Thursday, February 21, 2008

Food For Thought

Politicians and others will often say that the way to even things out is to tax the rich. Okay, but who are the rich? What does "even things out" mean? Where is the line between merely being rich, and being highly affluent?

Here's a thought. Have you ever thought about the fact that the government taxes only income? What do the feds NOT tax? What about net worth? In fact, net worth is not taxed -- a reason why so many independently wealthy people (not the dripping wealth of Donald Trump, but the tens of thousands of "Buick Millionaires" who can be found throughout the U.S.) invest in commercial real estate.

Think about it. Your investment is building, and every five years or so you trade up to a larger property. During this time your property will have appreciated in value, you will have had the use of someone elses money (their monthly rent) to pay the mortgage on your investment, and when you buy something else, you can utilize a 1031 tax-deferred exchange and indefinitely defer payment of any capital gains taxes. The government taxes nothing, except your income from rents. But the "cost" of those taxes to you is offset through depreciation (what investment specialists like myself refer to as "cost recovery."

You don't have to trade just one property either. As your equity grows, you can pull money out of one investment, and use it to leverage the purchase of a second or third property. The portfolio builds, the incomes build, and with outside management at a nominal fee, you have "Mailbox Money" coming in for the rest of your life.

Building wealth does not have to be complicated. Using Commercial/investment real estate to build wealth is a means to take advantage of that whole "net-worth vs. income" tax dilemma.

Any questions?

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