As promised in an earlier newsletter, I thought it would be good to refresh our memories of the 4 Benefits of Real Estate Investing.
- Cash flow before taxes.
- Principal reduction
- Tax advantages.
"Real estate cannot be lost or stolen, nor can it be carried away. Purchased with common sense, paid for in full, managed with reasonable care, it is about the safest investment in the world." - Franklin D Roosevelt
Cash Flow Before Taxes
A simplified formula is merely all of your income minus all of your expenses. And I mean all of your expenses. What's left over is cash flow before taxes.
Ah, my favorite of the four. This is your mortgage balance getting smaller as someone pays you rent and then you turn around and pay your mortgage. Sure, a portion of that is interest, but a portion is also principal reduction.
Owning a rental property is really owning a small business. Your expenses offset income. That interest you pay is an expense. You also get to utilize depreciation, which is you telling the government that your asset is getting worth less each year... even if it isn't! Is this a great country or what?
This, my friends, is the great unknown. For those of you that owned any housing in 2008-2011 you know very well that housing can depreciate due to the national economy, local economy or neighborhood factors. It happens. That said, as referenced in this earlier article, appreciation tends to work itself out given enough time. It's easy to say what appreciation was. It is more difficult to predict what appreciation will be.
Kansas City Housing Market
I share the Kansas City housing market for three reasons.
- Greater Kansas City is where I am based.
- Real estate makes a great investment for retirement.
- Greater Kansas City is The Middle, not only in location but in so many other financial and statistical categories that it is a great indicator at what is going on nationwide.
Q3 from our local board of realtors.
If you would like to discuss these 4 Benefits or Real Estate Investing further, please do not hesitate to reach out to me. We can set up a quick 15-20 minute zoom.
Feel free to forward this email to family and friends.