If you really want to live financially free, the best thing you can do is to start developing multiple streams of income. There are many ways to go about this. You could start a business, set up a side hustle, or my personal favorite, invest in rental properties.
Rental properties are an incredible passive income strategy because of this: real estate investing offers not one, but FOUR streams of income. On this episode of Investing in Real Estate, you’re going to learn how to make four streams of income with one investment. Click play to learn more!
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The first stream of income from rental properties comes from appreciation. What does this mean? Real estate naturally appreciates over time – its value grows. Why does this matter? Well, because real estate investing is a long-term strategy, your wealth and your net worth are slowly and steadily growing over time. Every year that you own a rental property, it goes up in value. And as you accumulate more properties, your wealth begins to grow at an exponential rate, all thanks to appreciation.
This sounds great right? Well listen to this: appreciation also protects your wealth during times of inflation. Historically, rental properties have maintained their value during times of inflation. So while the dollar is on the decline, your hard asset can weather the storm of inflation and stand strong. There is no better way to protect your wealth from inflation than by investing in a tangible asset like real estate.
The second stream of income that real estate investing can provide is tax savings. I know taxes can be boring, but please don’t gloss over this point. The tax benefits of investing in real estate are vast and can help you pay less in taxes year after year. Who doesn’t want that? Depending on your investments and income level, you may be eligible for a multitude of write-offs, deductions, incentives, and more. There is truly no other asset class that allows you to maximize your taxes in this way. Now, I’m not an accountant or a tax pro, so I can’t give you advice in this area. But what I can tell you is that if you’re a real estate investor, you need to make sure you’re working with a CPA who understands real estate and can help you reap the most rewards from the tax code. If you’re interesting in learning more, check out this video with expert CPA Tom Wheelwright, where he explains investments the government will pay you to make.
Next up on my list is principal reduction. Let’s get down to basics for a minute. When you buy a home with a mortgage, the principal is the amount you borrow. The mortgage also has interest built into the payment. That interest is calculated based on your principal balance – so the quicker you pay down your principal, the less interest you’re going to pay over time.
When you own your home, the only person paying down this principal every month is you. But when you invest in real estate, your tenant’s rent is paying down that principal, reducing your debt, and building your equity position, month after month.
Cash flow. You probably already understand what cash flow is, but let’s dig into it for a second. Cash flow on a rental property is calculated by subtracting your expenses from your income. So you collect rent on the first of the month, then you pay your mortgage and other expenses. Whatever is left over is your cash flow. As you acquire more properties and pay down your mortgages, that cash flow starts to accumulate. This is why owning multiple rental properties is so profitable – the benefits start to stack on top of each other and then your wealth begins to explode.
So unlike going to your job every day for that ONE stream of income, investing in rental properties offers four ways to grow your wealth: appreciation, tax benefits, principal reduction, and cash flow. I hope you can see how investing can help you increase your net worth, save on taxes, and build a passive income.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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