Why Invest at all?
To actually build wealth, you will need to make your money work for you. Leaders in real estate tell us time and time again that the only way to make great wealth over time is through investments. The government will always tax our earnings but through 1031 exchanges of real property, deference of those taxes is possible long enough to build significant equity.
Why Multifamily?
Cash Flow
Multifamily properties make money in a few ways.
The first money maker, which everyone knows about, is in appreciation in value. Right now we're in a sliding market due to lack of demand, the credit crisis and other factors, but this market will eventually come back stronger than before. Appreciation is even more a factor now than a few years ago, because now you can buy at discounted prices.
The second money maker, and more often overlooked way to make money with Multifamily, is cash flow and the efficiency of income vs. expenses. Most Multifamily apartment buildings will cash flow enough to pay the mortgage and expenses and have some amount of cash return with 25% down payment. That cash return will rise as units turn over and higher market rents and realized. The effect of this is huge.
Low Risk
Multifamily apartments are low risk for the basic premise that people will always need a place to live. If a unit is not renting, lower the price and see how many tenants apply. The same is not true for other types of real estate where the property does not cure a basic necessity. Want to find out what units are renting for in the area where you own your investment? Contact us and ask for a Market Study.
Tax Advantages
Did you know that you can write off capital expenses and interest payments on your loan against your annual income? The third money maker in multifamily investment property is tax sheltering. Income Properties are businesses and as with businesses, expenses can be written off. But taxes can play an even bigger role when we consider depreciation. Typical multifamily Investment properties are depreciated over a 27.5 year life span - meaning you can write off the cost of the building at about 3.6% a year. No other investment that I know of, allows you to write off the cost of the investment while the investment appreciates.
Right now borrowing money is still cheap compared to fifteen years ago. Active income or the money you get paid at your job is also taxed at a higher rate than Passive income or the money you make off your investments. To find out what Interest Rates are available today, visit our Rates & Financing section.
1031 Exchanges
By far the biggest advantage to owning real estate is using the 1031 Tax Deferred Exchange to build wealth. This section of the Tax code says that you can sell your investment property and buy another property without paying taxes on your taxable gain. This fourth money maker is commonly termed "Property Ladder" and it has to do with using 1031 exchanges to buy and sell. Simply put, this means you can sell a property and buy a property of like kind with the total proceeds if you follow the 45 day identification period regulation and close the sale within 6 months of the date of sale of the first property without paying capital gains taxes. This allows you to effectively leverage the money you would usually spend to pay taxes to leverage the financing of bigger, more expensive properties. The tax is deferred indefinitely until you sell and take the cash. There are a few more rules to completing a 1031 exchange successfully so, contact a 1031 accommodator for direction.
Why Texas?
Please visit www.texaswideopen.com for everything you want or need to know.
If you would like more information, need help or want to ask our professional advice, contact us by sending an email to admin@texasapartmentbrokers.com. There is no obligation and we will get back to you as soon as possible.
