Real estate provides many advantages to investors. I think that all investors must make it part of their learning process to understand the advantages and do what is possible to maximize its use. What are some of the benefits of Real Estate ownership? Here I would like to share with you some of the benefits you will find from real estate investing:
1. Cash Flow - In its simplest definition, cash flow is can be defined as the difference between rental income and expenses. Well... there are plenty. Depending on the situation, cash flow can be positive or negative. Based on your goals, you may find that a property even with a negative cash flow may be a good investment. What is important is that you review the potential investment and determine it it fits your goals. If what you are looking for is current income, then positive cash flow properties is what you are looking for.
2. Appreciation – Appreciation is the increase in value of a property. Now you may be thinking that this is a non factor in the current real estate market. However, there are markets right now positioned for respectable value appreciation. As a smart real estate investor you must be looking for this markets right now, so you can position yourself to gain from appreciation.
What are the main factors that affect the valuation of a property?
• Economic Conditions – An example of economic factors has to do with inflation. Since we do not have control over inflation, it would not be very smart of you to buy a property where your only investment strategy is inflation.
• Forced Appreciation – This one you have control over. For example, when you improve the condition of the property you are affecting the future value of the property. A way that you can benefit from this is when you buy a property on “As Is” conditions and you bring the property to the neighborhood standards or slightly higher and then you end up with a more valuable property.
3. Leverage – Leverage is the ablility to borrow a percentage of the value of a property. One of the main advantanges of real estate investing compared to other forms of investments is the fact that it offers the ability to leverage the acquisition of your investment. This allows the investor to purchase real estate with only a portion of the acquisition price of the property. As a smart real estate investor you must learn to manage the amount of debt you take against the investment to ensure that you are not over-leveraged. Keep in mind that borrowed money is always debt.
4. Tax advantages – This is a subject that is unknown to many real estate investors and that has a tremendous impact on your level of success. See the amount of profit truly made on a transaction should be measured on a after tax effect. In addition to that there are many tax advantages to real estate investors that you need to be aware and take advantage of.
There are many reasons to take into considerations when making an investment. As a real estate investor should not make your sole investment decision on only one of the advantages mentioned above. You should take into consideration all of the items mentioned above and many other individual factors that may be
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