically encouraging investors to stay in the market with this fantastic incentive.

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.

Summary:

Real estate is one of the most lucrative investments these days. So how does real estate investing work? For those considering beginning real estate investing, there are many benefits. Leveraging your finance means you can earn up to tens times the profit of stock market investment because your lender's money has been working for you as well. Tax benefits are another reason to become a real estate investor. Required depreciation allowed by the IRS bring tax liability down every year, while the value of the property climbs. Finally, there is great flexibility in real estate sale contracts.

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