Inflation is defined as, “a general increase in prices and fall in the purchasing value of money.” Your money doesn’t go as far -- simple. The $30k you made at your job 10 years ago and lived comfortably with barely gets you by now. You can’t control inflation (the Federal Reserve does that) and the government has doubled their debt since 2008. It’s now at $18.3 trillion and grows every day.
The government cannot save you or your family, or ensure your financial freedom. Set your mind right about earning money. More cash = more freedom! Money itself won’t make you happy, but it will give you the ability to provide a better life for yourself and your loved ones. You must invest with income streams that give you positive cash flow, learn to leverage your debt, learn to handle inflation and take control of your physical assets.
Do you currently have commercial real estate assets in your investment portfolio? Are you scared to have your money in the stock market (like I am) but also fed up with almost no return on investment with your money at the bank? Do you instinctively like the idea of being invested in income producing real estate with results you can see?
Here are eight reasons why investing income producing real estate is an excellent choice for protecting and growing your wealth:
1. Positive cash flow.
One of the biggest benefits to income producing real estate investments is that leases generally secure the assets. This provides a regular income stream that is significantly higher than the typical stock dividend yields.
Related: 5 Lessons From Commercial-Real-Estate Financing for Entrepreneurs Seeking Funding
2. Using leverage to multiply asset value.
Another important characteristic of commercial real estate investing is the ability to place debt on the asset, which is several times the original equity. This allows you to buy more assets with less money and significantly multiply asset value and increase equity as the loans are paid down.
3. Low-cost debt leveraged to multiply cash flow.
Placing “positive leverage” on an asset allows for investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out. For example, if a property generating a 6 prcent cash-on-cash return were to have debt placed on it at 4 percent, the investors would be paid 6 percent on the equity portion and approximately 2 percent on the money borrowed, thereby leveraging debt.
4. Hedge on inflation.
For each dollar that is created, there is a corresponding liability. Real estate investments have historically shown the highest correlation to inflation when compared to other asset classes, such as the S&P 500, 10-year Treasury notes and corporate bonds.
As countries around the world continue to print money to spur economic growth, it is important to recognize the benefits of owning income producing real estate as a hedge against inflation. Generally speaking, when inflation occurs, the price of real estate, particularly multi-tenant assets that have a high ratio of labor and replacement costs, will also rise.
Related: How This Tech Startup Is Renovating the $12 Trillion Commercial Real-Estate Industry
5. Capitalize on the physical assets.
Income-producing real estate is one of the few investment classes that, as a hard asset, has meaningful value. The property’s land has value, as does the structure itself, and the income it produces has value to future investors. Income producing real estate investments do not have red and green days, as does the stock market.
6. Maximizing tax benefits.
The US Tax Code benefits real estate owners in a number of ways, including unlimited mortgage interest deductions and depreciation accelerations that can shield a portion of the positive cash flow generated and paid out to investors. At the time of sale, IRS allows investors a 1031 provision, allowing investors to exchange into a like-kind instrument and defer all taxable gains into the future. (See your tax advisor for full explanation.)
7. Asset value appreciation.
Over time, more and more inflation has made it into the economy, drastically reducing purchasing power. However, income producing real estate investments have historically provided excellent appreciation in value that meet and exceed other investment types. Properties historically increase in value as the net operating income of the property improves through rent increases and more effective management of the asset.
8. Feeling the pride of ownership.
The right property in the right location with the right tenants and ownership mindset can produce a tremendous pride of ownership factor that is highest among all asset classes. Homeownership is out of reach for most people. Imagine owning thousands of multi-family housing units instead?
No one can ensure the future of rental of income properties’ values, but this asset class seems positioned to continue to benefit from many other socio-economic issues that I will save for another time.
If a sudden job transfer is in your future, a little pre-planning can help make your relocation move less stressful. Because after the excitement of moving to a new city begins to fade, panic often replaces the initial exhilaration, especially when the realization hits that you might not know anything about buying a home in a new area.
Buying a home in an unfamiliar area carries risks, and it can be scary. Real estate laws vary from state to state. Local custom can differ from one county to another. You don't want to make a home buying mistake or buy in the wrong neighborhood. Plus, if you have a home to sell in order to buy a home, you want the timing to be perfect. The last thing you want to have happen is to pull up to your new home with the moving truck and you can't move in because of some silly snafu. So how can you protect yourself?
Here are a few places to look:
1. Motivate the seller to be ready for the photography session. Explain why the house should look it’s best for its close-up: listing photos are often a buyer’s first experience with listings. Today, over 92 percent of home buyers use the Internet to search for homes, and 50 percent used a mobile device to search for homes. Buyers rank home photos as the No. 1 valuable web site feature — even more valuable than the home description, according to the 2014 National Association of REALTORS®’ 2014 Home Buyers and Sellers Profile. Other research indicates that great looking photos translate to more showings, fewer days on the market, and even a higher sales price.
2. Give the seller a “to do” list. Preparing a home for photos is not something your seller does every day, and a simple task list can help her feel prepared and make the photo session go more smoothly. Items on the list should include tasks for the inside as well as the outside of the home (see tips #3 and 4). Ask your professional photographer for a checklist to help sellers get ready for photos, or you can develop your own. Bonus: your seller can use the list to get the home ready for showings.
3. Remind the seller to prepare the inside of the home. Be sure to remind the seller about the basics, such as putting toilet seats down, throwing used towels in a hamper, making the beds, and hiding personal toiletries such as toothbrushes, prescription medications, and shampoo bottles. Coordinate the photo session to occur shortly after any housecleaners have cleaned the home.
4. Remind the seller to prepare the outside of the home. Sellers should park cars in the garage or on the street away from the front of the home, pick up any yard toys and games, dispense of dead plants, sweep walkways and hide trash cans. If possible, schedule the pictures a day or two after the lawn is mowed and the bushes trimmed.
5. Communicate the home’s best features to the photographer. What are the qualities of the home that will attract buyers – a large yard, upgraded kitchen with under cabinet lighting, or vaulted ceilings in the master bedroom? Talking to your photographer in advance of the photo session can help her deliver photos that will show off these desirable features.
6. Partner with a professional photographer. Find a professional photographer that understands your business and what you want in your listing photos. Give the photographer time to get to know you as a client. The longer a photographer works with you, the more she will become familiar with your photography needs, becoming a key part of your marketing team.
Some listings may require more work getting them “photo ready” than others, but the effort put forth can help drive prospective buyers to your listing, resulting in a successful sale – and a happy client.
Tress Realty Group compiles some of the best real estate news, tips, and information for buyers, sellers and investors.