Everyone always says that buying rental properties are a sound investment. Buy Why? Its simple (ish). Here is why….
Like I said, simple-ish. You make money by the cash flow, tax benefits, mortgage reduction, and home value increase. Its a simple way to get on the path to get rich slow. The good part is that it works. We have done and helped others on this path. You can make money with very little effort and have it be consistent.
As the above video shows there are 4 ways you make money on a rental property. Here is a break down and why:
1- Cash Flow
This is the easiest to see. If you own a rental property and all your expenses are $1000 and you rent it for $1200. Your “cash flow” is $200 a month. Remember that you should look at the numbers as you do when you make your projects. Meaning that you should save some money for repairs and times its not rented.
Looking at cash flow this way, your mortgage, tax, and insurance might add up to $900 and you plan on paying the sewer and water bills for about $100. That would mean, if you are getting $1200 for rent, that you might get $200 a month but you should save 4 to 8% for vacancy loss (times you don’t have it rented) and a certain amount for repairs. So even though you might get $200 a month you might save $100 so your cash flow is $100.
2 – Equity
When you live in a house, every payment you make goes to principle and interest. So you are paying down the principle each month. The more you pay down the more equity you have. Now when you rent out a house your renters are making the payment for you. So they are paying down your principle.
3 – Home Value
This is another way to get equity. Over time your home will go up in value and be worth more. On average (since the 1987s) home values have gone up by about 3.3% a year. Even when we throw in the market crash. That means the longer you own the rental the more equity you will have.
If you want to see the value of your home or rent check out our Home Valuation Tool for a free instant value.
4 – Tax Savings
This one is a little harder to show. The IRS on average says that a rental property will “lose” about $6,000 a year. This is with interest, repairs, fees, taxes, travel time, etc. So that means that every year on your taxes you get to lower your taxable income by $6,000. This will save you money no matter what tax bracket you fall in.
As the video shows, when you add it all together there is no better way to leverage your money to get a good, safe return like real estate.