Real Estate Investing Strategies for the Western Suburbs
Positive Cash Flow
When it comes to cash flow, you must consider both pre-tax and after-tax cash flow. Pre-tax positive cash flow happens when income received is greater than the expenses going out. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow.
Regardless of what kind of real estate you choose to invest in, prompt rent payments from your tenants is absolutely necessary. A positive cash flow – whether it is pre-tax or after-tax – requires rental income. You will be well served to find high quality tenants. Typically, credit checks are performed and at the applicants expense.
Leverage
A critical component in determining your overall profitability is considering the amount of equity you have when making your purchase. Equity is the difference between the present market value of the property and the balance of the loans outstanding.
Benefit from Growing Equity
While investing in real estate can be challenging, it can pay generous dividends for those who perform their due diligence. Compared to other financial investments, such as bonds or CD’s, the ROI for real estate investments can be greater.
Time Value of Money
Understanding cash flows is critical for the serious real estate investor. A financial calculator is the best tool to use to understand how Time Value of Money can benefit your investment and investment related decisions. Some of the models that can be learned from financial calculator include figuring the present value of cash flows, the cost of financing a home and determining the difference between various mortgages.
Self Directed IRS’s as Real Estate Investment Tools
Money in an IRA (and other retirement plans) is a great source of real estate investment funds. You can invest your IRA funds in real estate if you have a self-directed fund. All the profit you make from these Investments goes back into your IRA tax free and can make for a sound growth strategy.
If you would like to use your retirement funds for real estate investments, consult a financial planner who can help you convert to a self-directed plan that permits these types investments. You could learn that your due diligence will be nicely rewarded.
Tax Free Capital Gains
Subject to the Taxpayer Relief Act of 1997, an investor can keep tax-free capital gains of $500K if married and filing jointly or $250K if filing as a single taxpayer. One caveat is that you need to have used your home as your principle residence for at least two of the five years prior to the sale.
