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?