Why Real Estate is an IDEAL Business?
Income, Depreciation, Equity, Appreciation and Leverage makes real estate and business investments IDEAL businesses.
Video Transcript
Hi. Jay Massey, with the CashFlowDiary.com. Just another quick tip of why you might want to consider being in business for yourself and/or real estate.
Did you ever hear an acronym like IDEAL; that real estate's an IDEAL business?
I have. If you haven't, let me explain to you what I mean.
The acronym is IDEAL: Income, depreciation, equity, appreciation, and leverage.
Those 5 components exist inside of real estate and they provide lots of advantages.
Let's talk about income real fast. Many of you know and have heard these shows on TV where they show you how to fix something up, and then you sell it within a relatively short period of time; by relatively short, in real estate terms, that could be 60 or 90 days.
In some cases, depending on the size of the real estate, that could actually be a couple of years. You sell it and you make a whole bunch of money later. You buy it down here, you fix it up, do some stuff to it and then you sell it up here. That's one form of income, typically known as a capital gain, depending on the timeframe in which you did that in.
There's another form that I like a lot. Most people call them dividends if you familiar with stock market investing; it's rental income. That income comes in over, and over, and over again, month-after-month. It's actually a sale that happens every 30 days. What you're in essence doing is that you're holding and maintaining control of asset overtime and being able to use it without absolutely selling the asset.
Then you have depreciation; that's a gift from our tax code. Some of you may be already familiar with this. You just may not be familiar with how powerful that is, because even though it's an expense on the books, it's not actually cashed out of your pocket. One of the unique things about real estate is that it has a lot of depreciation available to it. There are other assets like businesses and oil that also come with various forms of depreciation that could be very exciting for you, too.
Then you have equity. That's typically what most people are referring to when you say ‘equity', is what happens over time, in terms of maybe there's just more value over time that ‘gets built'. Sometimes, equity can come from a form of amortization, where the loan goes down so that you end up with owing less than what the house is worth.
Some of you may not be familiar with that concept right now because of all the short sales and etc., but it's simply when the house is worth more than what you owe on it. That difference is simply equity. It also can become another form of income for you, especially on your balance sheet, and helps you look good.
Then you have an appreciation. There are many different types of appreciation: You have your found, your forced, your phased appreciation. You've got many different types of appreciation, but, in general, it's, as measured in dollars, the price of that particular asset going up. Period, that's it. There are many things that can change appreciation and make it go up. We'll talk about those in future videos. Make sure you check that out.
Probably the number one key to real estate, specifically in business, is leverage. With businesses, you use a lot of time leverage, a lot of people leverage. With real estate, there's a lot of financial leverage. It's taking a little bit of your own resources and magnifying their power to be able to accomplish so much more. Learning the techniques necessary to make that happen is exactly what I think many of us should be learning about all the way from kindergarten through 12th grade.
What we do, is we take the time to actually teach you those types of things so that you have the ability to gain new techniques, new understandings, new strategies to be able to increase your time, leverage, and all these other things so you can go do what it is you were born and meant to do, and not work for money anymore.
If you want access to more information like this, definitely make sure you check out our Cash Flow Diary website. Make sure you check out our Facebook and/or our Twitter account, or if you will, even the iTunes podcast so that you have access to this. You may even want to go and get Cash Flow Foundation; it's the initial course inside of our Cash Flow Creation System that'll teach you, literally, the skills that you need to never need a job again.
