May. 23, 2008 - TOP FIVE REASONS WHY I LOVE REAL ESTATE (Part 1 of 2)
5. The opportunity. While both the news media and the government hammer away at falling values and homeowners can no longer rely on their home to serve as their personal ATM (what would Kiyosaki say?), real estate investors are now looking at the market as a new opportunity. In one instance, a group of foreign investors have pledged to buy over 1,000 REO homes in and around the Sacramento area for 35 cents on the dollar and turn around and sell each home on a one-off basis for 50 cents on the dollar. Locally, a private investment group is planning to convert the last major undeveloped area between Seattle and Tacoma into a new sports arena (bye bye Sonics). Both are great examples of the types of opportunities that exist in real estate even now.
4. The wealth effect. Louis Glickman1 once said, “The best investment on Earth is Earth,” and I couldn’t agree more. For decades, the government has pushed the premise that homeownership is the path to wealth, which is half true (definitely not true if the homeowner is suffering from a perpetual case of house-as-an-ATM disease); however, the wealth premise becomes a near certainly when homeownership means OTHER people’s homes. Why? Because one of the central components in wealth creation via real estate is the use of leverage. Leverage allows investors to borrow 80% of the property’s value at rates sometimes less than 5%: so for every $200,000 invested, a person can control and receive an income stream form an asset worth $1MM. By way of comparison, stock investors generally do not leverage themselves and when they do, federal law limits to 50% of the value and the rates are often closer to 10%. Talk about building wealth.
3. The tax code. Sections 121 & 1031 of the tax code are two of the most popular real estate tax tools buried within the 100,000+ pages of IRS gibberish. (BTW - am I the only one who finds the “The Tax Simplification Act of 1986” ironic? You know, that was where we streamlined the tax code by adding 20,000 pages of additional rules and regulations! Sorry, back to my point.) Section 121 or the “Homeowner’s Rule” allows for a $250,000 exemption on capital gains when an owner sells his/her house after 24 months of use.2 And section 1031 allows for the deferral of capital gains from the sale of investment property when the proceeds are used to acquire another investment property within certain time restrictions.3
To be continued...
1Outside of Manhattan real estate circles, Louis isn’t widely known. However, his former business partner is…or should I say the wife of his former business partner is—Leona Helmsley.
2I know the section is a little more involved than that—hence the 100,000+ pages—but that’s general jist of it. Always seek out professional advice when it comes to matters such as taxes, legal issues, accounting rules, and so on. If you don’t have an expert in your back pocket, talk to these guys.
3Same as number 2.
|
Comments (0) :: Post A Comment! :: Permanent Link
View more entries tagged with: Wealth, Investment, Investors, Real Estate, Leverage, Depreciation, 1031, 121
|
|
Links
• Home
• View my profile
• Archives
• Email Me
• Blog Manager
|
