Why You Should Be An Owner of An Apartment Property Or Commercial Investment Property

 Lets be honest with each other for a second.  If I was a stockbroker I would tell you all of the reasons you need to be in the stock market.  If I was a bond broker I would tell you all of the reasons you need to be in bonds.  You get the picture, everyone loves “their investment” especially if they make money in the form of fees or commissions by having you buy it. 

I have been an apartment and commercial real estate owner, broker and advisor for about 13 years working with the most affluent people and I have seen what apartment property ownership and commercial investment real estate did for their wealth.  I also know what it has done for my personal wealth and me.

Bottom line.  Being an apartment property or commercial investment property will grow your wealth exponentially.  Please follow what I said here because it is super important.  Apartments and commercial investment property are like three or four investments wrapped up in one – all working together at the same time.

I will show you by comparing an investment real estate property with a stock.

Lets say I buy 100 shares of ABC Corporation at $1.00 per share.  So, I have $100 invested into ABC Corporation. $1.00 X 100 shares owned = $100.  Five years later, if the market was good, lets say that my $1.00 per share is now worth $1.50 per share.  My $100 investment is now worth $150.00.  I have made a 50% return on my money over the 5 years or a 10% annual return.  Not too bad. 

Now, if I sell I will obviously profit and have to pay capital gains taxes to Uncle Sam, not to mention some state taxes as well (depending where you live).  So, all that really happened here is that my investment appreciated and I paid capital gains taxes when it sold.  This is purely an appreciation and capital gains type of investment.  My overall return will, in this example, after I pay taxes, will be less than 10%.  Now, this may still appeal to you, but…

The problem is most investments are just like this in one way or another.  There is just one engine working for you here.  Capital appreciation.  And, unfortunately, some of that profit will have to be paid in taxes.  That is the way it is . But.. Now, lets look at this stock like you would say an Apartment property.

We will call our apartment property XYZ Company.  OK?  OK. 

Now, lets say I put the same amount of money in the XYZ Company - $100 – but this time I am also going to get a loan from my bank for another $100 too.   So, lets say I put $100 of my money into the apartment property AND borrow another $100 from my bank.  Now, I have $200 to work with but remember, $100 is my money and the other $100 is the banks money.

 So, I have now purchased 200 “shares” of XYZ Company ($200 X $1.00 per share) but I still have only $100 of my own money in it and the other hundred was borrowed.  I now control double the shares, 200, with the same amount of money out of my pocket, $100.  Remember the other $100 is the banks money, not mine.

So now I own twice the “stock” for the same investment out of pocket. 

Now, lets say while I own this “stock” it appreciates at the same rate as before, 10% per annum for five years.  In five years XYZ Company is worth $150.00 per share. 

But over the five years lets say that XYZ Company ALSO decided out of the kindness of the company to also pay back the $100 I borrowed too.  So, not only is my stock appreciating, the company (not me!) is also paying off my additional $100 of debt I used to buy more stock.  So, my borrowed money was not paid back by me but by XYZ Company. 

On top of that, when I file my tax return Uncle Sam is going to give me some nice large tax breaks for owning XYZ Company.  These tax breaks will reduce the income generated by XYZ Company. Even though I am profiting every year from XYZ Company, I can use legal tax saving strategies to in some years show a loss from XYZ Company.  I can do this even though it made money year after year.

Lastly, when it comes time to sell, Uncle Sam decides to give me break.  He tells me that when I sell XYZ Company stock I do not have to pay any capital gains taxes as long as I buy stock in another company.  I can sell, keep my profit and legally defer any capital gains taxes.

Also, remember, I own double the shares and the Company paid back the money I borrowed to purchase those shares.