This may seem bold to hear from your CPA. I’m not a realtor selling you real estate, but as a tax lawyer, I am actually trying to help you save taxes and build wealth at the same time.
I consistently repeat and encourage my clients and students everywhere I go that working towards buying a rental EVERY year is critical to building a retirement and wealth. It’s a goal that is tangible, emotional, conceivable and realistic for most Americans.
Now I realize a rental may not be for everyone, AND some of you have had a bad experience before with real estate. However, I would at least like to encourage you to consider it and get the process started. Maybe you already have a deal in the works.
A good rental property strategy will not only to build an incredible long-term and sometimes immediate tax strategy, it will inevitably build wealth for future retirement and should provide current cash flow benefits if you choose wisely.
Here is a diagram of the 4 benefits to Rental Property I want to discuss briefly with you and suggest you consider this strategy seriously as part of your investment and tax planning strategy.
The 4 Benefits to Rental Property:
2. Mortgage Reduction
3. Tax Benefits
4. Cash Flow
Appreciation. This is rental property you are keeping at least 7-10 years. This is not a fix and flip strategy. The National Association of Realtors (“NAR”) has reported that real estate nationwide has averaged over 6.74% appreciation during the past 50 years.
This rate of return out performs the S&P 500 and most Wall Street investments. Now I realize not all property in every market experiences this growth, but some actually do even better than the national average. Don’t discount appreciation.
Mortgage Reduction. This is often an overlooked benefit to rental property. Think about it. If you purchase wisely, the property should be at least be ‘breaking even’ in cash flow and thus the renter is paying the mortgage for you.
The principle reduction in the mortgage instrument is an ongoing tax-free benefit along with appreciation as you hold the property. This is a return you can calculate and count on over time with a typical mortgage. Keep this in your spreadsheet as you calculate your total Return on Investment.
The NEBDG Blog, by our Tax & Legal instructor Mark J. Kohler, is "The Real Estate Investment Conversation You Can Rely On." Mark J. Kohler is a CPA, Attorney, Radio Show host and author of the books “The Tax and Legal Playbook- Game Changing Solutions For Your Small Business Questions” and “What Your CPA Isn’t Telling You- Life Changing Tax Strategies”. He is also a partner at the law firm Kyler Kohler Ostermiller & Sorensen, LLP and the accounting firm K&E CPAs, LLP. For more information visit him at www.markjkohler.com. Let us know if there is a topic you would like to discuss!