My main motivation for wanting to invest in real estate is for the additional cash flow and tax advantage. While my ultimate goal is to turn properties for a profit, my short-term goal is to acquire rental properties. Homes are often rented at a price significantly higher than the mortgage depending on what area you live in. Even considering required repairs, maintenance, and covering the mortgage during vacancies, there is significant income to be earned in renting a property. With regard to tax advantage, I can claim any interest I pay on the mortgage as a tax deduction. My family would benefit considerably more from itemizing deductions with this advantage.
Investors in real estate, are looking for cash flow streams. As our text stated, "Real estate investors, either directly or indirectly, purchase the rights to a stream of future cash flows that are expected to be generated by the real estate." (Kolbe) The streams may be generated in different forms including rental income and resale profits. The reasons investor's choose real estate and what they are looking to get out of the investment are also diverse. They include the following:
• Cash flows - rental income can provide a regular cash flow stream for an investor
• Inflation hedge - real estate investments have a high correlation to inflation. "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." (Cardone, 2015)
• Physical asset (land & buildings) can be revenue producers and can hold value for you or potential buyers
• Physical asset (land & buildings) can appreciate in value
• Tax benefits - mortgage interest deductions, like kind exchanges to defer gains
• Ability to leverage low cost debt - "Placing positive leverage on an asset allows investors to effectively increase positive cash flow from operations by borrowing money at a lower cost than the property pays out." (Cardone, 2015)...