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Benefits of Building a Real Estate Portfolio

The combination of ongoing uncertainty in the stock market and the real estate market’s steady long-term appreciation has made real property an attractive option for investors looking for opportunities to diversify and grow their portfolios. The following guide provides a look at five potential benefits that may come from adding real estate to your portfolio.

1. Cash Flow

Investing in rental properties can be an effective way to create passive income. Ideally, your rental income may offset some or all of the expenses involved in owning the property and provide a profit.

The term “cash flow” refers to the net income left over after paying a property’s mortgage, taxes, and operating expenses. This amount often rises as your mortgage is paid down, increasing the likelihood that you will see a positive return on your investment when the property is sold.

2. Tax Advantages

Owning real property creates several potential tax advantages. It’s often possible to deduct reasonable costs associated with owning, managing, and operating investment properties. Other common property-related tax deductions include depreciation, interest, and business-related expenses such as necessary travel or a home office.

When it’s time to sell your investment property, you may also be able to defer your capital gains taxes and depreciation recapture by engaging in a 1031 exchange.

3. Inflation Hedge

Unlike many other types of investments, the value of real property tends to move in the same direction as inflation. When inflation starts to rise, typically, so do property values and rents. In addition to providing portfolio diversification, this can also serve as an inflation hedge, helping to protect your buying power.

4. Appreciation

Real estate values generally tend to increase over time as rents increase and produce greater net operating income.  Positive rent growth can make real estate a potentially profitable long-term investment.

5. Leverage

Many investment properties are purchased using leverage, allowing you to add an asset to your portfolio without having to pay the entire purchase price upfront. Borrowing capital may increase your investment’s return, and interest expenses can also lower your taxable income. Since the property is used as collateral, financing is typically readily available for qualified buyers. 

Explore Your Options

While these are some of the most common advantages of holding real estate in an investment portfolio, there are potentially many more. If you’re thinking about purchasing investment real estate, contact us to schedule a consultation. Our team has extensive experience in building real estate portfolios for clients and we would be pleased to assist you as you explore your options.  

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Help Save 1031 Exchanges
Write to your Member of Congress and Senators urging them to oppose restricting Section 1031 like-kind exchanges. As part of the American Families Plan, the Biden Administration has proposed eliminating the application of Section 1031 for gains greater than $500,000. Like-kind exchanges have been part of the U.S. tax code since 1921 and are one of the tax code’s most powerful economic tools. It is critical that we all vigorously and visibly oppose this proposal. Make your voice heard with a pre-filled letter, which you can customize to add personal anecdotes or powerful client stories to highlight the positive impact of Section 1031 like-kind exchanges. Take action today by clicking HERE.

Paul Getty

Paul Getty is a licensed real estate broker in the state of California and Texas and has been directly involved in commercial transactions totaling over $3 billion on assets throughout the United States. His experience spans all major asset classes including retail, office, multifamily, and student, and senior housing. Paul’s transaction experience includes buy and sell side representation, sourcing and structuring of debt and equity, workouts, and asset and property management. He has worked closely with nationally prominent real estate brokerage and investment organizations including Marcus Millichap, CB Richard Ellis, JP Morgan, and Morgan Stanley among others on the firm’s numerous transactions. Paul also maintains a broad network of active buyers and sellers of commercial real estate including lenders, institutions, family office managers, and high net worth individuals. Prior to founding First Guardian Group/FGG1031, Paul was a founder and CEO of Venture Navigation, a boutique investment banking firm specializing in structuring equity investments made by institutions and high net worth individuals. He possesses over 35 years of comprehensive worldwide business management experience in environments ranging from early phase start-ups to multi-billion-dollar corporations. His track record includes participation in IPOs and successful M&A activity that has resulted in investor returns of over $700M. Paul holds an MBA in Finance from the University of Michigan, graduating with honors, and a Bachelor’s Degree in Chemistry from Wayne State University. Paul Getty holds Series 22, 62, and 63 securities licenses and is a registered financial representative with LightPath Capital Inc, member FINRA /SIPC. Paul is a noted speaker, author, and actively lectures on investments, sales, and management related topics. He is author of The 12 Magic Slides, Regulation A+: How the JOBS Act Creates Opportunities for Entrepreneurs and Investors, and Tax Deferral Strategies Utilizing the Delaware Statutory Trust (DST), available on Amazon and other retail outlets.

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