Joe Homs breaks down five ways rental properties make money: positive cash flow after expenses, property appreciation, building equity as tenants pay your mortgage, tax deductions through depreciation over 27.5 years, and rising rents that keep pace with inflation.
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In today's video, we're talking about 5 ways a rental property makes money. Coming up next. Perhaps you've been thinking about venturing into the world of real estate and are drawn to the idea of becoming a rental property owner. With homeownership rates at their lowest level in 50 years, now might be a good time to explore that opportunity. Welcome back to the channel I made for the new and experienced investor. Make sure that you hit that like button And subscribe. Learn from my over 40 years of experience as a broker, mentor, and investor. Let's talk about the 5 ways to make money on rental properties. The first way is cash flow. Obviously, when you purchase a home, or it should be obvious, you want to purchase it at a price where you can pay for the mortgage, you can pay for the taxes, property taxes, You can pay for the insurance, any type of homeowners association fees, or any other fees that are involved in the property. At the end of the day, once you're getting your rent in, it should cover all that and you should have positive cash flow at the end of the day. That's the right way to do it. Number 2, let's talk about appreciation. And I am in California. Our appreciation rates are crazy here. So is every once in a while that bubble that bursts and it goes down just as quick as it went up. So in California, you have to be very careful of when you buy your buy-and-hold properties, when you flip properties. So determine what's going to be best for you in the long run. Make sure that you're cash flowing. That's number one. Number 2, okay, Make sure that you have enough value there that the property starts to go up. Number 3, and this is really important, building equity through mortgage payoff. Okay, because you're getting income coming in from the tenants, you're using that money to pay off the mortgage. So it's not really coming out of your pocket, but it is coming out of the tenant's pocket that's paying you to pay down that mortgage. So imagine you You have a place, you've had it for literally 30 years, which is the length of a normal mortgage, and you've had your tenants pay off your mortgage for you. You, in 30 years, you're going to have a property that is free and clear and obviously getting more cash flow for you every month. Number 4, very important, tax benefits. You're able to depreciate this property, which I call kind of a phantom tax benefit. So you have a value of the property. Remember, you have land, you can't depreciate the land. So you determine how much of that money that you spent for that property is going to actually be the physical property itself, not the land. Then you're going to go into a depreciation schedule, usually 27.5 years, and then you're going to be able to divide that number into 27.5 years and you'll be able to depreciate that Money every month. Okay, all your expenses are taken off of that, the tax calculations that you do. So there's a lot of ways that owning a property for a rental can benefit you in the long run tax-wise. Number 5, hedging against inflation. Oh my gosh, here we are again. Inflation is absolutely crazy, which means that the property values are going up and You know, as long as we have inflation, the property value is going to continue to go up. Once they start cooling down that inflation, and they do that by raising interest rates, raise it to a certain level. So we went from earlier this year, we were around hovering around 3%, we're around 6%, 6.5% right now in less than 6 months. Who knows where we're going to be in the next 6 months, but they're trying to cool down the economy. The housing market's a very big component of the economy. But during that time, in fact, during the last couple of years, if you've owned a property, you've seen how much equity you've been able to see from that inflationary spiral that we've been in. No 2 rental properties will make money the same way and at the same rate. There is a risk versus reward trade-off. Mismanagement of a rental property can cause even the best property to not see a Take the time to understand these dynamics and how rental properties make money and apply that to your buying decisions. You will stand a much higher chance of experiencing notable profit from the properties you invest in. If you're new to investing in rental properties, click on this video right here. As always, feel free to reach out. I'm always here to help.
