Why Chose Real Estate?

Why Chose Real Estate?

Investors typically choose real estate for a number of reasons:
cash flow, appreciation, tax benefits and leverage.

A real estate investor holds property for personal or
commercial investment reasons. This differs from real estate dealer
who holds property primarily for resale to potential clients.
An active investor typically buys a property and then makes repairs
or improvements with the intention of selling the property for a profit.

A passive investor usually hires an investing firm to find
and manage potential profitable opportunities, and is not
actively involved in any improvements or negotiations
related to the property. Unlike a professional Realtor who
has to pass a series of exams and be licensed by local and state agencies, an investor
simply needs capital and confidence.



By putting down payments on a real estate transaction, an investor can
significantly increase his profit percent and better the terms of the
financing loans. By bettering the terms of the
loan, an investor can increase his available cash for other
transactions, thus increasing potential earnings exponentially.
This process creates a strong cash flow. This cash flow is very enticing to real estate investors.

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Barring any unforeseen declinations in quality, real estate, unlike a car, generally appreciates in value. This means that once a property is purchased, the value of that property steadily increases over time. Residential real estate is especially prone to this process. This is so because residences are comparatively priced. This means that the value of a property is largely dependent on the value of the surrounding properties. Therefore, if one house appreciates in value, then the surrounding properties also increase in worth. An investor can force appreciation by investing in repairs or improvements.


A Somewhat lesser known reason that so many people are learning how to become a real estate investor is the beneficial tax rules governing such transactions. State and federal governments try to encourage investment by writing financial rewards into the tax code. There are two main rewards built in. First, an investor can claim monthly mortgage payments as a tax deduction. Secondly, tax deductions can be made through a process called depreciation. Though a property may appreciate in value, an investor is allowed to make the assumption that it will actually depreciate over the projected useful lifespan of the unit. He or she is then allowed to claim this theoretical loss as a tax deduction.


Another strong reason for becoming an investor is called leverage. Leverage can best be explained through an example. Say you bought a house for ten thousand dollars and then sold it for eleven thousand dollars. Your profit margin would be ten percent. However, if you get an initial loan for the purchase and make a down payment of only one thousand dollars, then your profit margin would be one hundred percent. This method is called leverage and is a great way to maximize profits.


For all these reasons real estate investing is both an easy and very profitable business to get into.

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