What is a 1031 Exchange?
A 1031 exchange allows you defer all your capital gain taxes when you sell a property if you reinvest the proceeds in a new property or portfolio of properties, including Single-Family Rental homes.One method that defers taxes on real estate is a 1031 exchange. Essentially, you are taking the equity of one property and exchanging it for new properties.
How can I invest using my IRA or 401K?
Open an IRA account with New Direction IRA. If you have a 401(k) with a previous employer or an existing IRA, you can transfer or rollover your funds without paying taxes or penalties. It is that simple.
Upside of Investing in Single-Family Rentals
- Consistent Income – tenant longevity is longer for rental homes than for apartments
- Strong Market Potential – growing demand for rental homes driven by Gen X and Millennials is outpacing increase in supply
- Reduced Capital Ex – newer properties and no common areas result in lower maintenance costs
- Tax Benefits – investing in portfolio of lower priced assets allows you to more exactly match your replacement value while resetting your depreciation schedule
- Exit Flexibility – purchasing a block of SFR assets in an Exchange allows for the ability to sell a portion of the assets over time.
Smart Investors Buy Insurance
Regardless of your real estate investment desires and decisions, you absolutely must have comprehensive insurance for yourself and your major assets, including:
- ExcessLiability (Umbrella) Insurance
The Various Ways to Invest in Residential Income Property
The first real estate investments for many people is a home which to live. During your adult life, you are going to need a roof over your head for many decades. And real estate is the only investment you can live in or rent out to produce income. A stock, bond, or mutual fund does not work too well as a roof over your head!
Owning usually costs less than renting over the ling haul and allows you to build equity. Under current tax law, you can also pocket substantial tax-free profits when selling you home for more than you originally paid plus the money you sunk into improvements during you ownership. Specifically, single tax payers can realize up to a $250,000 tax free capital gain.
Getting Started with Real Estate as an Investment
Compared with most other investments, good real estate can excel at producing periodic or monthly cash flow for property owners. So in addition to the longer-term appreciation potential, you can also earn investment income year in and year out.
The following list highlights the major benefits of investing in real estate
- Tax-deferred compounding of value
- Rate of increase of rental income versus overall expenses
Comparing Real Estate to Other Investments
Real estate is different from most other investments in that you can typically borrow up to 70 to 80 percent or more of the value of the property. Thus, you can use your small down payment o 20 to 30 percent of the purchase price to buy, own, and control a much larger investment. So when your real estate increases in value you mke money on your investment as well as on the money that you borrowed. That's what we mean when we say that the investment returns from real estate are enhanced due to leverage.
Besides the above mentioned benefits and leverage smart investors can also take advantage of other the tax benefits:
- Deductible expenses (Including depreciation)
- Tax-free rollovers of rental property profits
- Deferred taxes with installment sales
- Special tax credits for low-income housing and old buildings
Should You Invest In Real Estate
It is believe that most people can succeed at investing in real estate if they are willing to do their homework, which includes selecting top real estate professionals. When deciding it is important to consider real estate involves managing and dealing with tenants.
Before investing consider the following questions:
Do you have sufficient time to manage your real estate?
Can you deal with tenant related problems?
Does real estate really interest you?
Can you handle a market downturn?
Real estate investing is not for the faint of heart. Buying and holding real estate is a whole lot of fun when prices and rents are rising. But market downturns happen, and they test you emotionally as well as financially.