Understanding what it means to be an "equity investor".
What are equity investments?
An equity investment is money that is invested in return for ownership in a real estate project. As an equity investor, you are an owner partner. That means you share the financial risks of the project, but it also means that you share in the financial rewards.
Why consider equity?
Equity investment comes with two possible returns on investment:
revenue leads to profit sharing; and
decreased debt and increased value results in capital gains.
When profit sharing occurs, it typically takes the form of annual distributions to owners. Capital gains are generated when a property is sold at a profit.
Potential Wealth Creation
Another potential benefit of equity investing is the possible creation of wealth. Rental housing has a long-term track record of increasing rents and increasing property valuations. Over the longrun, a well managed rental property will use tenant revenue to pay off debt. Decreasing debt, and a potential increase in the property valuation over time, can result in increased wealth for the owners.
Potential Tax Benefits
One of the ongoing tax benefits from equity investments can be tax writeoffs from expenses and depreciation deductions. There are many expenses that potentially pass through as writeoffs for equity investors. The other potential benefit is the capital gains tax.
Capital Gains Tax
Capital gains are the profit received from the sale of ownership in a property or investment. Short-term and long-term capital gains are taxed at different rates than personal income, and those rates are often lower than personal income tax rates. According to the IRS, "The tax rate on most net capital gain is no higher than 15% for most individuals." (IRS Link)