We believe that multi-family real estate is the most powerful and consistent investment vehicle available to investors of every financial means for the following reasons:
- Superior Rate of Return – Ignoring other positive attributes of real estate including tax benefits and monthly rental income; real estate provides superior rates of return to stocks and other assets.
- Income – Real estate produces rental income to offset the costs of ownership, maintenance and financing costs. Obviously, it is the goal of all investors to have a positive cash flow for all properties. While other investment vehicles such as stocks and bonds do offer dividends and principal and interest payments respectively, they do not provide the additional benefits of real estate investing.
- Amortization – On a monthly basis as tenants make their rental payments and you utilize their rental payments to pay down the mortgage on the property thus increasing your equity in the property and your net worth.
- Appreciation – Since records have been kept in relation to the issue, real estate has increased in value at an average rate of approximately 6% per year or approximately twice the rate of inflation. This fact combined with tax benefits, income and amortization work hand-in-hand to facilitate superior returns to that of stocks and other investment vehicles.
- Buy Below Market Value – Once you purchase $50,000 worth of stock the market value of the stock is worth $50,000. The value of the stock will then begin to move up and down with the market. When you purchase real estate however, you may be able to purchase a property valued at $600,000 for $500,000 because the sellers are going through a divorce or need the money for some other purpose. Thus, you have the ability to purchase real estate and create instant equity in the property.
- Increase the Value of Your Real Estate Assets – If you purchase $50,000 in stock there is nothing you can do to increase the value of the stock. You are at the mercy of the company’s board of directors, management and the consumers who purchase the product of the company. If fact, as owners of Enron stock found out; the value of stock can evaporate overnight. This is not the case with real estate. You can take action to increase the value of the property. It is amazing the value increase you can experience by purchasing the worst property on the block and merely cutting back landscaping and painting the property; you can literally purchase a property for $800,000, paint it and sell it later for $950,000. Commercial property values can be enhanced by merely increasing the rents. For instance, if you purchase a commercial property, provide cosmetic improvements and subdivide larger spaces into smaller spaces which demand a higher per square foot rental rate, you can experience a huge increase in value. For example, assuming you purchase a 5,000 square foot building which was commanding rents of $1.25 PSF per month and subdivide the space into smaller spaces with market rents of $1.67 PSF per month, assuming a 10% cap rate, the value increase would amount to $250,000.
- Tax Advantages – Real estate offers many tax advantages chief among them the ability to depreciate the value of the property (excluding land value) over time. Depreciation does not cost you any money and yet it can provide a tax loss to offset your income. Please consult with your tax advisor on this issue as tax advantages vary from individual to individual.
- Obtain Cash Without Selling and/or Paying Taxes – As real estate appreciates in value one might refinance the property and pull out cash without paying any taxes. For example, if you purchased an apartment building in 1990 for $1,000,000 with an $750,000 loan and now the building is worth $2,000,000 with a remaining loan balance of $600,000; you may refinance the property for $1,500,000 ($2,000,000 x 75% value to loan ratio) and pull $900,000 ($1,500,000 – $600,000) out of the property. As refinancing your property is not a taxable event, you do not have to pay taxes on the $900,000. Excluding margin loans, the only way to receive money from stocks is to sell the stock which triggers a taxable event for the taxpayer.
- Real Estate is the Simplest, Most Consistent and Easiest Way to Substantially Increase Your Net Worth