Some people toy with the idea of investing in Breckenridge real estate every time they come skiing and they put off the idea. Today, we will discuss the benefits of owning a piece of Breckenridge or Summit County property for your investment portfolio.
Most people know that one benefit of owning a Breckenridge rental condo or home will be the extra cash flow. Essentially, the tenants are paying the mortgage, taxes, insurance, and maintenance. If the investor prefers to hire a property management company to handle advertising, screening of tenants, and maintenance, then some of the extra monies will go to that company. Whatever is left is cash flow that goes back to the investor.
Now, you say, what if the property is only producing income some of the time? I do not want all of the hassle for just a little extra cash.
Cash flow is an important feature of real estate investment, but other benefits may be more important. One big benefit is that the IRS allows an investor to deduct depreciation expenses from his/her regular income—not just once but for 27.5 years! Every year, the investor can subtract 1/27.5 of 85 percent of the value of the property from taxable income. For example, if the rental property costs the investor $400,000 and 85% of that is $340,000, then $12,362 is the depreciation expense. An owner with a gross regular income of $100,000 now states his/her income at $87,638.
Naturally, if an investor owns several properties, the numbers will increase accordingly to the extent that some real estate investors do not pay federal or state income taxes because they can claim large depreciation expenses.
Now, are you waking up a bit? Another big benefit is the appreciation of the property value over time. We do not look at the short-term market fluctuations. Over a decade, property values will increase about 5 percent. Therefore, the $400,000 investment is worth $651,557.85 in ten years.
The appreciation of the property will pay off. Thinking long term will bring those big benefits. Even if an investor gets a “nothing down†type of loan for the property and pays “interest only†for a while, the mortgage principle will pay down and equity will build. Creative financing may increase the cash available to buy other properties. And more benefits!
