Real Estate: The “Printing Press” Of The Rich.
Image source: Harrods Estates, London
Debt and taxes can make you very poor … except in real estate.
Real estate is the “printing press” of the rich.
For example, let’s suppose you have $ 20,000 to invest. If you acquire property by leveraging money from banks, you can end up acquiring assets worth up to $ 100,000, assuming 80% financial leverage.
Let’s suppose that your new investment is valued after a few years and is now worth $ 120,000. How can you take this money, keep the asset, reinvest in another property and repeat the process, all at the same time?
Two words: debt and taxes.
If you apply a refinance for the new value of the property (debt), you get the surplus value as tax-free money. Next, the new debt is amortized by the tenant, you reinvest that money by applying an “equivalent exchange” (exchange 1031 as it is known in the United States), which means that you do not pay taxes for capital gains, as long as you comply some requirements and buy another investment property, and you re-leverage with the bank’s money (without paying taxes).
All the debt you have is making you richer, since you do not pay for it: your tenant pays and you have a profit.
This is a very sophisticated investment method that is done all over the world.
It sounds simple, but in practice it is much more complex.
You need a high financial education to operate in this way.
You do not need a diploma, a lot of money or being a financial genius. Anyone with a financial education can play a monopoly in the real world if they know the methods.