Building Wealth
GET OFF YOUR ASSETS!
By Billy Looper
Nov 25, 2003, 15:54

Considering the shocking events of September 11, 2001, accounting scandals at some of our largest blue-chip corporations, the dot.com fallout, al Qaeda, the war with Iraq, destabilization of Latin America, and the economic bust in Japan, it’s a miracle our economy is sputtering along at all.

Due primarily to owners as well as investors rushing into the real estate market, the economy is posting respectable growth figures. Rising housing prices and the equity being taken from refinancing are counterbalancing many of the economic declines in stocks and pension funds.

Investment in real estate has proven an attractive vehicle during these turbulent times as it continues to provide 9% to 10% returns, which combined with record low mortgage rates, can yield 14% and greater returns.

So why is real estate such an attractive investment?


1. The Intangibles – To own real estate is “the American Dream.” For ego, for social status, for whatever emotional reasons, we love to own real estate. Our pride of home ownership is hard to measure but deeply ingrained in our culture and a driving force that needs to be recognized.

2. Independence – You can’t take your GM stock certificate to their board of directors and demand they increase its value today. However, you can take a gallon of paint and immediately increase the value of your real estate investment. We all like to be in direct control of our financial independence…when do we buy, when do we refinance…when do we sell? Real estate gives you more independence and direct control over your assets than almost all other investment vehicles. If you purchased a business, you would be working seven days a week and twelve hours a day. Although real estate requires management, supervision, and bookkeeping, your time investment is minimal compared to other businesses.

3. Basic Needs – When you invest in real estate for your own use, your asset also provides basic shelter as well as a great investment vehicle.

4. Wealth Building – Most of the wealth in this nation has been built with real estate. With relatively low barriers of entry, you can begin to build your real estate portfolio by buying real estate at a decent price, renovating the property to get “the most bang for the buck”, refinancing based on the new appraised value, and using the tax-free cash to buy another property. You then enjoy positive cash flows (hopefully) and increase equity build-up by paying down the mortgage over the years and waiting for appreciation. To build substantial wealth, you should repeat this process or use tax-free exchanges to move from smaller properties to larger ones or from high-risk properties to low-risk properties. By investing in real estate, you can create and design your own retirement plan.

5. Cash Flow – While your tenants are paying off your mortgages and your expenses on the property, the cash flow is considered passive income, which is taxed at a lower rate than earned income. In addition, cash flows tend to increase over time offering one of the best weapons against inflation.

6. The Power of Leverage and Equity Buildup – A major attraction to real estate is being able to own and control a large asset with relatively little or none of your own money. Smart leverage can increase your yields substantially. Would you prefer to invest $10,000 and purchase $10,000 in stocks or invest $10,000 as a down payment to own and control $100,000 in real estate assets? Remember, you get to reap the benefits of appreciation based on the $100,000 asset not just the $10,000 down payment. In addition, each monthly payment reduces the principal on your mortgage, which increases your equity.

7. Tax Advantages – Whether sheltering other forms of income, sheltering cash flows from their real estate investments, enjoying favorable forms of capital gains treatment, or deferring taxes through installment sales or tax-deferred exchanges, savvy entrepreneurs like yourself use these real estate tax advantages to maximize returns. Total tax benefits include lower tax rates for passive income; no Social Security tax on the income; maintenance and repair, management, property tax, and interest deductions; depreciation; and tax-free cash upon refinancing (not necessary to sell asset to generate cash). The Taxpayer Relief Act of 1997 included substantial tax savings for those who buy, live in, renovate, and sell, allowing you to exclude tax on up to $250,000 of the gain from the sale of your principal residence. You may use the exclusion only once in two-year period, although it can be pro-rated if you move before the end of two years.

8. Appreciation – In addition to cash flows, equity build-up, and tax advantages, the long-term real estate investor enjoys appreciation, probably the single most attractive element of real estate investing. As you know, labor and material costs continue to increase (lumber and sheetrock prices have skyrocketed) and affordable land is becoming scarce. These dynamics combined with physical renovations and improvements you make to your property results in a higher market value…many times a substantially higher market value.

So “Get Off Your Assets!”

There are no perfect investments. However, with this many advantages, you should be creating your own real estate empire.

I’ve heard all of the excuses:

What if the war is prolonged?

What if another 9/11 happens?

What if the real estate bubble bursts?

What if?

What if?

Changes in the economy, changes in supply and demand conditions, tax code revisions, and worldwide turmoil are dynamic risks that cannot be insured against. They can be reduced, however, by careful analysis before investing in a property and constant monitoring and analysis during ownership. To compensate for these risks, you simply expect a higher rate of return on your investment.

Remember, real estate wealth building is a long-term investment. How many times have you heard, “I wish I had bought that house twenty years ago…it was only $55,000…I would be rich now.”

The intangible and tangible advantages of investing in real estate as part of your diversified wealth building plan are overwhelming…

Real estate should be a major part of your portfolio.


Make it happen!

Have fun investing,


Billy Looper, MSRE
Licensed Real Estate Broker

Mack Lane Real Estate
billylooper@bellsouth.net


If you need assistance in building your real estate empire…Billy can help. He has used his down & dirty “in the trenches” experience as a real estate appraiser and investor for over 20 years to help others plan, start, and succeed as a real estate investor. He’s bought single-family homes at foreclosure for as little as $15,000 and appraised one of the five largest malls in the country for over $400,000,000. He’s bought and sold over $15 million in real estate and managed over $2 million in renovations…from growing up in a trailer park in rural North Carolina to becoming the vice president of a national real estate appraisal firm by age 32…from cleaning bathrooms in dilapidated houses to negotiating in corporate boardrooms, Billy has the insights into all levels and all types of real estate investments. He has a Masters Degree in Real Estate & Urban Affairs from Georgia State University and a Bachelor of Science in Business Administration from the University of North Carolina at Chapel Hill. He also holds a Florida Real Estate Brokers license and is President of Mack Lane Real Estate in Fort Lauderdale, Florida.


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