Scott Galloway Says This Is The Best Investment for Lowering Your Tax Bill: 'It's a Form of Forced Savings'

Investors can choose from a wide range of assets. Stocks and crypto are two of the most liquid investments that can produce higher returns, but that's not the investment renowned New York Times bestselling author Scott Galloway praised in a recent podcast interview.

He views real estate as one of the top investments due to its tax advantages and cash flow. While some people don't like real estate's relative illiquidity, Galloway views it as a strength.

"It's a form of forced savings," the NYU professor and finance expert stated.

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Real Estate Offers Tremendous Leverage

Not only does real estate act as a form of forced savings, but it also offers tremendous leverage. You can buy a $1 million property with a $200,000 down payment if you put 20% down. If you have a good credit score and a low debt-to-income ratio, you might even get away with a 3% down payment.

Very few investment opportunities allow you to put down $30,000 to gain ownership of $1 million worth of assets. You have to contend with mortgage payments for up to 30 years, but if you earn rental income from the property, you break even while building up equity. 

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Investment Properties Can Also Lower Your Tax Bill

Real estate is one of the most tax-advantaged assets available. Investors can write depreciation off their expenses, and Section 179 allows investors to use accelerated depreciation to keep tax bills low. Some investors buy multiple properties each year and use Section 179 to defer income taxes continuously. 

While Section 179 would result in significant capital gains if you sold the property, rules like the 1031 exchange and step-up basis can help investors avoid taxes on their gains. You save money on taxes, and the lack of liquidity turns real estate into a store of value. In that regard, real estate is similar to gold as a hedge against inflation.

Building a Real Estate Portfolio

Real estate investors have access to plenty of leverage, but you still have to make monthly mortgage payments. Furthermore, you will need a good credit score and enough money for a down payment.

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Putting more money down will reduce how much you pay in interest, while if you make the 3% minimum down payment, you can get started sooner. 

It's good to brush up on the basics of real estate before rushing to make investments. Savvy investors often use a property's cap rate to gauge its potential returns. Higher cap rates come with higher potential returns and elevated risks. You can arrive at this calculation if you divide a property's net operating income by its market value.

It's best to focus on increasing your income and minimizing your expenses before you get started with real estate. Earning more money will make it easier to get started, but savvy investors can also raise money through crowdfunding. 

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