Cash flow residence advantages are truly hidden from the general public. Think about it. Perhaps you have had sat down with a financial planner and wondered the reason he has never recommended that you take your money and commit to cash flow properties? I mean really... many of the wealthiest people on this planet have used cash flow property to literally build empires! Trump, Kiyosaki, Hilton, Kroc, and Donald Bren come to mind. But still, how often are you advised to look into it?
While you are will be pondering that question, think about this: cash flow property when compared to "traditional" investments peddled by many "financial planners" may deliver higher returns with less risk and more control to your account, as the investor.
Since many are unfamiliar with the importance of monetary as it relates to any business. Let's start there along with a quick definition:
Cash Flow: Is the amount of cash that an investment and / or business venture creates over a specified period of time. Since cash flow or perhaps cash is the primary driver of a business and gives company owners the freedom to create more products, services, or even pay off dividends to shareholders, most analysts believe cash flow to become company's most highly regarded financial statistic. Organizations and enterprises with big cash flows are almost always takeover targets because buyer knows that the cash can be used to help balance these prices of the purchase deal.
Isn't that interesting... (Note typically the underlined sentence above) But, how does that relate to real estate? Think of it this way; each cash flow property that you personally own can be considered its own "company". That is each cash flow property seems to have income in the form of rent, and expenses in the form of taxes, care, or debt service. So , just like large companies experience income and expenses, you as an cash flow property real estate investor will as well.
So , first and foremost, understand that there is a difference in between investing and speculating. An investor will buy profits, while a speculator will bet on a rise on price or buying low with the hope of selling at some point at a higher price. In the investment property world, investors are known as "flippers". This is a topic for another controversy, yet just know there is a difference.
Now, what are the benefits of knowing how important cash flow can be? And, why do I rather have cash flow property to speculating or "flipping" a property?
Advantages 1: When buying cashflow property, I am creating a returning income stream. So , when I invest my cash in a home that I will in turn rent to a tenant, I am essentially being paid for having put my money at risk. Typically the tenant will pay me to live there which creates the income for the property. Having income from the property presents me a steady stream of cash flowing to me we am free to use.
Contrast that with the scenario in flipping the property. If i put my cash into a building for the purpose of fix and flip, then while the property is parked , vacant, or is under repair, or being billed for sale I am not receiving any cash flow. My hard cash is effectively tied up and not available for me to use until finally I sell the property and I will only benefit only sell for more than I have put into the property. I personally would like not to have to sell a property in this market given the actual conditions as it may take some time. During the time I am holding the property as well as waiting for a sale, that property is costing others money in maintenance, taxes, and advertising.
Advantage 2: Selecting cashflow property creates an asset. What does which means that? It simply means that you now control or own a thing that pays you! The real difference between assets and liabilities is that assets pay you and liabilities need to have payment from you. Your personal residence is not an possession, it is a liability! It requires payment from you in the form of home finance loan. Even if your home is paid for, it requires payment from you comprising taxes, insurance, and upkeep to name a few. In reality your own home is an asset for the bank that owns your property loan, or the state and federal government that collects your property tax burden, and the maintenance man who does your lawn... For you nonetheless, your home is a liability!
Buying cashflow property creates the asset because you put a tenant in the property what person pays you. The rented property throws off cash that you can use or reinvest. Every time you buy a true asset, you can get one step closer to financial freedom and a life regarding liberty.
Think of it this way... If your lifestyle costs you will 5, 000 per month, you only need to have assets which spend you 5, 000 per month to maintain your current standard of living. The reason would you have to work at a job if you have other sources of cash? You wouldn't... That's the beauty of owning cash flow place. It puts you one step closer to freeing your body financially.
Advantage 3: Buying cash flow property creates place a burden on advantages. That's right. And, probably one of the most misunderstood tax added benefits is that of depreciation or "phantom cash" because some call it. Basically, phantom cash (or depreciation) can be taken literally as just that, it is money that will not exist. Depreciation is a government incentive and tax loophole of the rich so they can benefit from real estate to a greater length. The way it works is this... government states that anyone can take the value of a building divide it by twenty-seven. 5 years and deduct that amount from your taxable income every year!
Let's say that I buy a building valued by $100, 000 and I rent it out within $1, 000 a month ($12, 000 a year) website would be allowed to subtract ($100, 000 / 27. 5) which is about $3636 a year from my taxable source of income. Which means I only have to pay taxes on $8364 $($12, 000-$3636) for that year not including the other deductions you get as a result of real estate.