Why Real Estate? by Dannielle Fritz-MacDuff

I was having dinner with my parents at our last visit to their home and of course the subject of money and investing came up. (occupational hazard) My youngest sister and her husband asked my what would be the best investment for some money that they are expecting to receive. This is a loaded question, since the best investment strategy for me may not be the best investment strategy for someone else's situation and temperament. So I decided to explain the merits of the different asset classes and what I liked about each. We spent most of our conversation on real estate.
So, why real estate?
Real estate is one of the most tax advantaged investments as well as an investment that gives maximum control to the owner.
Imagine an investment that you can obtain with literally none of your own money, goes up in value, allows you to get your money back with out relinquishing control of the investment, and allows you to put money in your pocket tax free?
These are just a few of the advantages of real estate.
Real Estate can be very profitable. Rental income covers all of your expenses so your tenant pays for your debt and expenses. It is possible to finance 100% of your purchase price ( or even more than 100% of the purchase price and get cash back at closing). Rental income that exceeds all of the expenses lets you get your money back faster than selling the property and puts money into your pocket every month. That's spendable income every month and you still have control over the investment. Can you do that with stocks or bonds or t-bills or a 401k or an IRA? Not really. You can refinance a piece of real estate to provide additional investment capital without giving up control of the investment.
The government give incentives to owners of rental properties. Since real estate investors are providing affordable housing for people who would otherwise not be able to afford a home, the government allows the investor this simplified tax strategy. EARN, SPEND, GET TAXED ON WHAT'S LEFT. The government also gives you a deduction for depreciation on real estate that produces income. Depreciation is an allowance for property that looses value. Real Estate is not known for loosing value, as a mater of fact it is know as an asset that increases in value or appreciates.
So here is how the depreciation allowance works in your favor. You have a property that puts $200 per month in your pocket after all expenses. That is 2400.00 profit(WHAT'S LEFT) on that property per year. $2400.00 that you would have to pay taxes on, right? Nope, the government says that you can take that depreciation credit against that income. After the depreciation deduction, there is actually a loss (negative income) of -$3600.00 for the year. That means that you get to put the original $2400.00 into your pocket tax free and take an additional $3600.00 off of your taxable income, which gives you a total of $5000.00 in tax free income for that year.
If you are in the 15% tax bracket, you have been saved $750.00 in taxes.
So to recap, you get a property that is paying all of the expenses related to the property and puts $2400.00 in your pocket every year, tax free. You get a deduction for depreciation on a property that is really going up in value. That depreciation deduction puts another $3600.00 in your pocket, tax free and reduces your tax bill by $750.00.
So let me ask you, why NOT real estate?