The 5 Ways Real Estate Pays

Cash Flow

Cash flow refers to the net income your rental property makes after deducting all the expenses. Some expenses landlords usually incur include mortgage payments, repairs, maintenance, insurance, vacancy costs, and property management fees. It is advisable to account for the various expenses on your rental space, as it goes a long way to ensure realistic projections. If you prefer a more hands-off approach, consider hiring a property management company for better investment decisions.

Appreciation

Property value increases with time, especially in areas with high demand. Appreciations can significantly boost your ROI over time, since you are not focusing on immediate cash returns. Whether you prefer cash flow or appreciation investment, both strategies work since markets experience a 5-6% annual increase. This means a million-dollar property can make you at least $50,000 yearly. Consult a professional to determine if appreciation is a suitable strategy for your area.

Tax Savings

Another way real estate pays is through tax benefits. While they are often misunderstood, tax benefits can help you achieve the bottom line: turning a profit. A crucial tax advantage that most people usually overlook or don’t understand is depreciation. Deductible expenses include maintenance, repairs, property management travel expenses and fees, allowing you to show a loss on paper despite a positive cash flow.

Amortization

Amortization entails paying off the mortgage on your property through interest payments and monthly principal. The aim is to increase your equity in the property through each payment. If your mortgage payments amount to $1,500 towards the principal, your equity increases and is paid for by the tenants. The real financial benefit of amortization is the equity gained and the positive monthly cash flow.

Leverage

Lastly, real estate pays through leverage. This is borrowed capital, such as a mortgage, to increase your potential return on investment. Leverage is an effective strategy that allows you to control a larger asset with a smaller initial investment. This means that a $1,000,000 property, $800,000 financing, and a $200,000 can get you at least $50,000 in equity if the property appreciates at a rate of 5%.

Owning or running rental properties is challenging and often stressful if you don’t take advantage of the opportunities available. Like most investments, time plays a vital role, and knowing ways your rental can pay helps to avoid stress and burnout. Even if you don’t get the cash flow you want, you can still benefit from leverage, amortization, appreciation, and tax savings. Contact us at 3 Options Realty and schedule a consultation with our property managers in Rockwell, GA to make the most of your rental space.