As many people find success with their businesses, many others search for good real estate investments for their profits. Of course, we should all start with traditional tax preferred assets like RRSPs and other investment funds. These are the solid ground for good benefit planning for ourselves and our employees. However, I’m also convinced more entrepreneurs should consider some rental real estate as an important part of their portfolio. I know some business owners might tum away from this concept, but let me list a few reasons that may change your mind about this type of investment. Primarily, the main reasons are for future investments, additional incomes and numerous tax benefits.
Real Estate is one of those investment mediums where using the bank’s money couldn’t be easier. If you have the ability to make a down payment then you can leverage your capital and increase your overall return on investment. Buying rental property is based on speculation that it’s value could be a dangerous maneuver since cash flow is paramount. However, the appreciation of a real estate investment over the long-haul is certainly realistic. At the least you should be considering a tax-deferred benefit. In the future, you may even consider a charitable trust or an installment sale to lesson your tax liability further. Rental real estate can be a retirement plan. Most people are poor savers and lack the discipline to put a monthly deposit into saving accounts or RRSPs. Buying a rental property is a good sized investment that requires commitment to maintain it. In the long-run, you will be grateful if you don’t give up too soon and you will build future cash flow as well as your wealth. Depending on your classification, whether a active investor or Real Estate agent and your income level, there is a good chance your rental property and your overage of tax deductions can be used against your other incomes. However, always check with your accountant before investing so your expectations aren’t disappointing. Rental property provides investors with another opportunity to convert some personal expenses against valid business deductions. Rental real estate is a real business. This means that even travel expenses to check on your properties and payments to others who manage your properties can be deductible and increase the tax benefits. Because of depreciation and mortgage interest deductions, your cash flow should now be tax-free. In fact, a majority of the time, investors will never pay taxes on their cash flow and capital gains, only on the sale of the property.
I meet with many successful entrepreneurs and most have taken profits from their businesses and invested in rental properties. I have urged my clients to buy at least one rental property per year. I have seen clients with rental properties earning income they never imagined possible. Most of us will never get rich overnight unless they receive an inheritance. Generally it takes more of a long-term investment strategy with a diverse portfolio to truly build wealth.
What are you thoughts?
I thought it would be good to share my own personal story of success and how it lead into a successful business model in real estate investment.
When I was just a young man of a mere twenty five years old, I started out as an apprentice pipe-fitter. I began my family with my first of three sons enriching the lives of my wife and I. At that time I was given good advice and acquired two rental properties. At the same time, we ourselves were in the process of purchasing a family dwelling for our growing family so that we could continue to enjoy the moments of family life.
Then one day on the way to work, I had this thought. If I could just hold onto these three properties I will be able to retire early at the age of 50 years old and have a million dollars in equity as well have enough cash flow to bring in a wage $60,000 per year to live on with no mortgages by that time. At that point I realized at that moment that I’d stumbled upon a good thing. I was hooked on this process and my idea. I wanted to share the idea of investing in real estate as well as sharing the satisfaction it gave me with others by helping them invest for the long term and retire early.
I’d love to hear your comments about my story and share with you more information about real estate investing that will help you stay ahead of this game called life.
As lending rules get tighter and tighter we need to look at alternative ways to keep our money working hard. Multifamily dwellings investing has proven to be one of the most historically stable asset classes-missing the peaks, but not seeing the valleys. Expect steady cash flow and high returns on investment and no limit to the number of buildings you can invest in.
Buy low and sell high is the goal but the nice thing about multifamily is being able to increase the value by improving the overall performance of the business. An example would be to put in water saver shower heads to reduce your water bill therefore increasing the net return and adding value to the property. Another example would be to install vending machines to increase the total revenue or have cable included and add a slight increase to the rents. Of course just reducing your annual vacancy and maximizing your potential rents will help the value as well. After a few years you can show the bank the increased value through a few simple changes and possibly refinance to get your capital back out and into the next asset.
Yes there is more to consider in regards to capital expenses and other challenges with this type of rental but with the proper team and planning you will do just fine. Allowing your future self to thank you and retiring early will make it all worthwhile.