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.
Investing is a very strange world that most people avoid due to the potential risks and confusing information out there. We get advice from our parents, media, neighbours, friends and our bankers, but what works best for you? Do you have goals? Who can you trust to put your goals and needs before theirs? Some people are fearless and just go out and try things knowing something will probably work or either way it will work out for them. Most people are a little more cautious and rightfully so. With your goals in mind, you need to be comfortable with what you’re getting into. Real estate is only one of many ways to invest. Education in real estate investment is first and foremost. Asking those who have experience, can really help you progress without losing your mind or your money.
To get yourself into a position where you can be aware of your options, the risks involved, the benefits, and the work or lack thereof, I suggest finding some mentors. Mentors could be family members who have retired successfully, business owners small and large, stock investors or real estate investors who have experience in their field, thereby allowing you to see the whole picture. Different investments provide different ROI’s (return on investment), provide profits in different forms and give you different amounts of involvement on your part. Some may take years to generate a profit and thousands of hours of your time to learn and build up a successful cash machine. Others can be hands-free providing long term equity growth. Others may show you some form of cash flow to enjoy right away.
Another great source of mentorship could be autobiographies of real people who have achieved high levels of success in their lives. Additionally, you could take courses or seminars to help you learn what will work for your goals. One warning I will mention is ‘be careful who you listen to.’ Everyone has an opinion and some have a lot of pride which may affect the value of what they say. If you are learning from someone who has not achieved what you’re looking to do, then you could be learning the wrong information. I would suggest that you take it all in, but keep what you like and throw away the rest. You may also strive to become more knowledgeable than your mentors at some point and that is a great place to be. Just make sure you gather more mentors and teachers who can help you go even further.
So why would you want to learn about investing? Well I like to snowboard, travel, surf, spend time with my family, work when I feel like working and take care of my parents later in life. Getting financially educated will empower you to be and do anything you want in this life. But it’s really about who you become so the freedom and confidence acquired along the way will open more doors to a fulfilling life. As you reduce the financial trap of the “human rat race”, that most people get stuck in their whole life, you will become lighter and more graceful in everything you aspire to do.