How to Make Money in Real Estate Investing

Lower Your Taxes 

Tax incentives for real estate investors can often make the difference 
in your tax rates. Deductions for rental property can often be used to 
offset wage income. Tax breaks can often enable investors to turn a 
loss into a profit. 

For which items can investors get tax breaks? You could claim 
deductions for actual costs you incur for financing, managing and 
operating the rental property. This includes mortgage interest 
payments, real estate taxes, insurance, maintenance, repairs, property 
management fees, travel, advertising, and utilities (assuming the 
tenant doesn't pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally 
deteriorate over time, and these "losses" can be deducted regardless 
of the actual market value of the property. Because depreciation is a 
non-cash expense -- you are not actually spending any money -- the 
tax code can get a bit tricky. For more information about 
depreciation and various tax alternatives, ask your tax advisor about 
Section 1031 of the U.S. Tax Code. 

Have a Positive Cash Flow 

There are two kinds of positive cash flows: pre-tax and after-tax. A 
pre-tax positive cash flow occurs when income received is greater than 
expenses incurred. This sort of situation is difficult to find, but 
they are usually a strong and safe investment. An after-tax positive 
cash flow may have expenses that outweigh collected income, but 
various tax breaks allow for a positive cash flow. This is more 
common, but it is generally not as strong or safe as a pre-tax 
positive cash flow. 

Regardless of what kind of real estate you choose to invest in, timely 
collections from your tenants is absolutely necessary. A positive cash 
flow -- whether it be pre-tax or after-tax -- requires rental income. 
Be sure to find quality tenants; a thorough credit and employment check is probably a good idea. 

Use Leverage 

One of the most important factors in determining a solid investment is 
the amount of equity you are purchasing. Equity is the difference 
between the actual worth of the property and the balanced owed on the 
mortgage. 

Benefit from Growing Equity 

While investing in real estate is relatively complex, it is often worth 
the extra work. When compared to other financial investments, like 
bonds or CD's, the return on investment for real estate purchases can 
often be greater.

The key to real estate investing is equity. Determine an amount of 
equity that you want to achieve. When you reach your goal, it's time to 
sell or refinance. Determining the proper amount of equity may require 
the assistance of a real estate professional. 

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Donna States
Donna States
Broker Associate