A common misconception is that a primary residence is an asset rather than a liability. A single-family home used as a primary residence is a liability, not an asset. Just total up the monthly expenses that go into your home vs. any income it generates. As a primary residence, you’re only spending money, not making it.
High home prices may be preventing many potential home buyers from realizing the American dream, but this may not be a bad thing. Instead of targeting single-family homes as residences, why not invest in them so they become assets instead of liabilities?
By leveraging debt and taking advantage of tax benefits, using bank money to take advantage of tax benefits to reduce tax liability is something every investor should consider. Leverage and tax benefits are the reason why “Rich Dad, Poor Dad” author Robert Kiyosaki owns 15,000 homes that he uses for rental income, as he recently revealed.
Kiyosaki is a big advocate of acquiring single-family homes—not as residences, but as investments where they serve as assets and not liabilities. According to Kiyosaki, there’s an easy way to determine if something is an asset.
“What is the definition of the word? If it puts money in my pocket, it’s an asset. If my house is taking money from my pocket, it’s a liability,” he explained.
By this definition, one’s primary residence is not an asset. When most people buy a house to live in, they likely have to make mortgage payments, pay property taxes and insurance, and cover maintenance and repair costs. These expenses take money out of homeowners’ pockets.
As an investment, single-family homes can be significant assets, especially by leveraging debt and the tax code.
Leveraging Debt for Real Estate Investment
By using borrowed money to finance property purchases, investors can acquire more assets than they could with their own capital alone. This method allows investors to maximize their investment potential and leverage other people’s money to build wealth. Instead of using cash to buy a single property, this cash can be used as a down payment on several properties, therefore expanding income streams.
Tax Advantages
One of the most significant benefits of investing in real estate is the multiple tax advantages available. Mortgage interest on loans used to purchase properties can be deducted from taxable income, reducing overall tax liability. Additionally, investors can claim expense deductions for property taxes, insurance, and costs associated with managing and maintaining the property, such as repairs and property management fees.
Another powerful tax benefit is depreciation. Depreciation allows property owners to deduct the perceived loss in value of a property over time due to wear and tear. This non-cash expense can significantly reduce taxable income, further enhancing the investment’s profitability.
The Power of Partnerships
You may not be able to acquire 15,000 homes on your own, but you can partner with experienced developers and investors who can develop or acquire multiple properties to offer their investors the advantages of investing in single-family homes to sell for profit or to buy-and-hold for income. Either way, there are significant advantages to investing in single-family homes in a market where demand and prices continue to climb, as even institutional investors are getting in on the game where institutional ownership is growing at a rapid pace.
Alternative Real Estate Investments
For those who find the prospect of direct property ownership and management daunting, there are other ways to invest in real estate by partnering with seasoned professionals and investing in a private fund (multiple properties) or a syndication (a specific property or asset). Besides private funds and syndications, crowdfunding platforms even now offer exposure to single-family real estate investments without the need to invest and manage directly.
While high home prices may discourage potential homebuyers, they should not deter you from investing in single-family homes. Here at Humabuilt, we have enjoyed the benefits of investing in single-family homes and developments for years. Find out how you can turn single-family homes into assets to generate above-market returns insulated from Wall Street volatility. Turn single-family homes into assets that put money into your pocket instead of taking from it.
Contact us today to find out more about our latest single-family development project in Tennessee.
