Earnings property advantages are truly hidden from the general public. Think about it. Have you ever sat down with a financial planner and asked yourself why he has never recommended that you take your money and invest in cash flow properties? I mean really... many of the wealthiest most people in the world have used cash flow property to literally build empires! Trump, Kiyosaki, Hilton, Kroc, and Donald Bren one thinks of. Yet, how often are you advised to look into it?
While you are are pondering that question, think about this: cash flow property than the "traditional" investments peddled by many "financial planners" may provide higher returns with less risk and more regulate to you, as the investor.
Since many are unfamiliar with the importance of cash flow as it relates to any business. Let's start truth be told there with a quick definition:
Cash Flow: Is the amount of cash that an investment or business venture creates over a specified period of time. Since profit or cash is the primary driver of a business and gives business owners the freedom to create more products, services, or simply pay dividends to shareholders, most analysts believe cash flow to be a company's most highly regarded financial statistic. Organizations and additionally businesses with big cash flows are almost always takeover targets because the buyer knows that the cash can be used to help stabilize the costs of the purchase deal.
Isn't that interesting... (Note the underlined sentence above) But, how does that connect with property? Think of it this way; each cash flow property that you own can be considered its own "company". That is each cash flow premises has income in the form of rent, and expenses in the form of taxes, maintenance, or debt service. So , just like large agencies have income and expenses, you as an cash flow property investor will as well.
So , first and foremost, understand that there is a change between investing and speculating. An investor will buy cash flow, while a speculator will bet on a increase in price or buying low with the hope of selling in the future at a higher price. In the investment property environment, speculators are known as "flippers". This is a topic for another discussion, yet just know there is a difference.
Now, which are the advantages of knowing how important cash flow can be? And, why do I prefer cash flow The Avenir to speculating or "flipping" a house?
Advantage 1: When buying cashflow property, I am creating a recurring income stream. So , when I invest my make the most a property that I will in turn rent to a tenant, I am effectively being paid for having put my money at stake. The tenant will pay me to live there which creates my income for the property. Having income from the home gives me a steady stream of cash flowing to me which I am free to use.
Contrast that with the circumstances of flipping the property. If i put my cash into a property for the purpose of fix and flip, then while the residence sits vacant, or is under repair, or being advertised for sale I am not receiving any cash flow. My own cash is effectively tied up and not available for me to use until I sell the property and I will only profit if I sell for more than I have put into the property. I personally would prefer not to have to sell a property in this market offered the current conditions as it may take some time. During the time I am holding the property and waiting for a sale, that property is charging me money in maintenance, taxes, and advertising.
Advantage 2: Buying cashflow property creates an asset. What will do that mean? It simply means that you now control or own something that pays you! The real difference between assets in addition to liabilities is that assets pay you and liabilities require payment from you. Your personal residence is not a great asset, it is a liability! It requires payment from you in the form of mortgage. Even if your home is paid for, it requires payment from people in the form of taxes, insurance, and upkeep to name a few. In reality your house is an asset for the bank that owns ones mortgage, or the state and federal government that collects your property tax, and the maintenance man who does your lawn... For your needs though, your home is a liability!
Buying cashflow property creates an asset because you put a tenant in the real estate who pays you. The rented property throws off cash flow that you can use or reinvest. Every time you buy a true utility, you get one step closer to financial freedom and a life of liberty.
Think of it this way... If your lifestyle bills you 5, 000 per month, you only need to have assets which pay you 5, 000 per month to maintain your current quality lifestyle. Why would you have to work at a job if you have other sources of income? You wouldn't... That's the beauty of owning financial property. It puts you one step closer to freeing yourself financially.
Advantage 3: Buying cash flow property brings about tax advantages. That's right. And, probably one of the most misunderstood tax advantages is that of depreciation or "phantom cash" as some call it. Basically, phantom cash (or depreciation) can be taken literally as just that, it is profit that doesn't exist. Depreciation is a government incentive and tax loophole of the rich so they can benefit from real estate to a better extent. The way it works is this... government states that you can take the value of a building divide it just by 27. 5 years and deduct that amount from your taxable income every year!
Let's say that I buy a building sought after at $100, 000 and I rent it out at $1, 000 a month ($12, 000 a year) then I would be allowed to subtract ($100, 000 / 27. 5) which is about $3636 a year from my taxable income. Which means I only have to pay taxes on $8364 $($12, 000-$3636) for that year not including the other deductions the user gets from real estate.