Real estate, in my opinion, is a fantastic long term wealth-building investment. The monthly cashflow is solid when you manage it correctly, or have someone else do it correctly. The appreciation over time combined with fact that the mortgage is being paid down by the tenants provides for a sneaky good annualized Return on investment over the life of the loan. All these add up to a great investment but the one aspect of real estate investment that people often overlook is depreciation.
So what is depreciation? Depreciation is the loss in value of your property over time due to wear and tear, aging and deterioration. Although a piece of property typically increases in value, in the governments eyes it is losing value in that it is deteriorating. Thus you as the owner are given the benefit of depreciation meaning you can deduct this wear and tear your property is experiencing from the profits you get.
The outcome is often that your taxes are completely offset by the depreciation. Sometimes your real estate can even come out as a loss on your taxes even if you are putting money in your pocket over the year. Isn’t real estate fantastic! It’s been said that your largest expense is taxes and that is usually true. What depreciation does is largely or completely eliminate the taxes you are paying on your investment. This is no small benefit and adds to your bottom line over time. If you are looking to do some hardwood floor refinishing in Atlanta, GA. then check out today’s sponsor.