Your Plainfield, Naperville, Oswego and Aurora Real Estate Experts

According to recent statistics published by the U.S. Census Bureau, 75% of multifamily investors are over the age of 45. Over half of these (51.6%) own less than five units, and they earned approximately 31% of their income from ownership of rental properties.

These statistics may surprise you, but some logical reasons explain these numbers. Most real estate investors come to the market later in life because they are concerned about their retirement and are at their highest potential earning power, or some have inherited money or real estate; the U.S. Census Bureau reports that 48% have inherited a home.

There are four major reasons that an investor might choose real estate for investment.

1. Cash Flow

2. Appreciation

3. Equity build-up

4. Tax savings

Most investors like all of these opportunities to make money. Bear in mind, though, that the government needs to pay its bills and they get their share when you sell one of your investments. When you sell a property, you will be faced with a 20% capital gains tax on the increase in value of the property and the recapture of the depreciation. This cost can be deferred if you complete a IRC1031 tax deferred exchange to trade up from property to property.

Regardless of the size of real estate investment, you can make a return and build up your retirement. It is important to not buy the first investment that comes along; rather you should buy the best investment. Pick an investment that you are the most comfortable with, maybe a town home or single family home in a good location. This will give you a chance to make some small mistakes and plan a long-term strategy for investing in real estate. If you need help investing for the future, I can help you make the right investment choice. Many of my clients are purchasing investment property rather than investing in the stock market. I have owned several investment properties over the years, and have done IRC 1031 exchanges and find that it has not only been a good financial investment but a great tax write-off. For more information, call us at 630-618-2000.

Uncle Sam allows everyone but dealers in real estate to depreciate their investment properties on schedule E when filing annual tax returns. Residential properties depreciate over 27.5 years and commercial over 39 years. You reduce your mortgage and increase your equity with every mortgage payment made on underlying debt. A portion of your payment goes toward reducing the principal. The shorter the loan period, the faster the equity builds. As a result of our growing population there is a net gain of one American every 14 seconds. According to the U.S. Census population clock - we could expect to have a population in excess of 400,000,000 in 2050 compared to today's population of 300,000,000 as of 2007. Loosely applying the rules of supply and demand, we can rest assured that with our current immigration patterns as well as our population growth, there will be a continued need for housing over the next 50 years. Given this demand, I believe you can safely assume a 4% appreciation level. Of course, some years will be better than others depending upon supply and demand and the escalation of costs and the increased costs of construction and land/infrastructures. As long as governments keep up major increases in impact fees for developers, your real estate investments will continue to appreciate. Yes, it is still possible in some parts of the country to have a cash flow return. In other words after all expenses have been covered: mortgage, vacancy factor, repairs, property management etc., there still can be some money left on the table. Most banks will not lend money to buy a property if there is no hope of a cash flow.

Written by: LARRY BALLARD, Broker/Owner, Total Solutions Realty, LLC.