Taxes and opportunity costs, together with interest in inflation are the main components that investors in the main community on the buyer’s side have to face. What are the actions to battle those forces? This article will walk you through on how you can be able to combat opportunity cost and interest taxes, efficiently structured debt, leveraged deal, and control inflation.
When utilizing effectively, it is commonly known as optimum capital structure and it gives you the freedom to utilize a proper mixture of equity and debt to minimize your risk, supply you the best possible return and take you to the most effective method to stay away from major forces that real estate investors have to face. Another thing that you have to ignore is the principle that debt is a bad thing. Yes, it is possible to fear debt, or you can choose to master it. What we need to pay close attention to is how to rework our thoughts and skills when it comes to real estate investing.
Initially, we want to pay attention to financing instead of focusing on the asset. Secondly, we want to focus on efficient financing coupled with more stable assets and lower risk for best returns. Instead of getting high risk assuming for better returns, you may want to pay lower taxes by focusing on real money instead of paying higher taxes but focusing on obtaining a small amount of money or past value figures. Focusing on stable assets with minimal volatility and higher liquidity is the way to go. To add, you want to come up with an efficiently-tailored debt to have a predictable cash flow and net worth. Instead of feeling the pressure to purchase the assets with higher volatility because of pressure and time constraints to obtain higher returns in a quick amount of time.
You should make the system work for you instead of fighting it and shelling out a significant amount of time to get educated. Pay close attention to higher liquidity with the use of manageable leverage to obtain wealth. Normally, individuals possess little to no money because they want each penny to make money. Consider the effective use of money; financing is included together with spreads and risks and also the present tax environment. Before looking at returns the old-fashioned way of thinking is to look at returns, exclusively. When all these other components must be treated the proper way to think in terms of enhancing net worth is using inflation opportunity cost interest. Also, using tax benefits to come up with an environment where there is a certainty of enhancing your net worth. The traditional approach of increasing net worth was to purchase and pray for you to increase net worth.
Now, when you are on the proper side of investing, you have to take time in rethinking on how you normally invest, you are going to be a sophisticated type of investor. And less risk will then be created. Using debt to your advantage is really the thing to do when it comes to using interest. The approach is, if you were to put your money into an account, the interest will only reach at least 3% which is actually higher than a lot of accounts are presently and steadily want that account to grow, you would make 3% and then you have to subtract.
Other components, because of the future value of money; subtracting your taxes. As soon as you take it out of these accounts and more. Instead, you could utilize your leverage on a property for example. You can also use leverage on something where your interest was tax-deductible. Then, what you obtain is using a loan, for example, pegged at 6% interest. You are basically saving or writing off 6% interest so you are essentially generating a 6 percent return on the investment you are trying to leverage. So you have to think that way. If you were to have both of these mentioned accounts at the same time, you will notice that based on the loan or the leverage that account would actually make you 3% more money over a similar period of time.
Here is another idea that is efficient, especially when you are trying to come up with generational wealth, is to consider the family bank in very simple terms. You can have a pile of wealth with your family when there is a family board, which means once monthly minors are only allowed to learn but not to vote. The family will then decide what they are going to utilize their money to lend on.
For example, if someone needs a laptop for college, if we are going to purchase a property, etc. everybody will have a say on this. If we are going to buy a laptop, for example, the individual that is going to take out the loan says it is your daughter or son, they would then have to take out that loan from the family bank instead of a big bank. They would be paying interest on the family’s bank as such this is one way not to lose out on the interest.
So now, we have figured out a way to come up with loans from other banks’ interests that work for us. To add, we can also make that interest payback to us as well. So, you are not missing out on an opportunity cost, you are generating interest. Further, you are being able to utilize alone, to be able to generate a higher percentage of interest on things such as real assets or things that you can write off the interest on the family bank is an excellent way to teach young kids financial literacy when they are coming into a family who regularly meets and mulls over the benefits of the most efficient ways to utilize the money to increase their wealth. To add to that, another imperative component as stated before is focusing not only in garnering the optimum benefit from interest on loans but also having bigger tax savings. Utilizing loans or leverage is excellent for beating inflation since you are the bank. This is because when you lend or take a loan out on something, as long as your income from the property is keeping up with the inflation.
Another excellent thing in terms of debt is that you can utilize debt to buy, up to three times more than the amount of property that you could if you did not, and you would be able to triple your net worth. The beauty of this is that you will be able to stay liquid. These two (2) things will aid you in being able to obtain more loans from the bank.
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Kaylee McMahon
Apartment investor/ TREC® Brokerage LLC Owner
c: 469-990-4627 (text or call)
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