Part 2

The other component is appreciation of the property. Historically real estate values have increased over time. Lets assume a conservative appreciation value increased the dentists building value to $1,200,000 in 3 years. The monthly mortgage payment made by the dentist reduced the outstanding loan to $950,000. The dentist would have $250,000 in equity, or to an investor an additional $250,000 of increased net worth.

In addition current IRS tax laws for commercial and investment real estate allow investors to avoid paying any taxes at all on the sale of commercial or investment property while increasing their net worth thru a 1031 exchange or like kind exchange. Like kind exhange simply means real estate for real estate. It can be an office buiding for land. Land for an apartment complex, as long as it is real estate for real estate.

A 1031 exchange allows someone to sell property  for a profit and then roll all of the proceeds into  another investment property without any tax consequences. The gain generated by the first transaction is deferred into the new property. An investor would owe no capital gain taxes on the sale of a property by using a 1031 exchange. If the investor later sold the exchanged property, the taxes would be due at that time unless it was exchanged for another property of greater value. The 1031 exhange requires that all proceeds be used in the acqusition of the exchange property.

When the property Is eventually sold to capture the equity in the investment, the majority of the gain is taxed as long term capital gain that has a maximum tax rate of 15% currently. Long term capital gain tax of 15% is lower than an income tax on $250,000 on earned income.