The Four Pillars of Real Estate Investment

Hopefully, you’re someone who owns not only their own home, but also another asset that generates cash flow.  If you are a real estate investor, you’ll realize many benefits when done correctly.  The four pillars of real estate as an investment vehicle are:

  1. Cash flow:  Simply put, if you can rent the home or apartment out for more than it costs to pay the mortgage, keep it in good repair, and account for vacancy (months with no income, but still expenses) you have an asset that is making you money while you sleep.  If you want to invest in rental property, having an agent like myself who personally invests & understands the costs are more than (rent) minus (mortgage, taxes & insurance) is vital!  Things like vacancy, repair, capital expenditures, and management are important to consider, even if it’s a new home and you plan on self-managing.
  2. Mortgage pay-down:  Simply put, if you’ve answered yes to the previous criteria, your tenants are paying off your property a little bit every month.  If you’re on a 30 year fixed mortgage, your payment is the same every month.  Initially, most of that dollar amount is going to interest, but as time goes on, more of it pays down the amount you borrowed, called principle which by the end of year 30 will have a balance of zero.
  3. Tax-favored investment environment:  Residential improvement on property is calculated by the IRS to depreciate to nothing in 27.5 years (though the value of the land does not depreciate).  That means every year you can write off 1/27.5th of the amount you purchased the home for (minus the cost of the land), as well as the mortgage interest, property taxes, insurance and repairs.  Due to new tax law changes, the first 20% of your income is tax free.  Meaning if you made $10,000.00 in one year, the basis for taxation begins at $8,000.00 before those other benefits.
  4. Appreciation: We suggest buying for cash flow not speculative appreciation like so many did in the early to mid 2000’s (especially on Adjustable Rate Mortgages!).  However let’s dig a little deeper into how this works, as it is a potential benefit of Real Estate investment.  Let’s say you buy an investment property for 25% down; you’re into it for 1/4 of the cost and the rest is financed (with tax-deductible interest). If the property appreciates 5% in one year, the appreciation applies to the entire purchase price, not just the 1/4 of that you paid for in cash.  So this means your actual return on cash put down would be four times that.  For simple math, lets say your bought something for $100,000.00, put $25,000.00 down, and it appreciated 5% in one year; or $5,000.00.  Now that $5,000 is 5% of $100,000.00, but it’s a 20% return (or 4 times that) on the $25,000.00 you put down.

Understand that there is so much more to all of this, and this brief synopsis is only meant to start you thinking.  In no way are we offering legal, tax, or investment advice.  Please consult your professionals in those areas for specific advice as it applies to your situation.  If you’d like to speak with me directly about these or any other real estate related ideas, we’re happy to share more of our personal experience, contacts for professionals, resources & real estate sales experience with you. Reach me directly on our Contact page & let’s speak soon.


Las Vegas Economic Forecast, or “I’m going to wait until the market crashes!”

I’ve heard it from a few people. One of them is sitting on over $130,000.00 in cash. Waiting for another 2008 market collapse.  The thing is, that money under your mattress, it’s loosing value every year due to inflation. Sure, real estate goes up & down cyclically but nobody knows exactly when those cycles hit.  There were a lot of investors in 2000-2005 who cashed out, assured we were at the peak.  I’m not telling you to time the market.

What I am saying is that the devaluation of your money is non-cyclical, and certain.  Grandpa always says when he was your age a gumball was a penny, not 25 cents.  Are you planning on buying a home, moving in, making it your own & moving out next year?  Probably not.  5-7 years maybe.  Long term inflation average between 1913 & 2013 according to InflationData.com is 3.22%.  Here’s the kicker.  Inflation of 3.22% doesn’t seem that bad to those who don’t understand the power of compounding, but as the article goes on to mention, that compound effect means an actual item that cost $100 in 1914 would now cost you $2,375.00.  As we keep printing money, homes will always be built from materials, on land, the cost of both will be affected by inflation.  So, if you need 200 2×4’s, 2,000 sq ft of flooring, etc. to build a home, and then the cost of the land.. it’s total price is all affected by inflation or the compounding devaluation of the dollar.

So yes, home prices will go up, and they will go down.. and then they will go up again but buyer’s aren’t getting homes at the prices of 30 years ago. What won’t change is your need for a place to live.  If you’re currently renting a decent 3 bedroom home in Las Vegas, and say you’re paying $1,600/month.. you’re paying $19,200/year and when you move you’ll have nothing to show for it but a U-haul bill.  If over that statistical 5-7 years you’d be in the place, you could have been paying $96,000-$134,400 towards ownership of an asset that will adjust with inflation (among other factors).  Yes, there are other factors that will adjust the value of your home than inflation, however when you look at something like gold, which some say is a solid hedge against inflation… there are other factors that affect the price of gold as well (such as stock market dips and advertisements on how safe gold is); and you can’t live in your gold.

“I’m waiting for the price of homes to drop due to rising mortgage rates!”  This is another one I’ve heard.  Thing is for most primary residence buyers, if there were a direct correlation of price reduction to interest rate hikes, the result would be no change in your monthly payment.  Unfortunately for those who haven’t dug a little deeper, there is actually an inverse correlation historically.  I could explain, but there is already a good article posted here on First American’s website.

The link above references a strong economy making housing less affordable.  As we look locally, the Las Vegas area economy is seeing over 13 billion in new capital investment, and people moving here (your competition when home buying) are younger and wealthier than before.  For more of these figures and data, see research posted here at California Credit Union League’s research on Southern Nevada.

So with a growing local economy, rising interest rates, rising home prices year over year, your savings devaluing annually, and about $19,000.00 you’re paying in rent each year, tell me again why you’re waiting to buy?

As you drive around the valley, I’m sure you’ll notice a ridiculous number of apartment projects being built.  Do you think the companies pouring millions into those projects didn’t do their homework?  They know plenty of people won’t take action today, and will be mailing them checks every month so we can ‘afford’ to live and work here.  Don’t be one of those income streams for these corporations.  Call or email me today and let us help you get on a better path to financial freedom and home ownership, Las Vegas.


Bonita Rental

Thanks for your interest in our downtown 3 bed/ 2 Bath rental home.  604 Bonita sits on just under a quarter of an acre & has new ceramic & LVP flooring through out.  This home boasts a large kitchen with double ovens, plenty of counter space, custom cabinets, a dishwasher,  and upgraded cooktop.  Appliances are included in the $1,600.00/ month rental price.

Large family room and living room provide plenty of living space, and a formal dining room is also featured.  All bedrooms are ample sized so all residents will have a comfortable space to call their own.  It is pre-wired with ADT security system, as well as exterior security cameras, and custom iron bars on all points of entry, making it one of the most secure living options in the centrally located downtown area.
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