4 Streams of Income to Look Out For When Purchasing a Real Property
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| Streams of Income In Real Property |
When you buy a piece of real estate, you should be concerned about the price at the time of purchase because price determines returns. There is an intrinsic value of a well-financed real estate investment, purchased at the right price and well-managed. As a real estate investor, this is what you are to invest for. You invest for increased value and cash flows. What you should be looking for when you purchase a property are the following four streams of income (or cash flow):
1. Income (cash flow)
1. Income (cash flow)
This is hopefully called positive cash flow after all expenses are paid, including my mortgage payment and taxes.
2. Depreciation (phantom cash flow)
2. Depreciation (phantom cash flow)
Depreciation appears as an expense when it really is income that comes from a tax break. This confuses many people who are new to investing in real estate. It is cash flow or income you do not see.
3. Amortization
3. Amortization
This is income to you because your tenant is paying down your loan. When you pay the mortgage on your personal residence, this is not income to you but an expense. When your tenant pays your loan down, it is cash flow.
4. Appreciation
This is really inflation that appears as appreciation. If your rental income goes up, you as an investor can refinance and borrow your appreciation out as tax-free cash and have your tenant pay for the amortization of the new loan amount. In other words, it could be tax-free cash flow.
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