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4 Ways to Create Wealth in Real Estate

4 Simple Ways to Make Money on Your Real-Estate Investment:

Cash Flow: Cash Flow is a very simple term that every investor must know and prioritize. Cash flow is the money that you have left over after all your operating expenses and debt have been paid. We have money coming in and money going out. When we have more money coming in than we do leaving then we have “Positive Cash Flow,” and when we have more money leaving than we have coming in, then we have “Negative Cash Flow”. This is an incredibly important aspect of any real-estate investment to fully understand and calculate correctly. Any deal that is not experiencing consistent, positive monthly cash flow should be seriously scrutinized before moving forward with. Always remember, cash flow is king! Appreciation: Appreciation is the rise in a property’s value over the course of time. For example, if you buy a property for $100,000, simply hold it, and sell it five years later for $125,000, then you can say that the property has appreciated $25,000. Like cash flow, this is a very simple concept; However, when it comes to investing, we should not rely on it. At times, investors will solely rely on appreciation while completely disregarding poor cash flow. This is not a good idea, and I will explain why. First off, let me mention that there are areas where you may be able to buy and hold while experiencing massive appreciation but, at the end of the day, it is a bet. We invest in real estate so that we can control our money. If an investor buys correctly & goes on to operate the property effectively, then it is safe to say that positive cash flow will be a byproduct of that. Appreciation is a great perk of the buy and hold strategy, but it takes the back seat to strong, positive cash flow. Loan Amortization: Loan Amortization is the process of building equity through paying down the principal of the loan each month. Our total debt service minus interest equals amortization. The amazing aspect of real estate investing is that the tenants will take care of this for you by paying their rent each month. This is a great example of why debt is an attractive lever to pull in the game of real estate. As an investor, you can borrow money, have tenants pay off that debt for you, and at times see even greater returns than if you were to pay all cash. Just remember that the right debt is always your friend when buying investment properties. Tax Shelter: Tax sheltering and tax code are very important concepts and an amazing benefit of owning income-producing rental properties. Owning real estate allows you to reduce the amount of your income, either from your day job or cash flow, that is exposed to taxation. The tax code incentivizes owning or developing real estate. What they offer is tax deductible items such as repairs, depreciation, interest, or insurance to name a few. This is great news because now we are making money and keeping a larger percentage of it. Jackson Wietecha

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