Monthly Cash Flow: One of the largest benefits of investing in real estate is the ability to generate monthly cash flow. There are a couple ways to generate monthly cash flow (profits after accounting for all repairs and debt). The first is to acquire distressed properties that are 20-30% below market value. Short sales, foreclosures, and bank owned
properties generally fall in this category. By purchasing these properties at a steep discount and renovating to improve value, you will be able to achieve market rents which will result in cash flow each month. Another way to achieve cash flow is to get a little creative with the way you lease out your investment property. If your property has multiple bedrooms and baths, lease out the rooms separately. In other words, instead of renting out the entire space to one tenant, have 2+ leases on the property. You’ll find that on average your revenues will be 30% higher this way. The only downside to this is that you have to do double or triple the amount of work when it comes to leasing and management.
Maximum Tax Savings: When you work for yourself, lots of ordinary expenses become tax-deductible business expenses. For example, unlike your 9-5 job, when you own a business, transportation to and from rental properties is tax deductible. Depreciation, 1031 like kind exchanges, among other deductions can save you tremendous amounts of money over time and propel you towards greater wealth and financial independence.
Forced Savings: When you purchase real estate with a long term hold and rent strategy, you are basically having someone else (the renter) pay off your mortgage, build you equity, and over time help you benefit from any appreciation that might exist. Real wealth is created over the long term. Buy, hold, and rent! Once your tenants pay off your mortgages any cash flow that you generate each month is 100% yours. The buildup of equity can also be borrowed against to purchase subsequent investment properties. Which brings me to my next point..
Use of Leverage: No other business I know allows your money to work so hard and accomplish so much: $20,000 can control a $200,000 duplex. That's a 10-1 leverage ratio! For a relatively small investment, you can have control over a large amount of money. Be careful with this, as too much leverage can put you in a precarious position if the market turns south. Finding the healthy balance of leverage however is key to building wealth.
Working from home/Financial Independence:
Once you acquire
enough properties to cover your normal 9-5 salary, you can essentially work from home and for yourself. No more dealing with traffic every morning, the annoying co-worker, and the office politics. You are your own boss!
Rents Never Stop: If you get sick and for whatever reason are unable to work, you still will be collecting rents like clockwork. Once you get your rental properties set up and earning rents, it’s a guaranteed income stream as long as you keep them maintained and filled with paying customers. Contrast this with your 9-5 job.. If you are sick or disabled, or the company is having financial issues, you’re out of luck and your reliable pay check may cease to exist.