COVID – 19 has drastically reduced tax revenues while also increasing the expenditures of: Cities, Counties, States and the Federal Government. So what are the plans to close the Billions in gaps? Look in the mirror! Politicians tend to stick to their tried and true option of RAISING OUR TAXES. In anticipation of high taxes climbing and the escalating violence in some cities; thousands of homeowners are fleeing the highest taxed states such as IL, NY, NJ, etc. and moving to lower taxed states.
North Carolina (NC) is one of the states experiencing an increase in buyers and new residents and also happens to be the state where my family owns several rental properties. Raleigh is routinely voted as one of the best places to live or retire and has LOW real estate taxes!
The Best Places to Retire in America Are All College Towns
“For North Carolina seniors, ages 65 and over, NC State University, located in Raleigh, NC, offers a tuition-free waiver for college class audits. And for retirees who are into the food scene, Raleigh has much to offer in the way of bakeries, breweries and restaurants. In 2018, area chefs received three different James Beard nominations — one of the highest honors in the food industry. First-class healthcare is also available as \nearby Duke University Hospital ranks as one of the top hospitals in America, according to U.S. News & World Report.”
While we have watched the Nasdaq Index return to March 2020 highs, SOONER VERY SOON the stock market will go into a decline. Therfore, I am diversifying my overall portfolio by reducing stock holdings and increasing real estate holdings.
ADVANTAGES OF INVESTING IN REAL ESTATE
APPRECIATION
The U. S. national average for home appreciation is three to five percent. Below shows you what this looks like if you hold an investment property for 20 or 30 years.
EXAMPLE APPRECIATION ON A $222,000.00 PROPERTY
| HOLDING PERIOD | VALUE @ 3% ANNUALIZED | INCREASED VALUE@ | VALUE @ 5% ANNUALIZED | INCRESED VALUE |
| 20 YEARS | $401,000.00 | $179,000.00 | $589,000.00 | $367,000.00 |
| 30 YEARS | $538,900.00 | $316,900.00 | $959,500.00 | $737,500.00 |
LEVERAGE
Majority of real estate investors utilize other people’s money in the form of a mortgage. I purchased, my first condo for about $50,0000. Later, I purchased a larger home and rented out that condo. I paid 10% down on the condo and financed the remaining $45,000. The numerous tenants over the years more than paid off that $45,000 mortgage. The rental income leveraged my $5,000 down payment, into a property valued at $150,000.00 today.
Investors with excellent credit can sometimes purchase properties with $0 of their own cash. {Note: It is difficult to breakeven on expenses with a zero down-payment}
LESS RISK
Last weeks blog post discussed buying stock or ETF’s and warned buying shares of a single company’s stock comes with risk. Sometimes a very high risk if that company declares bankruptcy and your HARD-EARNED DOLLARS permanently disappear!
ANYONE CAN BUY STOCKS – READ THIS IF YOU WANT TO MAKE MONEY!
LOWER RISK INVESTMENT
- The U. S. population is increasing, which creates long term demand for housing.
- Before buying a property, you can research expected rental payments, and outgoing expenses.
- Outgoing expenses include: Mortgage, Taxes, Insurance, etc. Before purchasing a property, ALWAYS conduct an inspection looking especially at big ticket items like, Roof Condition, HVAC Systems, Structural Integrity, Windows/Doors, Electrical, Etc.).
TAX BREAKS
Majority of your costs to own, maintain and manage a rental property are deductible on your taxes including:
- Mortgage Interest Payment
- Personal Property: Including appliances, furniture in rental units, gardening equipment, computers, desk, phone, etc.
- Repairs and Routine or Preventative Maintenance
- Travel expenses
- Home office
- Insurance Cost: make sure to get the right type of insurance to cover your work in case anything happens. If you’re a landlord, it also means protecting yourself from potential lawsuits tenants, or other people visiting your property could bring against you.
- Utilities; City and Municipal Fees
- Professional fees (tax preparation, etc.)
- Management fees (if you do not have the time or desire to manage the property)
- Pass-Through Tax Deduction: Starting in 2018, most landlords will qualify for a new pass-through tax deduction established by the Tax Cuts and Jobs Act. This deduction is a special income tax deduction, not a rental deduction. Depending on your income, landlords may be able to deduct (1) up to 20% of their net rental income, or (2) 2.5% of the initial cost of their rental property plus 25% of the amount they pay their employees. This deduction is scheduled to expire after 2025.
- Building Depreciation: Landlords can deduct the cost of the building through deprecation. The typical depreciation schedule lets you take the value of the building and write it off over 27.5 years (leave it up to the government to come up with that number). Example, if you buy a property and the building (excluding the land) is valued at $200,000, you write off $7,272.72 each year.
PORTFOLIO DIVERSIFICATION
Owning Stocks, ETF’s Mutual Funds, Bitcoin, Precious Metals, etc. caries risk. A pandemic sent the world economy and stock markets into a severe correction.
Real estate, on the other hand, has remained more stable. However, it is key to remember that anything that goes up can come down and real estate is not immune to huge market drops. Just look at the last major housing bubble collapse in 2008! My personal home has still NOT returned to 2007 values, 13 years later! Never put all your funds into one investment asset, including real estate. If you invest in real estate, make sure you have other assets to keep your portfolio diversified.
CONCLUSION
The path to successful real estate investing.
EDUCATION – Obtain the needed education, whether it be through YouTube, reading or a mentor/coach. Hire an experienced rental property real estate agent.
EARNINGS/SAVINGS – Spend less than you earn and save the rest!
INVESTMENTS – Diversify your investments. For instance, I own assets in Stocks, ETF’s, Mutual Funds, Land and Real Estate. If real estate is right for you, start looking for a good property.
HOW TO GROW POSITIVE CASH FLOWS FROM RENTAL PROPERTY INVESTMENTS
REAL ESTATE INVESTMENTS – THE BEST WAY TO BUILD YOUR WEALTH!
REAL ESTATE INVESTMENTS – THE BEST WAY TO BUILD YOUR WEALTH!
Use below tool to evaluate any property.
https://www.calculator.net/rental-property-calculator.html
EXAMPLE: $220,000 RENTAL PROPERTY POTENTIAL INVESTMENT
Attachment 1.0: You input expense and income data {Purchase Price; Down Payment; Interest Rate; Loan Term/Years; Income Data; and Expenses} in below section and the tool calculates your Return on Investment. See Attachments 2.0 and 3.0.
ATTACHMENT 1.0
Attachment 2.0: TWENTY YEAR PROFIT RETURNS – On a 10% investment or $22,000 down payment EXCLUDING Tax Savings.
Attachment 2.0
Attachment 3.0: Twenty Year Breakdown of Expenses, Cash Flows and Equity Accumulated
Treat your real estate investment like a business. Take necessary precautions to protect yourself, and your business.
If you invest in the right property, your investment can prove to be an incredible long-term success.
To Join Wealth Building Powers BLOG:
PLEASE SIGN UP TO FOLLOW THIS BLOG by providing your email in the subscribe box.
To follow my daily posts on Instagram, click: instagram.com/wealth_building_powers
Thank you to my followers and readers, for your likes and comments. All comments, recommendations and feedback are welcomed and utilized to improve this blog.
ABOUT ME
I am a proud nerd (as my beautiful wife and daughter have told me) investment and finance blogger, with a NC State, Chemical Engineering, University Rutgers, MBA and Harvard University, Advanced Management education.
I left a corporate career because I had a desire for making a difference as a speaker and writer, to help others. I was blessed to be coached and mentored by strong women and men in both my family and professional life. It is my time to serve and give back.
DISCLAIMER
I started my first business at ~13 years of age (small but brilliantly managed plant nursery). I am a successful investor in stocks, options, real estate and happy to share my personal finance and investment lessons learned with you.
However, I am NOT a licensed financial advisor. Please do not construe my suggestions on this blog, as recommendations for your personal situation. For individual finance advice please seek your own licensed CPA or fiduciary financial advisors.
I write this weekly blog to make an impact by reaching an audience and demonstrating the need for financial literacy. I will help you get there.