Streams of Income from Rental Properties

Rental properties build your wealth through four different income streams: cash flow, tax reduction, equity growth, and appreciation.

This post originally appeared on the Hermit Haus Redevelopment website on 2015-12-05

I seem to always be talking about redeveloping distressed properties, but I also have a portfolio of rental properties. Owning rental properties is the surest way to build wealth that will outlast your lifetime and ensure your family’s well being should something stop your ability to earn a living.

Notice in the last paragraph, I said, “wealth building” and talked about legacy. I specifically didn’t say, “Cash Flow” because that is only one benefit of owning rental properties, even if it’s the one most investors focus on.

Rental properties can provide the following ways to create wealth:

Cash flow

The amount of money the property takes in over the cost of ownership on a monthly or annualized basis

Tax reduction

The amount of income you can shelter simply by owning properties

Equity growth

The increase in the net worth of your properties over time through debt reduction (paying off the mortgage)

Appreciation

The increase in the value of your property through inflation or market dynamics

Over the next few posts, I’ll talk about each of these benefits. We’ll use an oversimplified example of a rental property you purchase for $100,000 to show how simply owning and renting a house can make you much, much more money than you’d think—certainly more than by leaving $25,000 in the bank. The next post in this series sets forth the two examples I use and talks about cash flow. You may not believe it, but I’ve had these conversations with my tenants. Unlike many “landlords,” I really don’t want long-term tenants in my houses. There are sensible reasons to rent for a year or two, but I really believe in the win-win situation. I prefer tenants who have a long-term plan to secure their future. I realize not everyone wants to be a home owner, but I want my tenants to understand their options. I believe they respect me and my properties more if I tell them the truth and try to help them succeed.

If, after reading this series of blog posts, you don’t believe you should be finding ways to invest in rental properties, talk to me about buying your house.

Posts in this series:

• Streams of Income from Rental Properties
• The Two Examples and Cash Flow
• Tax Reduction Through Depreciation
• Equity Growth