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Real estate investing is the most powerful tool for building passive income and long-term wealth. You may have heard a speaker talk about this at a local investor club, heard some guru on the radio, or read a book or article on the topic of real estate investing. Or, you may know someone who is an investor and have witnessed their success. While there are multiple ways to invest in real estate, we will focus this article on rental property.
Rental Property
What other investment vehicle pays you five different ways like rental properties do? The answer? There isn’t one. What are those five ways? They are cash flow, appreciation, depreciation, principal pay down, and equity. Let’s briefly cover these to get a better understanding.
Cash Flow – This is the positive amount you get by taking the difference between the rental amount and the monthly payment. For example, if you have a property that rents for $1,000 per month and your monthly mortgage payment (including taxes and insurance) is $650 per month, your positive cash flow would be $350 per month.
Appreciation – Although you should never buy with the expectation that the value will improve over time, it most likely will depend on your market. There’s an old saying in real estate investing, ‘you make your money when you buy.’ This means buy it at the right price and you will be in good shape going forward. Any upward movement in real estate values will only benefit you and your dealer.
Depreciation – This is a non-cash deduction that you get to take that will lower your taxable income. Talk to your CPA about how this will work for you, as it varies depending on your situation.
Principal Pay Down – As your tenant pays rent every month, those funds are being used to make mortgage payments, … Read More
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