Perhaps more difficult than acquiring wealth is keeping it. That being the case, effective wealth management is the key to keeping what you have in the long term. Where you make your investments, how long you hold them, and how you invest all factor into the overall strategy that either sustains your wealth or allows it to wither away.
For an effective wealth management program, few opportunities possess the potential of the Los Angeles real estate market. Explore with Christina why you should implement Los Angeles real estate investments into your wealth management program.
What Makes a Good Wealth Management Strategy?
An effective wealth management strategy centers on two simple pillars: making money and keeping it. This strategy depends on the financial choices you make with your finances. Wealth management hinges on a cohesive investment strategy that promotes growth while mitigating losses caused by economic shifts or taxes.
Diversifying your portfolio with a variety of asset classes is the best way to introduce security into your wealth management strategy. However, few assets possess the stability and growth potential that an effective wealth management strategy needs as real estate does.
Let’s explore what makes real estate so effective, its advantages for growth and loss mitigation, and why it’s the ideal asset for your wealth management.
What’s So Special About Real Estate?
Many asset classes are available for investment: securities, stocks, bonds, real estate, and more. Unique properties of real estate set it apart from other asset classes, making it all the more advantageous as a cornerstone in your wealth investment strategy.
- Scarcity
- Improvability
- Permanence of investment
- Location
Scarcity
Real estate is necessarily scarce for two primary reasons: land is a finite resource, and development is a slow-going process. For every parcel of land zoned and developed, the supply of land in that real estate market necessarily decreases; it’s impossible to create more land. Therefore, the supply is severely limited. Development is both a time-consuming and costly process.
Supply and demand is a fundamental law of economics. When supply is low and demand is high, the value goes up. When supply is high, and demand is low, the value goes down. Real estate’s inherent scarcity establishes a baseline value that makes it an enduring, stable asset no matter the economic circumstances.
Improvability
A distinct advantage that helps real estate grow in value is its improvability. Investors have no control over investments like securities — stocks and bonds. Once an investor acquires a share of a company, the only means that a share can increase in value is through market performances completely outside of their control.
Real estate is different: investors can have an active impact on the value of their assets. Since property is a physical asset, investors can make improvements that increase its value. Everything from new bathroom tiles to a complete renovation will add value to real estate.
The potential to increase a property’s value through improvements means that investors have more control over the performance of their investment and a means to sustain their wealth.
Permanence of Investment
Similar to real estate’s improvability, property investments possess a permanence that makes them stable, secure investment opportunities. The permanence of investment, or fixity of real estate, is due to their physical nature: land and property are essentially immobile, and infusions of capital into physical structures have fixity that raises the value of the asset for good.
For example, foundational investments like electrical work, plumbing, and other large-scale work permanently raise a property’s value. Work on this scale infuses the real estate investment with a value that cannot be easily undone.
Holding a real estate asset isn’t the only way to sustain your wealth; real estate presents the opportunity to make additional investments that are virtually permanent.
Location
The most definitive real estate characteristic is the impact location has on value. Location makes a world of difference in the value of a given property. More often than not, people choose one property over another purely because of the property’s location. A single-family home in upstate New York will have a vastly different value than an exact carbon copy of the same home located in Los Angeles.
The importance of location in the value of real estate cannot be understated. The singular significance of location means that investors can make informed decisions on where they ought to make real estate investments. High-performing markets like Los Angeles are more likely to sustain wealth in the long-term than less attractive, non-competitive markets.
What Are the Benefits of Real Estate Investing?
Real estate is a unique asset class whose properties translate into benefits that sustain your wealth management goals. Harnessing the benefits of real estate investments can make all the difference in growing and protecting your portfolio for the long term.
Here are some key benefits that you can expect out of your real estate investments:
- Positive cash flow
- High appreciation
- Inflation hedge
Positive Cash Flow
Few financial metrics indicate the viability of an investment, like positive cash flow. Cash flow measures the money going into and coming out of an asset or business; more coming out than going in is a sure sign of a promising investment.
Certain real estate investment opportunities present strong, positive cash flow opportunities that investors can rely on. Property owners have direct control over how much income a property can generate by negotiating their rent in the lease. Rental properties are almost guaranteed to be positive cash flow.
Well-run, high-performing rental properties are a crucial asset to have in any wealth management program due to their positive cash flow. To cover the costs of operating expenses, rental payments necessarily need to exceed them, thereby ensuring that property owners are consistently bringing in more money than they spend.
High Appreciation
Any investor wants growth out of their investment. Appreciation describes the increase in an asset’s value over time. Thanks in large part to real estate’s unique properties, it is among the most reliable, high-appreciation assets investors can choose.
The inherent scarcity of real estate creates steady appreciability over a long-term period. Development may increase, but it rarely exceeds demand for new properties, especially in high-demand real estate markets like Los Angeles.
Since the 1960s, property prices have risen almost without fail; when property values do decrease, they invariably bounce back and continue their upward progression. For long-term wealth management strategies, the ironclad appreciability of real estate makes it a must-have asset.
Inflation Hedge
Rising inflation poses a serious threat to your finances — a threat that real estate investments can overcome. Real estate assets that adapt and endure economic downturns are essential to a robust wealth management program. The versatility of real estate allows it to survive and even thrive in spite of shifting economic conditions.
The rising prices and weakening purchasing power of the dollar can wreak havoc on your wealth. Savings and retirement funds dwindle when inflation exceeds the interest they generate, causing you to lose money you’ll need later in life.
Sector-wide rises in prices affect real estate like any other part of the economy. Rental income generated by rental properties increases as well and absorbs the rising prices, returning even stronger gains. Additionally, rising prices mean property values rise; real estate holders can expect to see their properties rise in value at a faster rate.
What Are the Tax Advantages of Real Estate?
Growth is one-half of an effective wealth management program. Equally important is mitigating losses as much as possible. Taxes are a reality that will necessarily limit the potential of any return. However, real estate presents many tax break opportunities that allow investors to get more of their return and stave off losses.
- Depreciation
- Write-offs
- Long-Term Capital Gains Rates
Depreciation
It’s a fact of life that property will naturally degenerate over time. In order to offset the expenses required to maintain an acceptable standard for properties, the property owners have the opportunity to make deductions on their property in expectation of these necessary repairs.
Depreciation is a tax deduction process that begins with establishing the total value of the physical structures of a property, the span of its reasonable life, and the corresponding deduction available over the course of that lifespan.
Depreciation is an essential component of smart, effective real estate management and, by extension, wealth management. For as long as 27.5 years, or 39 years for commercial real estate, your investment property could benefit from a significant deduction, earning you a more complete return in the process.
Tax Write-Offs
Property ownership and maintenance can have high upfront costs. What mitigates these upfront costs are the many tax write-off opportunities available to real estate, which in turn unlock the long-term potential real estate brings to an effective wealth management program.
Here are a few expenses involved in property ownership that can be written off at tax time:
- Property tax
- Mortgage interest
- Insurance payments
- Maintenance and repairs
- Management expenses
These upfront expenses may appear to be a financial hurdle in the short term. But in the long term, these write-offs transform real estate assets into instrumental parts of a wealth management program that reduces losses and excels in growth.
Long-Term Capital Gains Tax Rates
Capital gains are considered taxable income by the federal government and most states. However, favorable tax rates emerge when estates are held long-term. The government encourages investors to hold to encourage more stable economic conditions by taxing capital gains at a lower rate if they are held for at least a year.
Real estate is the ideal asset to hold long-term because a property is already disposed towards decent appreciation; investors benefit both from more favorable tax rates when they sell and the strong chance of appreciation on their assets.
Real estate is rarely liquidated within a year’s time. Property is a highly illiquid asset. However, the illiquidity of real estate ensures that, more often than not, capital gains generated from real estate will be taxed at a more favorable rate.
Why Choose LA Real Estate?
As the largest city on the west coast, it’s safe to assume that Los Angeles has a rich real estate market.
Here are a few reasons why LA has the premium real estate you need for a stronger wealth management program.
- Historically strong market
- High circulation of capital
- Multiple options for markets
Historically Strong Market
Since the turn of the century, Los Angeles real estate has overperformed. LA property set off a real estate gold rush in the early 1900s that has endured to this day. Decade after decade, high-value property in Los Angeles has appreciated virtually without fail.
Strong markets benefit from increased investment in them. Investors looking for reliable assets turn to proven markets like Los Angeles. Through tumultuous economic conditions, the Los Angeles real estate market has endured. In particular, high-value neighborhoods in LA’s Westside, like Bel Air, Santa Monica, Venice, and more, have proven to hold blue chip, premium real estate.
High Circulation of Capital
Los Angeles real estate benefits from the presence of massive industries. The Port of Los Angeles is the largest in North America; Los Angeles is the film and TV capital of the world; the Silicon Beach phenomenon has transformed the Westside of Los Angeles into a world-class tech hub.
The Los Angeles metropolitan area had a GDP of over 800 billion dollars in 2020, more than the entire country of Mexico. The sheer volume of capital circulating Los Angeles sustains an unbreakable baseline value for real estate in the city, especially in established high-value areas.
Multiple Options for Markets
Los Angeles is something of a misnomer. In many cases, the Los Angeles metropolitan area is a broad collection of incorporated and even non-incorporated cities. After a century, these initially disparate communities like Santa Monica, Culver City, and more have unified into a coherent patchwork of municipalities.
For real estate investors, that means there is a rich, diverse range of distinctive real estate markets to choose from. From ultra-competitive neighborhoods with premium properties to up-and-coming areas with explosive potential, Los Angeles real estate offers a host of real estate opportunities to include your wealth management program.
How To Invest?
The necessity for real estate investments in an effective wealth management program is clear. Finding the best to invest in real estate isn’t. Real estate investing can be a difficult endeavor for individuals going it alone. Property ownership can be extremely time-consuming; managing properties, making repairs, finding tenants, and filing your taxes isn’t just a burden on your time. It prevents you from getting a complete return.
The best way to include real estate assets in your wealth management program is through a professional firm. Private real estate equity firms connect with premium real estate assets you wouldn’t be able to access alone. You can have equity in multi-million dollar homes, netting you a strong without the obstacles of personal ownership.
Invest With the Best
Built on premium assets from the hyper-competitive neighborhoods of LA’s Westside, Christina’s portfolio overperformed for over four decades. Christina’s real estate professionals have the knowledge, skill set, resources, and network to connect with the kinds of real estate assets that will sustain your wealth management program for the long term.
Get started with Christina today and strengthen your wealth for tomorrow.
Sources:
Coming CPI Inflation Reports Could Spike According To Most Recent Forecasts | Forbes
Publication 946 (2021), How To Depreciate Property | IRS
Average Sales Prices of Houses Sold for the United States | FRED
GDP of the Los Angeles metro are from 2001 to 2020 | Statista