John Rainville

Why Real Estate Out performs ALL other investments according to one of Trumps gurus!

Since the late 1990s, sharp increases in property prices, along with a corresponding relative decline in cash flows and rental yields, have led the major media to persistently babble about real estate “bubbles.”

Taking a cue from these misguided journalistic missives, many people now believe that real estate is no longer a good investment.

Nothing could be further from the truth. Let me shed some light on only two of the reasons why real estate is still the best investment out there - even if you buy a property that does not produce lavish cash flow, or which does not appreciate quickly.

Reason One: An Instant Boost in Equity

If you buy publicly traded stocks or bonds, you will pay the current market value for these investments. You may enjoy price increases over time, but you will not immediately advance your current wealth. Not true for real estate.

You can buy property for less than its market value. Common reasons that prompt sellers to discount their prices include:

• Financial distress

• Need for quick cash to pursue other opportunities

• Ignorance of the current market

• No eye for entrepreneurial transformation

• Unskilled sales/promotion efforts

• Desire for quick sale, minimum effort

• Desire to avoid paying a real estate commission

Recently, I bought a rental house for $150,000, but the mortgage loan appraiser placed this property’s market value at $180,000 to $200,000. The seller lived out of town and had relied on an incompetent real estate agent for advice.

Such deals don’t come along every day. Periodically, though, you will find (or negotiate) bargain prices that will increase your equity -- and net worth -- instantly.

That’s a possibility that simply does not exist if you are investing in stocks, mutual funds or bonds.

Reason Two: Income Tax Advantages

Although it seems odd to use the words “tax” and “advantage” within the same phrase, the Internal Revenue Services (IRS) offers property owners a unique set of benefits, including:

• Not all of your net rental income is subject to income taxes. The tax code permits you to offset income with a deduction for depreciation.

• You can grow your portfolio of properties through Section 1031 exchanges and never pay income tax on accumulated gains.

• You can sell your personal residence and escape income taxes on the first $250,000 of gain ($500,000 if you’re married).

• For some types of properties and property improvements, the IRS grants tax credits that reduce income taxes.

• If you pull gains out of a property via a cash-out refinance or equity credit line, that money comes to you tax free.

Admittedly, the IRS weaves each of these tax benefits within a web of rules and regulations that go beyond the space available here. But the fact remains that dollar-for-dollar, federal law permits property owners to pay less tax than investors who trade stocks or bonds.

So as an astute wealth-builder, always evaluate and compare the after-tax returns of alternative investments.

This article is adapted from the new bestselling book, Trump University Wealth Building 101: Your First 90 Days on the Path to Prosperity.