by Darlene Olafsen

December 2010 — I met a buyer at an open house a few weeks ago who has been dreaming of living here on the coast for many years. Her dilemma is that as a teacher, her income isn’t terribly strong. Additionally, she is close to owning her home outright and is concerned that by selling her home and purchasing a new one she will create a new high-cost mortgage that she can’t afford. My advice to her? Don’t sell your home!

Odd advice from someone who sells homes for a living, right? But think about it. Now could be the perfect time for her to begin building her wealth through building a real estate portfolio. The rental market is strong, so why not take advantage of some of the low- or no-down-payment options available through a USDA or FHA loan to purchase her new home and use her current home as income property? The rental income on her first home would nearly cover her new mortgage and keep her in a very similar position as far as monthly expenses — but now she owns two properties. She has increased her assets. She has built wealth rather than diluting it.

There are many tax benefits to owning your home, as you know. Owning an income property, as well as your own home, increases those benefits; this is something you would want to discuss with your tax advisor. The buyers’ market is strong for purchasing an investment property, and it’s also a good market for turning your current home into a rental. In today’s market it is possible to purchase a multi-family dwelling, protect your money and receive an income. In the past it was usually only possible to invest one’s money and create a tax benefit. In today’s real estate market, the purchase prices and interest rates are so favorable that it’s fairly easy to create a positive cash-flow situation.

One of my clients said this about building their real estate wealth: “It takes a dedicated Realtor to find the right cash-flow situation for you. We built our solid foundation in just this way. It matters not to us if our ‘equity’ goes up or down. We can afford what we have on a fixed retirement income and the rentals more than double our retirement income.”

There are more financial benefits than ever to either purchasing a second home or purchasing income property to build your wealth. Contact your real estate agent, financial advisor, lender and tax planner to explore the many options available to you. And remember, don’t dilute your real estate wealth, build it!

Darlene Olafsen is a Realtor for Coldwell Banker. She can be contacted at Darlene@DarleneO.net or 650-712-2450.