Once again, the Four Benefits of Real Estate Investing are as follows:
- Cash Flow Before Taxes
- Principal Reduction
- Tax Benefits/Depreciation
Cash Flow Before Taxes
Take your total monies collected, subtract ALL of your expenses and what you have left is Cash Flow Before Taxes.
The amount of principal your loan was reduced by in any given period of time. If the house is empty, you are reducing the principal. But if you have tenants in your rental property then THEY are reducing your principal. Be sure to thank them!
Your Net Operating Income minus your interest paid minus your depreciation schedule gives you a number. Take that number and multiply by your tax bracket. If it’s a positive number that is your tax. A negative number is your tax savings. Cool, eh?
A lot of people think this is where the money is made. And it can be. But take my word for it. You need to make sure whatever property you buy makes sense based on the previous three benefits. Then if you have hard times you still have positive capital growth. When we return to good times this will be the icing on the cake that allows you to eat at Ruth’s Chris rather than the Sizzler.
Kansas City real estate investing needs not to be complicated. Just know the returns you are after, plug in the numbers and see if they work. If the numbers don’t work you move on. If they do work you’ve probably just identified your next investment property.