In my experience, there are 2 types people when it comes to real estate:
Those that like to own, collect and manage real estate.
Those that don’t want to be bothered with it.
While each has a valid point of view, it really comes down to, two simple indisputable reasons why everybody needs to own at least 2 homes!
Everybody wants to make money. At the end of the day your primary residence is the only compounding capital gain that will be excluded from Taxation up to $500k as a married couple. For many that’s equivalent to making $750k to $1million in taxable income. Think about it! There is no other asset class, that gets a decent interest rate and also compounds, that will give you this benefit. How long would you need to save to have that kind of tax free money?
There are some areas of the country where the depreciation rate will match or out pace the appreciation rate. But for the most part, if you live in a desirable, demographically growing area, that is doing well, Your house will probably gain in value at an average of at least 5% annually. Sure some years will be 3%, some will be 10% or more, the average in my area tends to be closer to 7% to 8% which by the way matches the stock market and beats it when you consider the tax benefits.
Your life is going to change, and your needs are going to change. But one thing that will not change is that you are going to need to live somewhere!
So, why not buy a home that someone else will pay-off for you?
Eventually when you take your tax free winnings from your large primary residence. Just move to your second home that was paid off by a renter. With a little remodel, it can be as good as new.
So this will now be the second property that you own, and you’re not paying taxes on the gain, right?
How? Because you’re not going to sell it! You’re going to live in it!
Is that legal? As far as I know, its yours, you can do with it what you want.
No transaction, no tax.
But what if its not where I want it to be? There are tax free strategies for moving house investment equities to new properties while deferring tax. Call me to discuss!
Most families grow while they are young and middle aged. So they need a bigger house.
The truth is, its not a bad idea to have a larger appreciating asset.
They tend to make more money and sometimes your family could use the extra space. The gain should overall be much larger due to the leverage on the larger loan/asset.
Eventually your family size will probably shrink, and of course you’re going to age. If it starts to become uncomfortable to go up and down stairs and you no longer want yard maintenance. And if you have a need to release some of the cash from the giant house you are sleeping in every night. Then moving to your paid off single story property becomes an excellent life strategy!
So there you have it. Two indisputable reasons to own at least 2 homes.
1. You could use tax free money.
2. You need the right house in the right location, and it wouldn’t be a bad idea to let someone
else pay for for it.
In my next article, I will share how most of my real estate investors average 10% to 12% annual returns. This could be important when the experts are talking about bonds that average between negative numbers to 1.5%. And stocks that have no guarantees.
Real estate is very stable and practical in comparison. Ask me how!
Did you know that we offer affordable property management for your second home or investment real estate?