Real Estate, a Great Way to Build Wealth

Owning real estate is a great way to build wealth. Wealth, or net worth, is basically the difference between your debts and assets. Building wealth over time in a systematic, relatively low-risk fashion is the secret of most successful investors. This is exactly what real estate can offer you, if you purchase carefully. In fact, we believe real estate is the best investment you can make. Given the tax benefits, low risk, and potential for high returns and capital appreciation, real estate is better than stocks, bonds, risky business ventures anything. Plus, its the only investment that provides a place for you to live.

Building equity in a property, or the difference between a property market value and what you owe on the mortgage, is one way you can build wealth as an owner of real estate. By simply making payments on time on your loan, you are reducing the principal, or loan amount of your mortgage. The gradual paying down of the mortgage is also known as amortization of the mortgage.

Building your equity, even with the normal 3 to 10 percent appreciation rates in real estate, may cause your fund to grow faster compared to any investment. Historically it can't be debated. Contrary to stock market investments, those gains grow free of federal, state, or local income tax. Stock exchange pre-tax returns over the past century have averaged 9 percent to 12 percent, depending upon your information sources. The after-tax stock return of 10 percent is believed to be respectable if you examine the 30-year period, which is comparable to the length of more mortgages. The amount of money that goes toward paying the principal is insignificant at first, as you are paying interest rate on a bigger loan amount. However, you should remember that the larger interest portion also implies a larger tax deduction. Later on, in your retirement years; your needs for any deduction from mortgage interest may decrease. In theory, when the interest component is low or simply gone altogether, the income may also be lower, therefore from a tax point of view, it all works out nicely.

Since real estate commonly appreciates in value gradually, the gap between the money you owe and the property value widens and grows your net worth. Generally, real estates tendency to go up in value may make its purchase seems worthwhile generally after only a couple of years. Put differently, this increase in equity because of an increase in property value can cover all expenses like taxes, insurance, interest, and closing costs related to property ownership.     

The ability to leverage money, or make loans against the equity in the property, is another financial benefit of owning real estate. Many investors buy one property after another, using properties already owned as collateral. Others use real estate as collateral for any type of loan, like home equity programs or second mortgages. This may finance education, business start-ups or other types of investments that could build wealth.