Secrets of Making Money from Real Estate - Part 5

Where to from here:

One property is great, but It wont make you very wealthy. Below is the expansionary model of what I think a good real estate portfolio should look like.

The Real Estate Investment Pyramid

Can be viewd here www.use-your-equity.com/realestateinvesting.htm

How this works is simple. Acquire three positive cash flow properties which help support a larger capital gains property. Lets look at the example:

Cash flow property 1, worth $80,000 returns $1750 dollars a year with capital growth of 3.5%

Cash flow property 2, worth $70,000 returns $1200 dollars a year with capital growth of 4%

Cash flow property 3, worth $120,000 returns $2500 dollars a year with capital growth of 2%

Capital gains property, worth $250,000 returns -$500 dollars a year with capital growth of 12.5%

As you can see the capital gains property looses money. The reason why the model is in a pyramid shape is because the cash flow properties support the capital gains property.

Why don't I just by all really high growth properties with cash flow? You can! It's just that finding a property with very high cash flow and a high growth percentage might take more time and could be more harder. Really, there's nothing stopping you but It will generally be easier to find cash flow properties and capital gains properties.

So why should I do this?

In five years time cash flow property one will be worth $95,000. Cash flow property 2 is worth $85,000. Cash flow property 3 is worth $132,500. The capital gains property is now worth $450,000! The whole investment portfolio is now worth $762,000. If we assume the mortgages on all the properties was 90%, you now have $294,000 of equity you can use!

You could sell all the properties and make a nice profit of $294,000 but you'd probably have to pay a capital gains tax of 33% (depends on where you live) not to mention real estate agent fees. Perhaps we could use the profit as a down payment on another property, tax free.

1030 Tax Exchange Example

In America a good strategy is that when you make capital gains from a property you should sell it and buy a more valuable property. Normally you would be taxed but not if you use the 1030 tax-deferred exchange. This entails, using the profits of the real estate properties which you sold to reinvest in a more valuable property. So if we look at the previous example, you now have $294,000 which you can use on a deposit for a new property.

Lets say you buy a larger rental property with a deposit of $294,000 dollars. If you can get 90% financing you can buy an asset worth $2,940,000! Just imagine how much cash flow you could get from a property worth that much!

However, there is little room to "Do it yourself" while using the 1030 tax exchange. The money must be held by a qualified accommodator until you purchase the property. You will have 45 days to draw up a list of potential properties you will buy. You also have 180 days to settle on a property. The properties must also be similar, for example you can sell a bare piece of land and buy a bigger bare piece of land. This is why It's important to talk to an accountant or an attorney before you try this.

This article is a general guideline on how to invest in property, residential in specific. If you are seriously considering buying property try to take in some knowledge from this article. Don't stop there though. Because real estate investing can involve so many tax advantages and laws, learn more about real estate investing in your country/state so you can become an expert.

This article was written by John Whiteside. The original article can be found here http://www.use-your-equity.com/reales tateinvesting.html . Use-Your-Equity can show you how to create value in your home, then show you how to use the newly created equity to make money. http://www.use-your-equity.com for more information.

In The News:


pen paper and inkwell


cat break through


Curb Appeal

First impressions do make a difference when selling your home.... Read More

Top 7 Reasons Why FSBOs Fail To Sell Their Home On Their Own!

In the United States, less than 10% of all For... Read More

Why Use a Property Manager?

Most experienced property investors use property managers. Why? Because they... Read More

Selling Your Home ? What Can Go Wrong With Title and Lenders

If you're selling your home, there are going to be... Read More

Real Estate Investing Myths That Steal Profits From Your Pocket

One of the things that distresses us about our industry... Read More

Kings Bay, Saint Marys and Kingsland Georgia Real Estate - Mortgage Lenders

When looking for a home, it is important to first... Read More

Vacation Homes Are Becoming A Reality For More Homeowners

Whether it's a lakefront cottage or a log cabin in... Read More

Investment Property - Leveraging Rental Property Equity

Owning investment property is a tremendous wealth building strategy. Thousands... Read More

What to Look for in a Real Estate Agent

Real Estate Agents play an essential, critical role in the... Read More

How To Get The Best Rental Accommodation In The Area By Using Your Capital

My report is for you to use your power to... Read More

Buying To Let Top Ten Tips

Buying to let is considered a serious investment and should... Read More

Appraisal or Home Inspection?

People sometimes confuse a home inspection and an appraisal when... Read More

FSBO: For Sale By Owners Chapter One

She reached the phone on its second ring. "This is... Read More

Real Estate Investors Kick Away $1,000

Those new to real estate investing often fail to take... Read More

NAHB?s Voluntary Model Green Home Building Guidelines

The voluntary Model Green Home Building Guidelines are designed to... Read More

Tax Deferred Exchanges of Investment and Business Real Estate

The Primary Residence taxation, the Residential Replacement Rollover, Sec. 1034... Read More

Flipping Fixers: Using Transformation Psychology for Top Dollar

Satisfying and lucrative real estate investment depends upon your correct... Read More

First-time Home Buyers - 100% Home Loans

There is an increasing trend in South Africa that is... Read More

Choosing a Reputable Real Estate Appraiser

When you are considering purchasing a property; either for investment... Read More

Product Review of Carelton Sheets No Money Down Course

Real estate continues to be a very important part of... Read More

Foreclosure Home Deals

Did you know that you can save tens of thousands... Read More

Stopping Home Foreclosure with Bankruptcy

Bankruptcy Will Stop Your Sale - At Least For Now... Read More

Where To Start In Looking For A Central Illinois Realtor

Central Illinois is an excellent location for families and businesses.... Read More

Investing in Real Estate & REITs

Real estate investing runs the gamut in terms of risk... Read More

Create a Great Webpage to Sell Your Home

The majority of people in the UK who are looking... Read More

How to Afford Your Dream Home

Is it your dream to one day own a holiday... Read More

5 Factors of Selling a Home

There are five major factors to consider when selling a... Read More

How to Become a Successful Real Estate Investor

Many folks dream of becoming real estate investors, but not... Read More

3 of the 5 Ways Real Estate Can Take Advantage of Blogs and RSS

Earlier this month, Realtor Magazine announced that they would be... Read More

Atlanta Georgia Real Estate - Marietta - East Cobb, Roswell, and Alpharetta

Whether you're a "move up" home buyer, downsizing, or relocating... Read More

What is a Foreclosure?

A foreclosure is an action taken against a property owner... Read More

The Costs of Transforming Your Home into a Buyers Dream House

Turning your house into the home of a buyer's dreams... Read More

If You Cant Afford to Retire...Move

According to Warren Bland, PhD, an award-winning author and geographer... Read More