RE Invenstment Advisement

Real estate investors can leverage various tax benefits to maximize their returns. Here's a rundown of key strategies:

• Cash Flow: The point of any long term hold investments is to cash flow in the positive from the time of the purchase and when the property is leased out. If you buy right, that is easier to do; especially on propreties that require a little work up front. Most non-real estate investors don't know that there are companies and private money individuals who will lend on these properties without using personal credit or even much money down. The point is, if you can buy the property "right," these lenders will make very favorable terms that will allow the property to generate monthly cash flow for the investor(s).

• Debt Paydown by Renters: this is one of the most beneficial intangibles of real estate investment. Not only is the property making money for you each month, over time you tenants are paying down the entire mortgage debt. This will obviously help your margins if you ever sell, but also allow you the flexibility to refinance or pull additional cash out of the property. 

• Long Term Appreciation: Probably one of the most commonly understood aspects of real estate investment. Land is at a premium and will never be replicated. Therefore, demand will always exist and property values continue to increase over time. This means you buy at one price and over time, your debt is worth less while the property is worth more.

• Forced Appreciation (renovation improvement value > renovation costs, which costs are fully deductible): In many cases the value of a home can be greatly improved by simple renovations. Taking care of a "fixer upper" can yield tremendous sweat equity within a short period.

• Depreciation: As properties age, they lose value, and you can deduct this depreciation as an expense on your taxes. This reduces your taxable income, resulting in lower tax payments. This is a major advantage when compared with the traditional stock market.

• Investment Incentive Programs: To spur economic development the Federal Government has created Opportunity Zones. The benefit here is that investors can receive even greater tax benefits, such as zero income tax on capital gains growth! Compared with any other investment, this means that an investment ends up netting an additional 10, 15, even 30% or more actual funds in your pocket.

• Bonus Depreciation: This is another bonus from Opportunity Zones. Basically, this allows you to write off a substantial portion of an item's depreciation in the year of purchase instead of spreading it out over 20 or 30 years, giving a massive tax shelter windfall. Be aware that opportunity zones will gradually phase out, unless the government chooses to extend the statute at some time in the future. For now, they are another reason to invest in real estate.

• Investment Property Tax Deductions: Investors can deduct a range of expenses related to property management and maintenance, from property taxes to repairs...so those repairs that led to forced appreciate also get deducted!

• Self-Employment and No FICA Tax: While real estate investments may fall under self employment income or small business income, many investors, after consulting with their tax advisors, structure their businesses and assets in a way that only yields capital gains taxes (which may be deferred) and avoid self employment and/or FICA taxes. Basically, RE Investors get to keep more of their money without the government taking a percentage.

• 1031 Exchanges: These are special accounts which, like 401(k) and IRA accounts, may defer [capital gains] taxes and allow the money to grow at a faster exponential rate, only taxed when a property is sold and another 1031 is not used.

• Tax-Advantaged Retirement Accounts: Real Estate Investors have acces to special Self Funded Roth IRAs and 401(k) plans, further limiting taxable income.