Why would anyone want to be in Real Estate?
by James Miller
This question is particularly pertinent right now.
Here are my top reasons for investing in Real Estate… especially now.
1) Real Estate is on sale.
Houses all over the country are selling at a discount from the sellers themselves, from the lenders, or even the US government.
2) I love the Write offs
Real estate allows me to depreciate about 3.3% of the value of the property the first year. It is a declines after that amortized over 27.5 years. But this is a phantom loss that I can hold against my earned income. Sure I have to realize that deprecation when (or if ) I sell, but the dollar I can write off today is worth much more than the dollar I have to pay back in the future. this is the whole time value of money thing.
Since my real estate is set up as a business, there are plenty of write offs we get to take in our daily real estate routine. Things like computers, printers and digital cameras are necessary for the work we do on our rental and rehab properties. So are the tools I pick up at Home Depot, and many other things.
This is essentially a discount from what I would have to pay if I used these things for personal use.
I currently have so many write offs (and I am so underpaid at my current job) that I have not had to pay in income taxes in the past several years.
3) I can get into a property cheap.
No other time in my investing career has it been so easy to buy a property from a seller with so little out of pocket. I have literally had sellers pay me to take their house. I have others where my net out of pocket was only a few hundred dollars and several more where the cash outlay were limited to just a few thousand dollars.
These are small sums that allow you to take control of an asset easily worth 100 times the amount you have into it.
4) Property appreciates in value.
No, I swear it really does. We have had a bumpy ride over the last few years, but when the fear is over and common sense comes back to the market, we will again see the slow steady rise in real estate values that we have been accustomed to over the past 100 years.
I am not saying that there won’t ever be bumps in the road again. I am just saying that what we have seen is an anomaly due to overzealous investing from abnormally easy loans. Everybody got spanked. We’re sorry and we promise not to let it happen again…. even though it eventually will.
5) Property provides cash flow.
I am making reference to rental property as rehab property can cost you money until you sell it. I am in a particular pinch right now as I have three vacant homes we are in the process of selling that have created a net negative cash flow.
I took my eye off the cash flow ball and focused a bit too hard on the speculative rehab profit. The market tanked and I am in line with a lot of other investor and developers…. trying to sell ice to the Eskimos.
How can you learn from this lesson? Always keep your eye on cash flow. As Billionaire Bill Bartmann says, the most important number in your business is the amount in the checking account. When that goes to zero, everything stops.
If you always have a positive cash flow, your checking will never go empty.