Even as the U.S. real estate market shows strong signs of recovery some investors may shy away from adding real estate into investment portfolios. It’s not just the risk, because that is an important factor to consider with any investment; investing in illiquid real estate can be more complicated than putting money into more reliable liquid investment vehicles like equities or money market funds. Yet real estate investments have the capability to produce superior West-rock results by applying vigorous due diligence to all potential investments.
Increase Portfolio Value
Real estate investments can increase portfolio values in the Westrock way by serving as a means to leverage capital, defer taxes, and grow wealth, often for minimal cash upfront in your quest for the best possible return on an investment. West rock believes that aiming for less undermines our ability to see a stronger return.
Successful investors:
- Evaluate a property’s ability to deliver a fair cash-on-cash return.
- Generate a positive cash flow by investing in a fee simple property in good repair. Avoid fixer uppers and minimize the management required for vacation properties or those located in less desirable areas, as well as investments in private real estate funds, or real estate projects in development also carry an extra element of risk.
- Understand how real estate can build wealth. In some areas mortgages only require a five percent down payment, thus allowing investors the unparalleled opportunity to control an entire investment and its equity in exchange for a fraction of its value.
Tax Benefits
Investors also benefit from tax-free cash flow. In many cases investors never pay taxes on the cash flow generated from real estate investments while waiting for capital gains received on the future sale of a property.
Long-term appreciation for an investment in rental property is realistic and part of a good tax strategy, too. Investors can benefit from tax-deferment approaches that include a 1031 exchange, installment sale to reduce tax liability, or a charitable trust.
Americans are notoriously poor savers so why not transform a real estate investment into a retirement plan with long-term appreciation, tax benefits and potential cash flow benefits.