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TRUMP UNIVERSITY WEALTH BUILDING 101

Nevertheless, you can you can manage the illiquidity issue in three ways:

1. Arrange a property equity credit line.
2. Arrange a cash-out refi nance.
3. Sell the property quickly via an auction.

If you truly must convert property equity into quick cash, you need not
wait months to do so.

Income Tax Advantages

Although it seems odd to use the words “tax” and “advantage” within the
same phrase, the Internal Revenue Services (IRS) offers property owners a
unique set of benefi ts, including:

• Not all of your net rental income is subject to income taxes. The tax
code permits you to offset income with a deduction for depreciation.
• You can grow your portfolio of properties through Section 1031
exchanges and never pay income tax on accumulated gains.
• You can sell your personal residence and escape income taxes on the
first $250,000 of gain ($500,000 if you’re married).

• For some types of properties and property improvements, the IRS
grants tax credits that reduce income taxes.
• If you pull gains out of a property via a cash-out refinance or equity

credit line, that money comes to you tax free.

Admittedly, the IRS weaves each of these tax benefits within a web of

rules and regulations that go beyond the space available here. (For more
detailed treatment, see Chapter 14 in my book, Investing in Real Estate , fi fth
edition, John Wiley & Sons, 2006). Dollar-for-dollar, federal law permits
property owners to pay less tax than investors who trade stocks or bonds. As
an astute wealth builder, always evaluate and compare the after-tax returns of
alternative investments.

Portfolio Diversifi cation

As you can tell from this chapter, I prefer real estate to any other investment.

I believe experience as well as reasonable forecasts affirm the favorable risk/
reward nature of this asset class.

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