Successful entrepreneurs need a cost effective way of investing business profits so that they grow in value and exceed inflation. Real estate investing presents the best opportunity to both grow profits and minimize taxes.
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After you fully fund your IRA or 401k retirement account you need to have another business investment to grow your wealth. Either commercial or residential real estate can be the perfect investment vehicle for the successful entrepreneur. Here are five reasons why.
1. Leverage your money. Real estate is among the easiest ways to leverage your money to make it grow faster. While it's true that bank loans are more difficult to qualify for these days, the interest rates being charged are still historically low. Well qualified investors are not having trouble qualifying. A positive cash flow investment will more than cover the cost of the loan and you also bank the appreciating value.
2. Real estate is a tax deferral strategy. Real estate offers more tax deferrals than most or all other investment strategies. Loan interest, expenses, improvement costs, and property depreciation are all tax free or tax deferrals. You can often operate your real estate investment tax free.
3. Tax write-offs against other income. If you are an active investor or real estate professional there is a good chance your real estate investment expenses can be used to write-off taxes from other income. That's right, not only can you grow your investment tax free but also you can lower your overall tax bill from other income sources.
4. Increase your tax deduction strategies. Rental properties provide many tax deduction opportunities. Real estate investing is a business. Expenses such as traveling to check on properties are fully deductible. So are costs to hire friends and family to do repairs or maintain the property or to manage the properties. Tax deductions may not be unlimited but they are plentiful. You can keep the money in the family.
5. Real estate investing can be your forced retirement plan. As a successful entrepreneur, you should be fully funding your retirement account. However, we Americans are terrible at saving money. Few self-employed entrepreneurs fund their retirement accounts at all. Investing in real estate can be a forced way of making an investment with other people's money (banks), growing your net self worth over time, and becoming the full owner of a valuable resource when retirement age rolls around. Once any loans are paid off, all positive cash flow is yours to keep.
In the future, you will be grateful that you have taken profits from one business and invested them into another that will almost certainly grow over time. The tax benefits, income opportunities, and appreciation in value will secure your wealth and possibly build into a legacy that your children and grandchildren can enjoy for their lifetime as well.
Please leave a comment if this article was helpful or if you have a question.
About the author: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.
Real estate is one of many options to invest in with a self-directed IRA. You can use your retirement funds to invest in an array of investment options if your custodian is equipped to handle alternative investments. Equity Trust is a leading custodian which allows clients to invest in Real Estate.
I completely agree with your comment, although there are a few things you can't invest an IRA in such as collectables. Here the emphasis is on real estate because it's the subject of the website.