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How to Make Money in Real Estate Investing

Valuable Information for Real Estate Investors
Do you know how to maximize the ROI of your investment property? Here are four ways to make money by investing in real estate.

1. Lower Your Taxes
Tax incentives for real estate investors can often make the difference in your tax rates. Deductions for rental properties can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

For which items can investors get tax breaks?

You could claim deductions for actual costs you incur while financing, managing and operating the rental property. This includes mortgage interest payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (if the tenant doesn’t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive.

In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

2. Have a Positive Cash Flow
There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.

Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow — whether it be pre-tax or after-tax — requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.

3. Use Leverage
One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.

4. Benefit from Growing Equity
While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD’s, the return on investment for real estate purchases can often be greater.

The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it’s time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.

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About the Savio Group

Peter B. Savio is President and Chief Executive Officer of the Savio Group of Companies. Peter has more than 40 years experience in real estate development and sales in the Hawaii market; he has been helping his clients realize the maximum return on their real estate investments since he founded Savio Realty Ltd. in 1980.


Savio Realty Ltd.

Focused in Residential and Commercial real estate across the islands and rental management on the Big Island. With 3 offices and 100+ agents, we can help you buy, sell, or invest in Hawaii real estate. Learn more »

Savio Asset Management LLC

Rentals and property management services. We have extensive experience in helping tenants and property owners with all of their rental needs - from managing properties to maintenance & repairs.  Learn more »

Savio Developments Ltd.

With more than 30 years of project brokerage in Hawaii, Savio Developments is continuously developing landmark properties throughout Hawaii. Learn more »