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With the stock market moving
up again and the real estate market rather flat in the
Denver area you may ask “Why should I invest in real
estate?” There are three very good reasons.
LEVERAGE: I have heard some
financial advisors say that real estate is a poor
investment because it normally only appreciates 3% a
year. What they fail to take into account is the
value of leverage. In 2003, the average home
appreciated 3.48% which doesn’t sound as exciting as
the 25.32% increase of the average Dow Jones stock.
But how much stock can you buy with $10,000? Right,
you can get 10,000 dollars worth of stock. With
decent credit, you can buy a $100,000 house for that
same $10,000. Now if that house appreciates a mere
3.48%, that same house will be worth $103,480 one year
later. You have realized a $3,480 dollar gain on a
$10,000 investment, which is a 34.8% return on your
investment. Compare this to gain of $2,532 on the
$10,000 invested in the stock market. This was one of
the top three gains in the last ten years in the Dow
Jones, as compared to the worst gain in the last ten
years for real estate. In spite of this, through
leverage, real estate still out performed the stock
market. In 2002, real estate would have returned
$3,890 compared to a loss of $1,676 in the stock
market.
Not comfortable with a 10% down payment, call now
for a FREE one hour consultation.
(303) 909-0545
Now, try getting a
loan to purchase more stock using the portfolio as
security. With real estate it is easy to borrow
against the appreciated property to purchase
additional properties. That brings us to the next
benefit of investing in real estate.
TAX ADVANTAGES: When you sell part of your
stock portfolio to purchase some new stock, you will
need to pay capital gain taxes on that gain. With
real estate you may not even need to sell a house to
purchase the next. You can take a line of credit on
the appreciated value of your first house, to use
for the down payment of your second. If you need to
sell your first property to purchase the next
investment
property, then you can take
advantage of a §1031 exchange to shield you from
paying taxes on the capital gains. Although this
vehicle has restrictions, it is commonly used for this
purpose.
The tax code also
allows you to depreciate the property you hold for
investment purposes. In a nutshell, this means you
can have a negative cash flow before taxes but a
positive cash flow after taxes.
A real estate tax
specialist and §1031 specialist can walk you through
the proper steps and requirements to take advantage of
these provisions.
LESS RISK:
Even though you can’t
insure against market fluctuations, you can insure
your house for unforeseen catastrophes. Your money,
in the right bank, is insured by the federal
government, up to a certain amount. You have more
control to protect your real estate investment than
any other. Not only can you insure it, you can protect
it through repairs and maintenance, and proper
management.
Even though, you
cannot control market fluctuations, Real estate has
been more stable in the Denver area than many
investments. In the last 25 years we had one year
where we saw the average price go down 2.2%. Prices
decreased for a total of four years. On the other
hand we have had 4 years where we have had double
digit appreciation. For most of the last 25 years
where have seen an average of 6% appreciation.
In addition, we have
the ability to increase the value of our property with
a minimum of investment. For example, expanding a one
car garage or carport to a 2 car garage, can more than
pay for your additional investment. Another example
is adding 1-2 bedrooms to a college rental which can
significantly increase your rental income as well as
the property value.
In summary, if you
find the right property, for the right price, in the
right place; it will likely be the most profitable
investment you could possibly make.
Let me help you find the right property, for the right
price, in the right place. Call (303) 909-0545
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