Gilroy Today 2012 12 Winter | Page 25

Benefits of Income Property Ownership

W

hile many types of Real
Estate are again appreciating there are several significant benefits to property ownership . An increasing number of individuals are investing in properties which are of benefit , not only through quick appreciation but by planning and time . These investors take advantage of positive cash-flow , depreciation and / or tax reduction benefits , or principal reduction so that a property ’ s benefits are not merely appreciation . Every individual needs a retirement fund , this could be a great way to create one .
APPRECIATION Appreciation is an increase in value to the property owned , due to area growth or desirability of the property type in the market . Appreciation is desirable yet many are too focused on it and discount other amazing benefits of ownership .
CASH-FLOW When stocks are not on the rise and bank interest rates are not especially enticing , investment property ownership can fill the gap . Choosing properties where the investor receives monthly / steady profit is the way to go . This sounds simple but the wrong type of purchase may mean you sink everything to own an investment property . What you want is something that costs nothing to own after your initial investment . Achieving this is relatively straightforward .
A break-even cash-flow property is one where mortgage paid , expenses and produced income offset one another . All rental expenses ( such as property tax , maintenance / repairs , insurance , utilities , etc .) are added to the mortgage costs . The result should be the expenses and mortgage payments are equal to or less than the rental income and tax benefits .
Until recently break-even or positive cash-flow properties were hard to find , interest rates were high and rents low or decreasing . With today ’ s lowered interest rates , rents stable or rising , and a flood of properties on the market , purchasing break-even or positive cash-flow properties is much easier . These properties are a great way to build your portfolio and invest with less weight on out-of-pocket property expenses .
DEPRECIATION Depreciation is a further tax benefit . In terms of taxation property is considered a depreciating asset with the assumption that over time the asset loses value or its useful life . While the land does not depreciate it is often the building ( s ) which hold a majority of the purchase value . Depreciation of a property is calculated as a division of the cost of the property ( minus the land value ) divided by a set period of time — different for residential and commercial . The depreciation value becomes a constant : when an investor subtracts the net income of a property from the depreciation benefit the resulting amount is what can be claimed as losses for tax . Although there are limits on all deductions , depreciation is a great incentive providing some tax shelter for investors who are looking not just for profit but also benefits in deduction and securing equity .
Depreciation and positive cash-flow property investments suit those who want to invest now and live off the cash-flow . These types of investments are not like those that spike and plunge , they are calculated investments with steady and increasing return over time , and lower risk .
PRINCIPAL REDUCTION Principal Reduction can best be summarized as property purchased which is paid for by the rental income . Basically , your tenants ( commercial or residential ) are paying the loan / mortgage of the property and you accrue the equity . This again makes owning a property cheaper and more stable than stocks , metals , or other high risk investments . In applying break-even or “ positive ” cashflow theory to property purchase , finding a solid tenant to take advantage of principal reduction , and making sure to account depreciation and other tax benefits , owning an investment property can be the best for future security and income .
To advise on investment purchases you
By
George Renz
George L . Renz , CCIM , ALC was born and raised in Gilroy . He is the broker , owner and operator of Renz & Renz Real Estate Brokerage ; specializing in commercial and investment property sales and 1031 Exchanges in South County and beyond since 1983 . Visit his website at www . renz-renz . com or call 408.846.1031 .
are looking for someone who not only understands the types of investment purchases that interest you but also someone who can advise on area growth projections , current market trends , realistic rental incomes and base expenses along with contingency plans and access to the best interest rates and loans .
There are many ways to make money with income property : utilizing cash-flow , tax benefits , principal reduction and depreciation can make investing the key to a secure retirement . You can make money slowly and safely over time without dependency on appreciation . I have many clients who have made significant money during thriving and poor economies , with and without appreciation , utilising these benefits of investment .
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