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There are seven main reasons why people invest in real estate. These are
1. Spendable Cash= this is the total income from operations during a given period of time, less cash disbursements during the same period of time, but prior to any distribution partners, general or limited, other than management fees and fixed expenses, and without consideration of depreciation.
2. Tax advantages through depreciation= The federal and state income tax law assume that a building will depreciate every year over the estimated life of the structure and allows this assumed depreciation to be written off as an expense item, although actual cash reserves for replacement may not be established or required.
3. Equity through leverage= An important element motivating real estate purchase is the accumulation of equity through leverage financing. Leverage results where there is a purchase of property whose debt is several times the amount of the original equity.
4. Speculation (Appreciation)=If there is a prime location which has been bought at an advantageous, it may possible that investors will accept rather low returns in the hope that a particular property will increase in value and that they will receive a substantia. l bonus return on a future sale.
5. Hedge against inflation= Appreciation of value is the so-called hedge against inflation. A general assumption is that as price levels rise, the piece of real estate, particularly improved property rises.