Owning a rental property can be a great player in your overall investment strategy and an excellent way to build wealth. It typically isn’t affected in the same way as the stock market so that it can provide diversification in your portfolio.

However, it’s important to understand the risks of the real estate market. Andrew just started investing in rental properties earlier this year so on today’s episodes he will give us a broad overview of why real estate can be a great investment and what he has learned from his experience. We understand investing in real estate isn’t for everyone, but it is an awesome way to build wealth. We are going to tell you why.

Preserving Wealth vs. Building Wealth

Your money is getting decent returns in the stock market, so why invest in real estate market? It just seems riskier and a ton more work, right? Well, just like diversifying your investments in the stock market, it is also important to have diversification in your portfolio as a whole.

Investing in the stock market is great over the long term for reaching future goals like retirement. It preserves your money by providing small gains over many years protecting your money from inflation. However, most of us will not get rich investing in the stock market alone. You can grow wealth but not go to make you wealthy. That’s where real estate investing comes in.

Owning real estate is like running a passive income business. It provides an excellent and for the most part reliable income stream. After putting in the initial work to find a great profitable property, 90% of the labor to maintain the property you can delegate out.

“Risk comes from not knowing what you’re doing.”  Warren Buffett

You can choose to be as hands off or as hands on as you want throughout the whole process. There are companies that handle it all from soup to nuts. All you will need to provide is your John Hancock. But, when you are looking to buy your first property you should try to be more hands on. Going through the whole process step by step will help educate you on how it all works, so you know what you are getting yourself into.

Depreciation

Before investing in his first property, Andrew read Tax-Free Wealth by Tom Wheelwright recommended by our guest Natali Morris. This opened his eyes to the crazy amount of tax benefits owning a rental property earn you. Most people look at taxes as the government taking their hard-earned cash. However, Wheelwright says if you dig past the surface, the bulk of the tax code is there to provide incentives for stimulating the economy. Only about 3% of the tax code is dedicated to how much you pay, but the other 97% is about how much you can deduct. 

For an easy example, let us say you own a business and have a computer that is used for work purposes. When you purchase that computer with you company money, you can deduct it as a business expense. But hold on a second, you can deduct more.

On average a computer will need to be updated every three years so the tax code might say you can depreciate the computer every year. How do you do that? You take the cost of your computer, divide it by three and deduct that amount from your taxes as a loss for three years. *This is just an example see the IRS website for actual tax code.*

It works the same for rental properties. You can depreciate an asset’s value over 27.5 years. You can deduct thousands from your tax bill every year just for owning a rental property making your rent income tax free.