Real estate has many benefits and I think a lot of people don’t understand all the reasons that it is a great investment so let me begin discussing them. One reason is that real estate can be a source of passive income. Passive income is money you receive without having to work for it, or having to work very little for it. This is so important because we all have limited amounts of time and if all your income is spent working for it, it is limited just like your time.
The great thing about real estate is that if you set it up correctly, you will get paid each month for having to do very little work. Over time this really adds up and is a great source of income. My properties average about $300/month of pre-tax profit after all expenses are accounted for. Most of the time I just check that my tenants deposit was paid the first of the month and, because I spent the time finding a good tenant, it always is.
Below is a breakdown of the income and expenses from one of my properties. This has been the situation over the last 5 years.
Rent – $1,550
Taxes – $450
Total expenses = $1,277
Profit = $1,550 – $1,277 = $273/month or $3,276/year
And the great thing is that over extended periods of time rents go up so I’m only going to be increasing my monthly cashflow over the years. There isn’t a lot you can do to decrease expenses from this list as you can’t control mortgage rates, property taxes or insurance rates. But one thing you can keep a tight reign over is maintenance costs. If you don’t fix the property the right way the first time and continue to use quality workers to fix it up (or do it yourself if you’re handy) maintenance can eat you alive and turn your profitable property into a losing proposition. I recommend building a list of high quality, trusted professionals to turn to when your property needs work. One we use close to us is Houston Plumbers. They’ve served us well for years and in my opinion are the best plumber Houston, TX has to offer.
You may look at this and be underwhelmed by only $3,276/year profit and I can understand that, especially when you look at the risk of carrying the property and that values ebb and flow over the years. Fortunately cash flow is only one of the ways you make money on real estate. I’ll cover the others below as I build my case for real estate being a great way to earn great riches.
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