Real Estate Investing’s Six Profit Centres
by REICO on 25 March 2014
Real Estate Investing’s Six Profit Centres
The best way to purchase real estate in a turbulent economic climate is to look at several criteria. Low house prices and great cash flow are wise factors to consider but there are many other variables that make a sound decision. By focusing on the ‘Profit Centres’, you can maximize the profitability of the investment.
Profit Centre #1: Appreciation
Following a ‘cash is king’ philosophy directs most investors to those areas with low house prices and/or very high rents (i.e. low price/rent ratios). However, many important factors that can affect the appreciation of the property are overlooked when only looking at the cash flow.
Profit Centre #2: Equity
The rate of equity growth is determined by several controllable and uncontrollable factors.
Uncontrollable factors include mortgage interest rates, vacancies, market rents, and (unforced) appreciation. The controllable factors include market selection, mortgage (if applicable), down payment, the amount below market the property was originally purchased for, and equity take outs.
In order to maximize equity, we research the uncontrollable factors and optimize the controllable factors.
Profit Centre #3: Cash Flow
Proper tenant selection and property management ensures that the property remains positively cash flowing after it is purchased.
Profit Centre #4: Tax Saving Strategies
Strategize with real estate tax accountants to guarantee that every avenue is examined to ensure that your taxes are reduced via deductions, incorporation, etc.
Profit Centre #5: Depreciation
Strategize with your real estate tax accountant to examine local accounting laws to determine if further savings can be found by depreciating the property and whether or not it makes financial sense to do so.
Profit Centre #6: Leverage
Leverage is perhaps the most powerful of all the profit centers. Leverage can magnify gains; however, it can also magnify losses. Strategize to effectively use leverage to your advantage.
The Six Profit Centre strategy is an effective way to build your wealth in real estate because it optimizes every available avenue to make money from a property.
Oh by the way…. “It is not all about Location, Location, Location! It is all about market timing, market timing, market timing.”
“Real Estate purchased with common sense and managed with reasonable care is one of the safest investments.” FDR
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