Disclaimer: The author has no affiliation with any of the products, services or companies discussed in this article.
Travis Cadman has built an international real estate investment enterprise and you might be wondering why. Have you heard that most of millionaires put their money to real estate? How about stories of living the good life off passive income from rental property?
Put this together with the recent years of unpredictable, disappointing stock markets, and you have a lot of people realizing they don’t have control over many of their investments and therefore their life savings. Tired of blindly following the people who started looking at why so many wealthy people own real estate. In this article, you will know the truth about how real estate makes a lot of money.
How to Use Taxes to Your Benefit
Cost segregation study pinpoints and sorts out personal property assets to shorten the depreciation time for taxation purposes. It reduces tax obligation from your income. This forces more tax savings to the investor.
The Power of Debt
The huge difference between other investment classes and investing in real estate is the power of debt. Most debt comes with amortization. The amortization of the debt you put on the property builds wealth. In multifamily or other commercial investment real estate, the property’s value is based on the income the property produces.
If you control the income and expenses in a property, you are also controlling the value. It means you have a way to increase income. You can raise the rent, or add any other source of income to the operations of the property. You can also decrease the expenses by reducing turnovers and vacancy, putting in energy efficient light bulbs and plumbing fixtures, or any other ways to reduce the operating expenses, you increase the value of the property.
Increasing Multifamily Value
For example, you bought an apartment complex worth 1 Million dollars. You bought this because you saw an opportunity to add value by increasing income and decreasing the expenses. You noticed similar units in your area rent $50 more than your rent so you implemented a monthly $30 increase keeping the rent below market so you wouldn’t lose tenants.
Another opportunity you saw was vendor costs. Over the years, the vendors slowly raised the prices above market rates for their services. The previous owner was comfortable with the properties operations so they didn’t check the market price.
Then first thing you did was negotiate the expenses down. For example, reducing the dumpster fee, property management fee, and per cut grass cut expense. It does not seem that much and it was simple to do but the results are amazing.
Now that you found ways to make all this money, you may be thinking the taxes will hit hard once you sell the property. But why will you sell it? It’s a beautiful property. Hold on to this property and pull out all the equity in a cash out refinance, which is not a taxable event then put it in a trust, and hand it off to your children.
If you really want to sell it, do in a 1031 exchange. It defers all tax into the next property purchase. And that is how the real estate builds wealth.