4 Ways to Produce Wealth in Commercial Real Estate
There are plenty of reasons why someone would invest in real estate. If you ask an investor, almost all of them will have something positive to share about their journey in real estate. For some it might be the extra money in their pocket or the fact they could quit their job and do what they love with full control.
Of course, just like any investment, there is risk and things can happen. My goal in writing this article is to show you though no investment is risk free, there are many ways to profit in real estate.
The reason why I started investing in real estate is fairly simple, something most people want, but think is unachievable. To create another stream of income by putting my money somewhere it is protected so I can rest easy.
Just like most busy sales professionals, I like making money! I love business and I saw real estate as a second way to make extra money.
Having more than one stream of income has reduced the stress and worry when spending money on things like travel and entertainment.
I wanted my wife to have the choice to quit her 9-5 corporate job. She now has the freedom to do what she loves on her own time.
I started with one single family home and within less than a year, I sold the home and bought my first multi family building of 12 units. I quickly realized I needed to go bigger (multi-family) to scale my business and make more money faster!
Whether your motive is you like to make money or because you want less stress when it comes to money, this is a good and safe way to take control of your money and create passivity.
4 Ways to Build Wealth in Real Estate
Let’s dive into the specifics! Four essential ways you can generate wealth in real estate are: taxes, amortization, cash flow & appreciation. You won’t reap the benefits of these in all investments, but investing in a smart deal will head you in the right direction.
Taxes
When most people hear this topic, their first reaction is to turn and run for the hills! I know when I first decided to learn about taxes and real estate, I was not eager to get started. As I continued to read, I became more and more excited about taxes.
That just doesn’t sound right, getting excited about taxes? But what if you found out you could save money with a real estate portfolio because the government incentives. Makes more sense now, right? I have confidence you will also discover taxes are more than what you first expected.
Did you know you can save up to 40% on your next tax bill using real estate? This alone is enough reason to buy one property. Nobody wants to give away even a little bit of their hard- earned money. I sure don’t!
While I have been studying how real estate can save you money, I am by no means a tax professional and you should always consult your CPA.
Check out the book, Tax Free Wealth by Tom Wheelwright, CPA. He is a tax expert and offers legal ways to be like the rich and not pay taxes. The magic of depreciation, potential write offs (including travel) all just in the first few chapters!
Bottom line is the tax laws/codes are written to decrease your taxes little to none. The government wants you to invest in things like real estate. By buying and investing in apartment buildings, you are providing housing for workers so you get all the benefits.
Amortization
Amortization, in a nut shell, is paying an amount owed (principal & interest) over a period of time, rather than all at once.
In a healthy real estate investment, meaning you buy at a price the numbers make sense and manage it professionally, you will build wealth merely by keeping the property occupied.
• You buy the property with a loan from the bank
• Someone else is paying down your mortgage & Interest
• Someone else is paying your insurances & taxes on the property
• Expenses such as property management fees are being paid by renters
• Bonus! Cash flow
This leads us to the next way to create wealth.
Cash Flow
Who wants extra money in their pocket? The real question is who doesn’t. In a good deal, after all expenses, mortgages, insurances, etc. are paid, you should have cash flow. There are exceptions to this such as, your expenses are more than your income.
I like to use the cash flow from my properties to put back into the apartments to add value. This is not only is appreciated by the community, but also gives me the opportunity to raise rents, hence, more money in my pocket!
When you take this in to account plus the value is growing over time, you will begin to build passive income.
Appreciation
On top of the fact that someone else is paying down your loan (building you equity) while your investment is generating cash flow, your property is increasing in value each year.
Appreciation is as simple as that!
As you hold onto your property, you will relish the cash flow while at the same time your properties value will grow. The value of the investment will keep growing over the years whether you make minor or major renovations.
If you choose to add value through exterior or interior updates, you will be creating additional value which you will then add these improvements back into your total value of your investment come selling time.
Join our club! Did the information in this article convince you to get started in real estate or inspire you to learn more about real estate investing? If so, join our club and get started building wealth!