Grant Cardone Touts Depreciation as Real Estate's Tax Edge
Investor Grant Cardone emphasized the tax advantages of real estate investing, specifically highlighting depreciation. In a social media post, he noted that depreciation on hard assets allows real estate investors to minimize their tax liabilities in a way that is not available to stock market investors.
- Beyond the standard depreciation on a residential property over 27.5 years, a cost segregation study can accelerate this process. This involves identifying parts of the property—like appliances or carpeting—that can be depreciated over a shorter 5 or 7-year period, generating larger tax deductions sooner. Another strategy is the 1031 exchange, which allows an investor to defer capital gains taxes by selling a property and reinvesting the proceeds into a "like-kind" property. - In Chicago's multifamily market, rent growth is expected to range between 3.2% and 4.5% in 2024. The market has shown resilience with a 2.5% annual increase in effective rents through the third quarter of 2024, pushing the average rent to $1,782. Key areas for absorption have been the Downtown Chicago and North Lakefront submarkets, which accounted for nearly half of the market's total absorption. - Publicly traded Real Estate Investment Trusts (REITs) offer liquidity, as they can be bought and sold like stocks, but their value is often correlated with the stock market. Private real estate investments are typically illiquid and require higher minimum investments, but their value has a lower correlation to public markets, offering portfolio diversification. From a tax perspective, private funds are often structured as pass-through entities where depreciation and losses flow directly to investors, which can be more favorable than the ordinary income tax applied to REIT dividends. - For those entering the field, real estate investment firms in Chicago, like Heitman and Principal Financial Group, often list entry-level analyst and associate roles with salaries ranging from $85,000 to $150,000. Required skills frequently cited in job postings include proficiency in financial modeling in Excel, an understanding of real estate valuation, and strong analytical abilities. - To build capital for a first investment, aspiring investors can utilize strategies such as saving, partnering in a joint venture, or refinancing an existing property to pull out equity. Some individuals over 55 have the option to withdraw from their pension to fund a buy-to-let property. - Aspiring investors can learn from the stories of entrepreneurs like Ryan Pineda, who transitioned from flipping couches to flipping houses, and Justin Colby, who started over from nothing after a market crash by focusing on networking and investing in coaching. - Key publications for staying informed on the Midwest real estate market include *Midwest Real Estate News* from REJournals, *Crain's Chicago Business*, and local outlets like *Bisnow Chicago*. For insights into multifamily trends, the Gray Capital "Gray Report" podcast offers analysis on Midwest apartment markets.
