Profiting from Investment Real Estate

Unlike stocks or bonds that may fluctuate in value daily (or even hourly), real estate is a tangible asset with intrinsic value. It's an asset that, in addition to the ability to generate spendable cash now, can also provide a very effective means of long-term appreciation. Down through the years, real estate has proven time and time again to be a solid method of investing money, and it is the fundamental source of financial security for countless individuals and families both new and old.

In addition to its capacity for increasing basic cash flow, real estate also offers a number of other investment benefits. For instance, the vast majority of real estate investors take advantage of the concept of financial leverage; in other words, using other people's money (or, OPM) to fund their purchases. Of course, the standard method of accomplishing this is through the use of a mortgage. The judicious and thoughtful use of mortgages to create wealth separates real estate from other forms of investment that cannot be financed in such a manner. A powerful and proven means of long-term wealth creation, real estate affords the investor four basic ways in which to profit:

Appreciation – Appreciation is typically the largest return-on-investment (or ROI) that the real estate investor receives. When held over time, properties can experience dramatic increases in value. This is the fundamental attraction of raw land as an investment. For instance, buying a tract of land that turns out to be in the pathway of economic development and progress could bring the savvy investor a substantial windfall upon its sale.

Cash flow – This, needless to say, is the most direct and immediate return-on-investment, since it consists of "usable money now." Buying a property wisely can greatly increase the probability of positive cash flow which, in turn, can provide additional working capital that may be used to further build the real estate investment portfolio.

The primary method of generating cash flow is by property rental. Excellent rental properties can always be found, regardless of the condition of the real estate market. Some properties may require a bit of work and infusion of cash to make them attractive rentals, while others may only need a coat of paint. But if the right property is purchased at the right price, a reliable positive cash flow can be virtually guaranteed. Whether for residential or business use, demand is always strong for a high-quality, reasonably priced rental unit.

Flipping – Some investors have no desire to hold onto the properties that they buy (or the inherent responsibilities that come with property ownership and landlording), preferring instead to quickly resell them for a tidy profit. This process is known as "flipping" properties. Some investors buy properties needing extensive rehabilitation; others specialize in properties that require only cosmetic repair.

Return on taxes – Investors in higher tax brackets often have no use of additional cash flow, and are therefore more concerned with the tax advantages that real estate investing can provide. Although many benefits have been done away with or severely curtailed by the government, many others still remain as tax incentives for investors to continue to buy real estate and make it available for businesses and families.

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