How Do You Make Money by Investing in Minnesota Real Estate?
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I know this seems like one of those "duh" kinds of questions, but it's actually not... Many people, especially beginners, do not understand that investing in real estate is actually a multi-faceted method of making money! |
Robert Kiyosaki describes the "four cash flow quadrants" (as he calls it) - and it's really the most simple explanation I have ever heard so I will borrow it for the purposes of this blog (thanks Robert!).
1 - Monthly Rent -- After paying your mortgage, and any other property related bills, and collecting the rent - if there is money left over each month, you have positive monthly cash flow.
2 - Appreciation -- Buying your property, and holding it for an extended period of time, will give you appreciation. Depending how well the area is appreciating and how long you hold the property will determine how much appreciation you will take on that property. This is usually by far the greatest category for making money in real estate.
3 - Depreciation -- This is a benefit, if you choose it at tax time, that allows you a significant tax-deduction. Residential real estate is considered to depreciate 1/27.5 each year. That is, if you never did any work or improvements on a residential structure, its value would be gone in 27 1/2 years.
4 - Tax Benefits -- When you purchase property, typically you will have a mortgage on that property. A large portion of that mortgage payment is actually interest and all interest is tax deductible. Imagine having a handful of properties and a matching handful of mortgage payments. If for example, you made $50,000 a year, it won't be long before your tax-deductions are greater than your income.
Now every person that's investing in MN real estate comes from a different background, has a different income level, and different future goals. Each person will target a different one of those categories.
If you suffer (tongue in cheek) from a high income level, your interest would naturally be towards tax benefits, as you are in a higher tax bracket. Someone with a very low income may be focused on number one, getting great monthly cash flow. That focus may lead you toward multiunit buildings, where cash flow could be stronger, but appreciation is usually much less.
Another example would be people who have just had children. They may be preoccupied with the thought of paying for college in 16, 17 or 18 years. That would be someone who may choose a 15 year alone, have a negative monthly cash flow, but at the end of 15 years, when that place is paid off, all the rental income will go toward paying that new college student's tuition. Even if that property had a negative cash flow of $200 per month, every month for 15 years, that's $36,000 stashed away that, can easily sustain a student throughout their college years, no matter how long that is.
No matter what your motive, or your future goals, there are properties out there that match your needs! 
