When you invest in real estate, you make money in 4 ways, and it’s the only investment out there that does. It provides the perfect mix. Some of these money makers provide liquid cash that you can use to improve your quality of life right now. Some of these money makers increase your net worth in a way that’s harder to access which forces you to build long-term wealth that you DON’T spend which will help you build towards a secure retirement. Some of these money makers are safe and slow with extremely predictable returns, and some of them are influenced by market trends and have opportunities for HUGE returns.
With real estate, you don’t have to pick between these different characteristics that are each valuable in their own way. You get all of them at the exact same time.
Andrew Carnegie said, “90% of all millionaires have become so through real estate” and by the end of this section you’ll understand exactly why that is.
The first money maker of real estate is cash flow. When you own a property and rent it out the monthly rent should cover your mortgage payment and any other costs associated with owning the property. If it doesn’t you shouldn’t have invested in the property (we’ll have other posts that explain how to do that analysis). Any money left over is money in your pocket. You get to keep it every single month. This is cash flow.
One really cool thing about cash flow is that you can directly influence it. There are different ways that you can increase your total rents and ways to decrease your monthly expenses. Doing either will increase your cash flow, doing both is a game changer.
The second money maker of real estate is appreciation. You don’t have any influence over this one, besides through your initial decision of where to invest. Over time your property will increase in value. 100% of the increase in value is yours and goes towards increasing your net worth. Understanding leverage makes this the most exciting long-term money maker from real estate.
The third money maker of real estate is loan pay down. When you have renters you’re not actually paying your mortgage. Part of your mortgage payment each month (paid by the renters!) will go towards paying your interest, but another portion of it goes directly towards paying down your loan. That means someone else is paying off your loan!
The fourth money maker of real estate is tax savings. When you own real estate you’ll most likely set up an LLC. Not only does that allow you to write-off any expenses related to owning and operating your rental properties, but the US
Government will also allow you to write off or depreciate your property over 27.5 years. However, they only allow you to depreciate the value of the building, not the land.
That means if you buy a property for $120,000 and the building is valued at $100,000 then for the next 27.5 years you get to write off $3,636.36. Now, that might not seem very exciting, but that’s in addition to your mortgage and all other expenses. Meaning you will probably pay little to no taxes on the cash flow you generate from real estate.
Those are the four money makers of real estate. Now that you know all the ways to make money from real estate, get started! Become a real estate investor. If you’re not sure where to begin you can watch our free webinar HERE.
