ScaredyCatGuide to Real Estate Investing - How Real Estate Makes You Money Three Different Ways

There are tons of financial vehicles to invest in. Whether it crypto currency, stocks, commodities and the list goes on.

One of those vehicles is also Real Estate. Though I love being diversified, the favorite investment of the scaredycatguide is owning rental Real Estate.

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Why Real Estate?

The reason behind loving Real Estate as an investment is because it returns my money and adds value in not one, not two, but three different ways!

#1 - Cash Flow

This is the monthly income you receive from the rent after all operating expenses are paid. That is money in your pocket, essentially giving you passive income.

If you read my post about "Buying Right" then any property owned should be providing positive monthly cash flow. Otherwise it was not a good deal and should not be purchased.

Just the fact of having an investment that puts cash in your pocket each month puts it on par with any other investment in my point of view.

#2 - Principal Pay Down

When owning a rental property, your tenant(s) are paying your mortgage for you. If you buy a $200,000 property with 20% down using a loan. You are only investing $40,000 of your own money (which you are making monthly cash flow on). The $160,000 loan is being paid down by the rent collected.

This builds equity in the house because even if the house was not to appreciate at all you are not coming out of pocket to pay it off. When the loan is paid off - if the house is still just $200,000 you know have $160,000 in equity, while only being into it for $40,000.

#3 - Appreciation

When analyzing a potential rental property I do not factor in appreciation. It's something that is not guaranteed and I am the scaredycatguide, so risk adverse approach is most prudent.

However, you will generally see appreciation just from the simple fact of inflation. Plus, if you buy right there is a good chance you did not purchase at the top of an overheated market so odds are you are not underwater on the value of the purchase price relative to the current market value.

So let's say the house appreciated a modest 2% per year over the life of a 15 year loan. The value would not be roughly $270,000. And remember, tenants paid of the loan so you still only have the $40,000 invested and now have $230,000

Appreciation is basically icing on the cake!

Conclusion

Those are the three main reasons I like investing in rental real estate. They are straightforward and you don't need to be creative or know how to swing a hammer.

However, they aren't the only ways real estate makes you money.

The tax advantages allow you to pay little tax on the rental income you receive as opposed to many traditional investments where you are paying your full tax rate on gains.

Also, there is the ability to create equity. Whether it's by purchasing a property below market or making simple renovations that provide more value than they cost.

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Regards,

Download the property calculator free at scaredycatguide.com

Thanks for pic pixabay
Disclaimer: All info in this post is my opinion and for educational purpose.