Friday, May 17, 2024
Whenever I arrive at a meeting in my sports car, people sometimes comment that I must make great money as a REALTOR® to be able to afford a car like that. They are usually surprised by my response, when I say, “No, being a real estate agent doesn’t pay that well. I make most of my money investing in real estate, just like my clients.” Just like my clients, the majority of my money comes from using the power of leverage. That car? I see it as a testament to people that their investments can pay much more than their jobs can.
At Dekker Team, we aren’t excited about the transactional process of buying and selling; we LOVE helping people build WEALTH through real estate. Having navigated both the ups and downs of the market ourselves, we are uniquely equipped to guide our clients away from common pitfalls and toward profitable opportunities.
The Power of Leverage in Real Estate
One of the most compelling aspects of real estate investing is the ability to leverage your investment. For example, if you put down 20% on a $1 million property, you’re using $200,000 to control a million-dollar asset. If the property appreciates by 5%, that’s a $50,000 gain on your initial $200,000 investment, which translates to a 25% return on your investment. This kind of leverage is not typically available in the stock market, where a 5% increase would only yield a 5% return on the same amount invested.
Maximizing Returns with Tax Advantages
In addition to leverage, real estate offers significant tax benefits that can enhance your earnings. You can use strategies such as depreciation to reduce the taxable income generated from your properties. Here’s how:
- Depreciation: Over time, just like a car loses value as it ages, your property also “depreciates” or loses value in the eyes of the tax system, even though it might actually gain market value. You can use this depreciation as a deduction when you calculate your income taxes. This means you can report a lower income from the property, and therefore, pay less in taxes. It’s like saying, “My building is getting older and wearing out, so it’s not making as much money as it seems.”
- Paper Losses: Sometimes, the costs of maintaining your property (like repairs, property management fees, or mortgage interest) might be more than the income you receive from rent. On paper, it looks like your property is losing money, even if it isn’t actually draining your cash on hand. You can use these losses to offset other income you have, reducing your overall tax burden. It’s a way of showing that your investment costs you more than it earns, thereby reducing how much tax you owe.
- Capital Gains: If you sell your property later at a higher price than what you paid, you make a profit called “capital gains.” Normally, you would pay taxes on these gains. However, if you hold onto the property and pass it on to your heirs or decide to refinance it, you can defer these taxes. Refinancing means you take a new mortgage on the increased value of your property, which gives you cash without selling the property. You can use this cash for other needs or investments while still owning the property.
- Leveraging Real Estate: By refinancing, you can pull out some of the investment you’ve made (or even profit if the property has increased in value) without needing to sell. This is a common way to get more capital to reinvest in more properties or other types of investments.
By understanding and utilizing these aspects, you can significantly enhance your investment strategy, making your money work better for you while minimizing the amount of taxes you pay. This approach allows you to grow your wealth through real estate in a financially efficient way.
Why Real Estate Over Stocks?
The stock market, typically yielding returns of around 4-5%, does not offer the same potential for high returns as real estate investments can, especially when considering leverage and tax benefits. These financial strategies allow you to spend your money more effectively, multiplying its impact in ways that other investments simply cannot match.
At Dekker Team, we understand the intricacies of real estate investment and are eager to help you navigate this rewarding path. Whether you’re looking to secure a prosperous future, enhance your current income, or even fund a luxury purchase, real estate offers a robust pathway to achieving your financial goals.
Join us on this journey, and let’s build a secure, prosperous future together. Connect with us! 613-860-4663 or together@dekkerteam.com
