5 Amazing Ways That Real Estate Can Make You Wealthy

by James on 02/25/2010

Image of a house with a for rent sign

As you know, I listed real estate as one of the passive income sources for achieving financial freedom. Real estate has been a sign of power for a thousands of years! But, what makes it so special for earning money today? Real estate is a limited resource. There is only a certain amount of it and if you purchase it for below market value and find a reliable tenant to pay the mortgage, it can almost certainly help you become wealthy. Let’s talk about what makes real estate such a unique investment!

1. Cash flow. This is the difference between the rent you receive and the mortgage payment you make. Cash flow can be positive or negative. If the rent your tenant pays is larger than the mortgage payment you make, then you have positive cash flow. Never buy rental property unless you will have positive cash flow. This is the passive income stream that will help reach financial freedom.

2. Equity capture. If you purchase an investment property correctly (below market value) your property is worth more than you paid. The difference between what you paid and its current market value is your equity capture or unrealized gain. Never buy an investment property without making money today. Buy below market value and you will make money the moment you purchase it.

3. Amortization. When payments are made on your mortgage loan, the principal amount is reduced. With each payment, you build equity in the property. This process is called amortization. Your tenants will do this for you!

4. Appreciation. In general, property values increase over time. It is a limited resource! Any increase in your property’s value is icing on the cake! Unfortunately, in the short term, property values don’t always go up. We are not trying to buy properties solely in hope that their value will increase in the future. This is called speculation (or gambling) and you should not purchase any investment property if you are thinking this will be the way you make money.

NOTE: Even though certain economic conditions can occur that can reduce the value in your home, if you are careful to buy properties at substantially below market value, you should still have positive cash flow.

5. Depreciation. You have tax benefits if you own real estate! In general, if you set up your taxes correctly you can depreciate your rental property enough each year so that your income from your positive cash flow is almost or even completely tax-free. As always, get professional advice from an accountant with experience in real estate.

As you can see, these are 5 compelling reasons to add rental property to your portfolio of assets! Remember, purchase below market value and find good tenants. You can literally have other people make you wealthy!

Related posts:

  1. Progress Update: Closed On First Rental Property
  2. Top 3 Ways To Avoid Terrible Tenants
  3. Mythbuster: Bad Credit, No Money, No Problem!
  4. 12 Simple Steps To Get Your First Rental Property

Leave a Comment

Previous post:

Next post: