Real Estate (Real Estate Success Tips)
Real estate investment is often portrayed to be a fast and easy way to riches. Seminars purporting to teach ways to quickly make money with “no money down” perpetuate this illusion. Real estate investment has been a large factor in developing wealth for many of America's wealthiest families. However, the wealth is often developed over one or more generations, using hard work, real estate expertise, and specialized knowledge regarding related fields.
When asked for insights regarding success in real estate, many profess it is location, location, location. However, timing is more important than location in most instances. Consider the following example: an office building developer is excited about the prospects for real estate development in downtown Houston. He purchases the best tract of land for office building development in downtown Houston in 1980. He also obtains financing to build a speculative office building on the site. The office building is completed in 1982 just as the Houston real estate market is crashing as a result of the lower oil prices. The Houston downtown office market does not recover completely until around 2000. Conversely, California was booming during this time. Office buildings in average locations in Southern California cities such as Los Angeles and San Diego would have generated substantial returns. While location is important, in many instances timing the real estate markets is more important than finding the best location.
No one likes paying taxes. This includes federal income taxes, state income taxes, city income taxes, or property taxes and most other types of taxes. Wealthy real estate investors have learned it is not how much you make, it is how much you keep. There are several tax benefits available to real estate investors which are not available to most investors. These include depreciation and the tax-free exchange.
Real estate depreciation reduces or eliminates income taxes for many real estate investors. They often use a tool called cost segregation to fine tune the depreciation schedule and maximize real estate depreciation. Sophisticated investors gain a lower tax rate and defer paying taxes by using cost segregation. Cost segregation reduces the income tax rate by converting income taxed at the ordinary income rates to income taxed at the capital gains rate. The highest federal income tax rate for ordinary income is 35%. The federal tax rate for capital gains is 15%. Tax deferral occurs because taxes are paid when the gain on the sale of the real estate is recognized instead of when income is earned.
Real estate investors can perpetually defer capital gains taxes by using a tax-deferred exchange technique. This is often referred to as a 1031 exchange because of the tax code section which allows it. Many real estate brokers specialize in tax-free exchanges since the area requires specialized knowledge. There are also intermediaries who can help to facilitate the a tax-free exchange for real estate.
Accumulating wealth through investment in real estate is challenging but achievable. Correctly conning real estate markets and minimizing taxes are key skills for gaining wealth through real estate.
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Cost segregation produces tax deductions and reduces federal income taxes across the country and in every size market. Below are just a few examples of where cost segregation generates meaningful tax deductions.
City:
- Atlanta, GA
- Baltimore, MD
- Denver, CO
- San Francisco, CA
- Boston, MA
- Miami, FL
- Hartford, CT
- New York, NY
- New Orleans, LA
- Las Vegas, NV
- El Paso, TX
- Bakersfield, CA
- Portland, OR
- Cincinnati, OH
- Madison, WI
- Poughkeepsie, NY
- Harrisburg, PA
- Minneapolis-St. Paul, MN
- Syracuse, NY
- Richmond, VA
- Augusta, GA
- Palm Bay, FL
- Pittsburgh, PA
- Stockton, CA
- Colorado Springs, CO
- Greenville, SC
- Austin, TX
- Akron, OH
- Providence, RI
- Birmingham, AL
Cost segregation produces tax deductions for virtually all property types.
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