Real estate traditionally does not have the above problems. With education and awareness and applying proven strategies and techniques, the risk if minimal. That is why investing in real estate starting with a principal residence is clearly an attractive investment.
Tax-free capital gains on your principal residence, eg if you bought at $50,000 and sold at $550,000, the net gain of $500,000 is yours to keep
Ability to write off rental suite income against a pro-rata portion of your home-related expenses (eg mortgage interest, property taxes, utilities, maintenance, insurance, etc)
Ability to write off a portion of your home-based business income against a portion of your home-related expenses (eg mortgage interest, property taxes, utilities, maintenance, insurance, etc)
Reduced tax rate of 50% of capital gain from investment real estate
Flow through of losses from negative cash flow against other sources of income
Deduction of real estate property investment expenses against income
Write-off of depreciation of building against income
3. Low Starting Capital Using Principle of Leverage
This concept simply means putting in a small amount of money and borrowing the rest using other peoples money. Many people have become millionaires by applying this principle.
Example: If you put a down payment of 10% and borrowed 90%, this is called high-ratio financing. Basically, the ratio is 9:1; that is, 9 times as much money was borrowed as invested personally. This is a common format. The risk to the lender is low or non-existent, as the property is the security. In the worst case scenario, if the lender has to sell due to the default of the borrower, the net proceeds after sale should at least cover the amount of the mortgage, especially considering the historical appreciation in value. An example of the power of leverage on return on investment, was provided in the point # 1.
A related concept to leverage is the concept of pyramiding. In this strategy, you would borrow on the increasing equity (due to appreciation), of your existing properties, applying the principal of leverage to buy even more properties over time. This compounding effect of equity build-up through appreciation in a prudently selected real estate portfolio, can result in the accruing of considerable wealth.
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