Part of your job as a real estate professional is to calm the rational (and irrational) fears of clients. Buying an investment property is a big expense for almost anyone and you can’t be too harsh on them for needing a bit of handholding and education. Even if they decide to buy a low-priced foreclosure, the final price tag will be several tens of thousands of dollars, which is more daunting to Joe Investor than dropping fifty bucks for a share of Microsoft. So what is it clients worry about more than anything?

Taxes and inflation.

A real estate professional who counsels and advises in the arena of investment property would do well to learn these two topics inside and out, and how they specifically apply to real estate.

Taxes: For those who aren’t aware, real estate is the most favored investment choice when it comes to taxes. Long ago, the Federal government and IRS decided they wanted to encourage property ownership, and developments like the 1031 Exchange and an expansion of the rules regarding what you can buy with your IRA have made income property purchases an even better deal. We can’t make you an expert on these tax topics within the confines of this article, but there is plenty of information online to get you up to speed quickly. The IRS website (www.IRS.gov) is a great place to start. If you can educate clients about the tax benefits of buying rental property, you job is half done.

Inflation: Most people are worried about inflation, and with good reason. They should be. Ever since President Nixon removed our currency from the gold standard back in the early 1970s, inflation has been an ever-present force in the economy, constantly pushing prices of consumer goods higher while reducing the purchasing power of the dollars in our pockets.

What many people don’t fully understand is that Wall Street darlings like stocks, bonds, and mutual funds are valued in dollars, which means they also continually lose value to the insidious nature of inflation. So all is lost, right? We’re all doomed to become poorer and poorer as time goes by. Not quite. There is one asset class that actually gains value in the face of inflation – income property. The trick is to secure a long-term, fixed-rate mortgage tied to a piece of income producing property. As inflation causes the real value of the principal to decline over time, the bank holding the loan suffers from inflation but you get wealthier.

The bottom line is taxes and inflation become powerful allies when you understand the Jason Hartman method of real estate investing. (Top image: Flickr | Tax Credits)

The AIPIS Team