{"id":68462,"date":"2019-06-17T07:02:56","date_gmt":"2019-06-17T12:02:56","guid":{"rendered":"https:\/\/www.zilculator.com\/blog\/?p=68462"},"modified":"2021-01-19T01:54:39","modified_gmt":"2021-01-19T06:54:39","slug":"do-the-wealthy-invest-differently","status":"publish","type":"post","link":"https:\/\/www.zilculator.com\/blog\/do-the-wealthy-invest-differently\/","title":{"rendered":"Do The Wealthy Invest Differently?"},"content":{"rendered":"\n<p><br>Many would be investors have heard the stories about rich investors who are able to live off of the passive income that their <a href=\"https:\/\/www.zilculator.com\/blog\/are-va-loans-a-good-idea-to-finance-rental-properties\/\">rental properties<\/a> generate. Now that the stock market has become so unpredictable, it can be tough to isolate the<a href=\"https:\/\/www.zilculator.com\/blog\/how-to-work-less-and-earn-more-with-commercial-investments\/\"> proper investments<\/a>. That&#8217;s why so many investors are turning to the world of real estate.<\/p>\n\n\n\n<p>The wealth that <a href=\"https:\/\/www.zilculator.com\/blog\/real-estate-analysis-how-smart-investors-do-it\/\">real estate<\/a> allows an investor to build is considerable. However, there are many who forget to ask the most important questions before getting started. Why is real estate so much more effective for the wealthy? The time has come for a closer look at the most pivotal queries.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/wholesaling-for-beginners-how-does-it-all-work\/\">Wholesaling For Beginners: How Does It All Work?<\/a><\/strong><\/p>\n\n\n\n<div id=\"toc_container\" class=\"toc_white no_bullets\"><p class=\"toc_title\">Contents<\/p><ul class=\"toc_list\"><li><a href=\"#Why_Multifamily\"><span class=\"toc_number toc_depth_1\">1<\/span> Why Multifamily?<\/a><\/li><li><a href=\"#Purchasing_an_Apartment\"><span class=\"toc_number toc_depth_1\">2<\/span> Purchasing an\nApartment<\/a><\/li><li><a href=\"#Using_Taxes_In_a_Beneficial_Manner\"><span class=\"toc_number toc_depth_1\">3<\/span> Using Taxes In a\nBeneficial Manner<\/a><\/li><li><a href=\"#The_Awesome_Power_of_Debt\"><span class=\"toc_number toc_depth_1\">4<\/span> The Awesome Power\nof Debt<\/a><\/li><li><a href=\"#Multifamily_Value_Increases\"><span class=\"toc_number toc_depth_1\">5<\/span> Multifamily Value\nIncreases<\/a><\/li><li><a href=\"#A_Final_Word\"><span class=\"toc_number toc_depth_1\">6<\/span> A Final Word <\/a><\/li><\/ul><\/div>\n<h2><span id=\"Why_Multifamily\">Why Multifamily?<\/span><\/h2>\n\n\n\n<p>Multifamily residences provide a level of control that cannot be matched. Control is one of the most crucial factors in real estate investment, next to debt and taxes. Today&#8217;s investor benefits immensely from the leverage that <a href=\"https:\/\/www.zilculator.com\/blog\/stop-paying-too-much-for-your-multifamily-investment\/\">multifamily properties<\/a> provide. The IRS has also enacted any number of rules that are designed to benefit the investor.<\/p>\n\n\n\n<h2><span id=\"Purchasing_an_Apartment\">Purchasing an\nApartment<\/span><\/h2>\n\n\n\n<p>Let&#8217;s say that\nthe investor has decided to purchase a building for $2 million and they have\nplaced a $400,000 down payment on the structure. An 8 percent capitalization\nrate is commonly expected in these instances. This leaves the investor with a\nnet operating income of $160,000. <\/p>\n\n\n\n<p>After calculating\nthe mortgage payments and the repayments to the bank for the remainder of the\nnecessary monies, cash flow is in the $70,000 range. Thanks to the depreciation\ntax benefit established by the IRS, the investor does not have to pay taxes on\nthis income. This may seem simple enough but there are other pieces to this\npuzzle and they are commonly used by the wealthy.<\/p>\n\n\n\n<h2><span id=\"Using_Taxes_In_a_Beneficial_Manner\">Using Taxes In a\nBeneficial Manner<\/span><\/h2>\n\n\n\n<p>Thanks to IRS cost segregation studies, investors stand to<a href=\"https:\/\/www.zilculator.com\/blog\/how-taxes-make-the-poor-poorer-and-the-rich-wealthier\/\"> benefit from taxes<\/a> in a number of ways. Personal property assets are identified and reclassified when it comes time for taxation to take place. This allows for the depreciation time to be shortened and this allows the investor to reap the advantages of reduced taxation obligations.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/whats-important-when-starting-own-brokerage\/\">What\u2019s Important when Starting Own Brokerage?<\/a><\/strong><\/p>\n<!-- WP QUADS Content Ad Plugin v. 2.0.17 -->\n<div class=\"quads-location quads-ad2\" id=\"quads-ad2\" style=\"float:none;margin:0px;\">\n\n <!-- WP QUADS - Quick AdSense Reloaded v.2.0.17 Content AdSense async --> \n\n\n<script type=\"text\/javascript\" >\nvar quads_screen_width = document.body.clientWidth;\nif ( quads_screen_width >= 1140 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width >= 1024  && quads_screen_width < 1140 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width >= 768  && quads_screen_width < 1024 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }if ( quads_screen_width < 768 ) {document.write('<ins class=\"adsbygoogle\" style=\"display:inline-block;width:550px;height:90px;\" data-ad-client=\"pub-3164542121802998\" data-ad-slot=\"4497930067\" ><\/ins>');\r\n            (adsbygoogle = window.adsbygoogle || []).push({});\r\n            }\n<\/script>\n\n <!-- end WP QUADS --> \n\n\n<\/div>\n\n\n\n\n<p>The investor enjoys the <a href=\"https:\/\/www.zilculator.com\/blog\/why-youd-never-invest-in-real-estate-to-save-taxes\/\">tax savings<\/a> much sooner because the IRS is making sure of it. Instead of being forced to pay 35 percent, a cost segregation study can reduce these obligations to just 9 percent. This may seem too good to be true but this is just the beginning. <\/p>\n\n\n\n<h2><span id=\"The_Awesome_Power_of_Debt\">The Awesome Power\nof Debt<\/span><\/h2>\n\n\n\n<p>Amortization is\nclosely associated with debt. This is how wealth is going to be built. When the\ninvestor takes on debt when purchasing a building, their tenants are\nresponsible for helping them to pay it down each month by providing rent. That\nis what amortization is all about.<\/p>\n\n\n\n<p>For best results, <a href=\"https:\/\/www.zilculator.com\/blog\/6-unexpected-costs-multifamily-investors-should-be-aware-of\/\">investors<\/a> should never make the mistake of assuming that their property value will continue to rise. Speculation must be avoided at all costs because it leads to much riskier investing. Since multifamily residences produce a certain amount of income, the wealthy are able to exercise a greater level of control. <\/p>\n\n\n\n<p>Controlling\nincome means controlling value. If any source of ancillary income is added to\nthe property, income and control are both increased. The same is true if the\nproperty&#8217;s expenses are decreased. Operating expenses are often slashed by\ninvestors for this reason.<\/p>\n\n\n\n<h2><span id=\"Multifamily_Value_Increases\">Multifamily Value\nIncreases<\/span><\/h2>\n\n\n\n<p>Let&#8217;s say that the $2 million apartment building from above contained 40 units. The investor may realize that the previous owner was not keeping up with the current marketplace when it comes to rent prices. Instead of maintaining the status quo, the investor can increase the rent by a mere $50 per month and add $2,000 per month to their bottom line.<\/p>\n\n\n\n<p><strong>Related: <a href=\"https:\/\/www.zilculator.com\/blog\/10-software-tools-for-real-estate-agents\/\">10 Software Tools For Real Estate Agents<\/a><\/strong><\/p>\n\n\n\n<p>Vendor costs are\nanother way to increase value. If these costs have started to rise to a level\nthat is above the established market rate, it is time to re-negotiate. By\nlowering monthly expenses slightly, the wealthy are able to increase the value\nof a multifamily residence and add to their level of control. <\/p>\n\n\n\n<h2><span id=\"A_Final_Word\">A Final Word <\/span><\/h2>\n\n\n\n<p>Once the investor\nhas been able to increase their cash flow, they may believe that they are in\ndanger of being hit hard by taxes once it comes time to sell. Some may decide\nto milk their newfound cash cow for all it is worth before passing it down to\ntheir heirs. Others may want to sell and receive the biggest possible bang for\nthe buck.<\/p>\n\n\n\n<p>Use a 1031\nexchange in these instances. This defers taxation until a follow up purchase is\nmade. Those who use these exchanges repeatedly avoid taxation until they die.\nThat is how the wealthy use real estate to increase their level of control and\ntheir level of income. \n","protected":false},"excerpt":{"rendered":"<p>Many would be investors have heard the stories about rich investors who are able to live off of the passive income that their rental properties generate. Now that the stock&#8230;<\/p>\n","protected":false},"author":3,"featured_media":68715,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[199],"tags":[180,195,172],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v15.3 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Do The Wealthy Invest Differently? | Zilculator: Real Estate Investment Analysis blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.zilculator.com\/blog\/do-the-wealthy-invest-differently\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Do The Wealthy Invest Differently? | Zilculator: Real Estate Investment Analysis blog\" \/>\n<meta property=\"og:description\" content=\"Many would be investors have heard the stories about rich investors who are able to live off of the passive income that their rental properties generate. 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