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You are here: Home / Archives for Benefits of Real Estate Investing

June 11, 2009 by Peter Maclennan Leave a Comment

6 Reasons Real Estate Is Better Than Your Mattress

CNN is reporting:

A woman in Tel Aviv, Israel, gave her elderly mother a new mattress as a surprise gift, throwing out the old tattered bed her mother had slept on for decades. The gesture ended up bankrupting Annat’s mother, who had stuffed her savings of nearly $1 million inside her old bed for decades, Annat told Israel Army Radio.

While it might be nice to sleep on a $1 million mattress, there are better places to put your money.

Real Estate is Better than Your Mattress Because…

  1. Your daughter can’t throw it away. I think this one speaks for itself.
  2. Real estate might offer you a return on your money. A mattress keeps your money close at hand but it offers no opportunity for return. In other words, your money is not working for you. If inflation is in effect, your dollars are actually losing value by sitting in your mattress.
  3. Real Estate is an asset not somewhere your @$$ sets. A poor attempt at humor.
  4. The Four Benefits of Real Estate Investing. Cash flow before taxes, depreciation, principal reduction, and appreciation.
  5. A building is harder to steal and haul away than a mattress. Every two-bit burglar is going to start cutting open old mattresses to look for nest eggs, upon hearing this story.
  6. Someone will still sleep in a used house. Just let this settle into your mind for a bit.

Hiding Money

Putting silliness aside, where are you hiding your money because you are afraid? Is it a 401k? A CD earning 1%? A coffee can buried in the back yard?

Prudence, not fear, should rule in the realm of investments. A mark of maturity is handling responsibilities well. Money and wealth is a responsibility to be stewarded. At the very least, we have a responsibility to leave our heirs with an inheritance.

A good man leaves an inheritance to his children’s children,
but the sinner’s wealth is laid up for the righteous.
– King Solomon

Rest Easy

The poor woman that lost her fortune may have slept on a lumpy mattress, but it probably allowed her to rest easily at night knowing exactly where her money was.

Are you able to sleep at night because you know where your money is and what it is doing? Why not put your money into an investment that you can see, touch, and understand like real estate?

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Filed Under: Benefits of Real Estate Investing, Real Estate Investing Tagged With: 1 Million, Investment Income, Nest Eggs, Real Estate Investing

May 8, 2009 by Peter Maclennan Leave a Comment

Taking Control of Your Investments

Have you ever been in a car when someone releases the steering wheel?

When I was in the seventh grade, I had a youth leader that was a little on the wild side. His antics endeared him to the guys in the group. He would jokingly try and take corners at double the posted speed. He would also do a “Seat Belt Check” where he slammed on the breaks. If you were not wearing a seat belt, you might end up with a bruise.

On a straight section of the road, it was not uncommon for this youth leader to release the wheel and let the car go where it felt like. As a passenger, you knew that things were completely beyond your control.

Letting Go of the Wheel: Investing in the Stock Market

A wise professor shared with me the reason he had chosen to invest in real estate over stocks and bonds. Control.

He realized early on that he could not control the stock market. For him the stock market involved too much risk. CEO’s, Boards of Directors, and investment fund managers had more control than he did in which direction a stock’s value went from day to day.

The daily decisions that make a companies stock price fluctuate are beyond the control of the individual investor. Marketing, product design, research and development, employee compensation, customer base, and resource allocation cannot be easily influenced by the individual stock investor.

Investing in the stock market resembles letting go of the wheel. You have surrendered control of your money to the whims of the market and management.

For Those Who Like to Drive: Real Estate Investing

Real estate investing is for those who like to take a more active role in their march towards Retirement Freedom.

As the owner of an investment property, you can choose the management team. The management team will be hired and fired based on their performance. The management team answers to you as the property owner.

“Location, location, location,” is the mantra of real estate. Your choice of location will allow you to control your customers (tenants), pricing (rent), and product (house, apartment, etc.).

As in all investing, some things will be beyond your control. Your success will be greatly dependent upon the property’s ability to attract good tenants that pay a fair rent and build wealth for you.

Real estate investing places you firmly in the driver’s seat on your way to Retirement Freedom.

Passenger or Driver?

Which would you rather be, a passenger or a driver?

If you are comfortable with having your investments at the mercy of the market and company management, then stocks may be for you.

For those who want to drive, give Maclennan Investment Group a call at (925) 324-8626.

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Filed Under: Benefits of Real Estate Investing, Real Estate Investing, Retirement Freedom Tagged With: Real Estate Investing, Retirement, Retirement Freedom, Retirement Strategy

May 7, 2009 by Peter Maclennan 1 Comment

Four Benefits of Real Estate Investing

Real estate is an excellent tool to build and accumulate wealth. There are four benefits to real estate that can make it more appealing than other investment opportunities.

Maximizing as many of these benefits as possible will help you on your way to retirement freedom.

Cash Flow Before Taxes

When you own a rental property the goal is for the rent on that property to pay all of the property expenses so that nothing comes out of your pocket. Any income from rents above expenses is cash flow.

Yes, owning real estate does have expenses. If the property is financed, you will owe the lender payments of principal and interest. Uncle Sam wants his cut and demands property taxes. The property will need insurance, it may need repairs over time, and property management. Other possible expenses include utilities, landscaping, accounting, and  legal fees.

Principal Reduction

If your rental property is financed with a traditional mortgage that combines payments of principal and interest, each payment will increase your equity in the property. This is probably best illustrated by the formula below.

Property Value – Loan Principal = Owner’s Equity

All things remaining equal, as the loan’s principal balance is reduced your equity in the property increases.

The benefit is realized when it is time to execute a sale according to your retirement strategy.The sale will realize a higher proceeds for you to roll into your next investment.

Depreciation

The IRS defines depreciation as:

Depreciation is an income tax deduction that allows a taxpayer to recover the cost or other basis of certain property. It is an annual allowance for the wear and tear, deterioration, or obsolescence of the property.

The IRS allows you to deduct wear and tear of your rental property.

This is what might be called a “phantom” expense. The IRS allows you to deduct it from income taxes, although you may never have to actually pay for anything with cash.

This deduction can be used to offset other income. (Disclaimer: You should contact a tax attorney, CPA, or  tax professional to see how this deduction would affect your personal situation.)

Appreciation

The final benefit of real estate is appreciation. Appreciation is the increase in value of a property.

All investments have a risk that they may go down in value. Real estate is no different. The current market proves that.

Jokingly some have said that, “God isn’t making any more dirt.” While it may not be entirely accurate, the prinicple is true.

There is a limited supply of real estate in the world, nation, state, county, city, and school district where you live. Scarcity tends to drive prices higher. Real estate has historically risen in value as a longer term investment.

An Appealing Investment

Investing in real estate has four benefits of cash flow before taxes, principal reduction, depreciation, and appreciation that set it apart from other investment vehicles.

If you are tired of being subject to the whims of the stock market, real estate investing may be for you. Real estate offers you a measure of control over your investments and the outcome of the results.

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Filed Under: Benefits of Real Estate Investing, Real Estate Investing, Retirement Freedom Tagged With: Depreciation, Principal Reduction, Retirement, Retirement Freedom, Retirement Strategy

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