Why invest in real estate?

As a general rule, homes appreciate every year between 3-5%. Some areas will appreciate more and some areas less. Appreciation doesn’t seem like much compared to the investment/stock market that can safely bring you over 5%.


What you don’t realize…

Let’s say you purchased a home for $200,000 and put $10,000 down as your investment, financing the rest. (as a majority of the population would) If your home appreciates conservatively at 3%, your $200,000 home just increased in value $6,000. That is a 60% return on your 10,000 investment!

Of course, your paying all that interest on your mortgage and your property taxes which would seem like it should cut into that. However, one of the best income tax write-offs Uncle Sam gives us is our real estate interest and taxes. In a way, the government is subsidizing our home purchase. Not to mention we have to have a roof over our head anyways, whether we rent or buy. This is how Billionaires like Donald Trump make the big bucks, just on a much larger scale. Out of my way stock market, and hello real estate!

This philosophy is known as getting rich and using other people’s money in the process. People all over southeastern Michigan take advantage of this concept and many others. Either by buying rentals and supplying a renter to cover the mortgage payments, or by helping the home prematurely appreciate by making necessary improvements to home to increase value.

Your rate of return is much higher in real estate than most any other investment you can make and you can start just by owning the roof over your head! Why rent when it is so easy to own!


Income tax write-offs

Uncle Sam and the government provides us with many opportunities to lower our gross income at the end of the year, which ultimately will lower the amount of taxes we owe. Real estate interest and taxes are one of the largest deductions you will have. For example, let’s assume you purchased that home for $200,000 on December 2005 and are paying on a $190,000 mortgage for over a year now at a 7% interest rate. From January to December 2006, you will have paid exactly $13,559.45 in interest. After you have calculated your gross income for the year of 2006, you will now be able to reduce your gross income by $13,559.45 and receive a return for the taxes that you already paid on that amount. That also works the same for your property taxes. You will be able to subtract your total property taxes in 2006 from your gross income and receive a return on that. All of this may also lower your gross income tax bracket as well, which can result in an even larger return that you could never have expected by renting.