No other investment vehicle can impact your net worth like real estate. Investing over time, using sound models, makes real estate a most “able” investment. In his best-selling book, The Millionaire Real Estate Investor, Gary Keller reveals that real estate is accessible, appreciable, leverage-able, rentable, improvable, deductible, stable and livable.
Area residents can learn about this “able” investment by working with successful real estate investor Kevin Mackessy at Blue Olive Properties, a Highlands Ranch based property management and real estate investment company.
Accessible, Appreciable, Leverageable
Real estate is readily accessible to investors. “Great deals are out there and they are easy to understand and relatively simple to finance,” Mackessy explains. “Financing option are available to every type of buyer. There are no insurmountable barriers to entry.”
Real estate is appreciable because of two factors: inflation and supply and demand. Real estate has appreciated 6 percent a year since 1972, outpacing inflation by 33 percent a year. And while 6 percent doesn’t seem like a great return, keep in mind, cash on cash returns are much higher.
Real estate is highly leverageable; most investors use a mortgage to finance a purchase Economist Harry S. Dent said, “The most important thing about home ownership is that it’s leveraged. When you look at your net investment and the return on that, homes compete with stocks.”
Rentable and Improvable
Real estate is rentable. Rents have appreciated 5.3 percent over the last 30 years. “Successful investors understand this trend,” Mackessy says. “Rents in the Denver area are rising now.” Investors can learn the proper way to rent properties to take the risk out of tenant selection.
Real estate is improvable. Investors can increase equity by discovering hidden value and making cost effective improvements. “Whether these repairs are cosmetic or structural, whether you do it yourself or hire somebody, the principle is the same,” Mackessy says. “You are creating sweat equity.”
Deductible, Depreciable, Deferrable
Fortunately for investors, the government provides many tax benefits. Real estate is deductible, depreciable and deferrable. Tax law allows for deductions for expenses incurred. Investors use these deductions to offset investment income and personal income. Not only does tax law allow depreciation of real estate, it requires it. “Real estate is presumed to wear out and lose value over time, and the government expects investors to account for this loss,” Mackessy explains.
Gains on real estate investments are also deferrable. Investors can use 1031 exchanges and IRAs to buy and sell properties while deferring taxes. “No investment reduces your taxable income like real estate,” Mackessy says.
Stable and Liveable
Smart investors rely on the stability of real estate. Statistically, the volatility of an investment can be measured through its standard deviation, the percentage an investment will go up or down. The stock market has a standard deviation of nearly 17% on average. “Real estate is more stable than traditional stock market investments,” Mackessy says.
You can buy shelter and begin the path to building wealth. “Real estate is literally the only investment that puts a roof over your head,” Mackessy explains. “You can move into a home, fix it up, rent it and move to another.”
Real estate investing is a game of acquired knowledge. But you need to take action. Don’t be afraid to get started in real estate investing. Financial success will come as your knowledge grows and you gain experience.