Investment Realty – Strategies, Taxes, and Loans – Oh My!

Jumping into the world of investment realty can be scary and very lucrative. For this article, investment realty means investing in real estate or real estate investments, and the terms are all synonymous. Investment realty is different from investing in more traditional investment instruments such as stocks and bonds. However, unfamiliar you may be with real estate investing; the thing to remember is that it can become a reliable way to make money. After all, many investors have a steady stream of income while building their portfolio of appreciating assets.

While the upsides may seem obvious, realty investment can be intimidating. This article talks about some fundamental aspects of investment realty, including common ways to invest, tax implications, and how a private lender can help.

What is Investment Realty?

The definition of investment realty is purchasing real estate with the intent of making a profit and establishing positive cash flow. The principal types of properties invested in are residential, commercial, and land.

Breaking Down Investment Realty Property Types

Residential – Residential realty covers single-family and multi-family homes. However, it also involves townhouses, condominiums, duplexes, and more.

Commercial – Commercial realty is typically an office or retail space. However, as discussed above, a multi-family unit can also be considered as a commercial property. Business office space, restaurants, retail stores, and large apartment complexes are all considered commercial properties.

Land – Land is typically an undeveloped property without any structures or buildings.

How Investment Realty Can Make You Money

The first way to make money is through appreciation. Appreciation means an increase in the value of a property resulting in positive equity in a property over time. While an investor is trying to build equity, they can also earn money by leasing the property. Rental income provides regular income through receipt of rental payments.

How Does Investment Real Estate Affect My Taxes?

Tax consequences for Investing in real estate depends on the timing and value of your investments as well as your personal and investment income. Investment type, profit, and total revenue are vital factors that affect tax implications.

Tax issues can be very complicated and escalate quickly if not well managed and understood. Some investments offer substantial tax breaks that are not available in any other investment. Speaking to a financial adviser can be critical for your success and is strongly recommended.

As we have discussed, your financial circumstances have an impact on your taxes. However, investment income typically falls into income or appreciation. Income earned from real estate is generally subject to income tax, whereas appreciation is usually subject to capital gains tax.

investing in real estate capital gains rates graphicTax on Capital Gains from Investment Realty

Appreciation becomes essential when an investor sells an investment with equity. When the sale occurs, the profit from the sale is considered capital gains. An investment sold within one year is a short-term capital gain, while investments held longer are long-term capital gains.

Short-term capital gains typically are covered by your annual income tax filing and taxed at your usual tax rate based on your income tax bracket. Long Term Capital Gains are different because the profit will more than likely be taxed at a lower tax rate. If you are within a 12% marginal tax bracket, you will not typically pay long-term capital gains tax. However, an investor between 22% to 35% brackets will likely pay 15%, and if you are in the 37% income tax bracket, you can expect to pay 20%.

If you sell an equity real estate investment, whether active or passive, after a minimum of one year of ownership, any profit will be subject to long-term income taxes. Capital gains taxes may be deferred or reduced depending on many factors, including the type of investment vehicle and how an investor uses the capital gains.

Investment Real Estate Loans

Now that you have your feet wet, the next thing you will need is a reliable lender. Abbey Mortgage and Investments is an investment lender offering a vast difference. What is that difference? 

Abbey Mortgage is not a bank or a broker but a private lender. We make our own lending decisions and can fund deals fast. Our ability to act quickly is essential to many investment deals, and we can do this because we are not required to follow the same regulations that a bank or broker must conform too. We base our loan underwriting decisions on the merits of the investment. If it is a good deal, meaning there is equity or cash, and the investor can do what they say they will do, we will likely finance it. 

If you are an investor that needs cash to fund your investment deals, we can help. Many investors leverage our money to build their portfolio. While we may cost more than a bank, a bank cannot close a deal in 5 to 10 days. We do it all the time, especially for borrowers that have established themselves with us already. 

Your best bet is to give us a call. If you need to close fast, or if your bank has said no, give us a call. It is as simple as this. It costs nothing to pick up the phone and call and can cost you a deal if you do not!