Making money in any business — including real estate — means maximizing your ROI in every possible way. If you want to build your wealth, you need to take advantage of every opportunity to make money that’s available to you.
Can You Make Money With Rental Properties?
Thankfully, real estate investing — when done the right way — offers one of the most profitable business opportunities on the market. There are tons of ways to make money off of rental properties, and when you know the best ways to invest in real estate, the answer to the question “Can you make money with rental properties?” becomes a resounding YES.
The 6 Keys To Making Money With Rental Properties
So what is the key to making money with rental properties? Here are six ways rental properties can make you money and increase the value of your business:
Positive Cash Flow
The first way that rental properties make you money is the old-fashioned way: in good, old-fashioned cash.
When you have a positive cash flow on your rental properties, that generates income — and puts money back into your pocket.
And what makes a positive cash flow? When you make more money in rent than you do on expenses.
For example, if you rented a property for $1,000 and the expenses were $700, you could plug that into your rental property income calculator, which would give you a positive cash flow of $300 per month. You could take that money and put it in the bank or use it to reinvest in new properties.
However, not all rental properties generate a positive cash flow; sometimes, the expenses of maintaining a property can be more than the rent. If you find yourself in this situation, it’s important that you find a way to get out of the red and start generating a positive cash flow on your investment — and start putting money back into your pocket.
If you want to improve your ROI, look for ways to cut down expenses and drive more revenue from your properties — for example, increasing rent or lowering your energy bills by going solar — to drive more positive cash flow.
Another way that rental properties can make you money is with tax benefits.
As an owner of rental properties, you qualify for a number of tax write-offs that reduce your taxable income — and can make you some serious cash in the process.
Some write-offs you qualify for as the owner of rental properties include:
As you can see, there are plenty of opportunities for tax benefits as the owner of rental properties. And the more you take advantage of them, the less income you’ll pay taxes on — and the more money you’ll get to keep as a result.
If you want to make the most out of the tax benefits available for rental property owners, do yourself a favor and hire a tax professional. They know the ins and outs of tax law and can help you find tax breaks and write-offs you had no clue existed — which can dramatically reduce your taxable income and put more money back into your business.
Another way rental properties can make you money? Appreciation.
When you purchase a property, you either a) pay in cash, or b) secure a mortgage at the current asking price. But as time passes, the value of the property will (hopefully) increase. So when you go to sell the property, however much the property has appreciated, it is money right back into your pocket.
You can also use the appreciation in value to secure a loan to purchase more properties and add to your portfolio.
If you want to maximize your ROI, think about appreciation as you’re buying properties. Look for properties in up-and-coming areas that are projected for major growth in the upcoming years. The more your properties appreciate, the more money you make.
One of the best parts about owning a rental property is that, after the initial purchase, your renters pay for your property for you.
Once you find tenants, you take the money they pay you each month and use it to pay off your mortgage. And every month that you pay down your mortgage, you acquire more equity in the property, until eventually you own it — free and clear. And most of the payments for that property? They came from your renters, not from you.
If you want to maximize this strategy, make double mortgage payments whenever you can (which is entirely possible if you have a low mortgage payment and higher rental rates); the faster you pay down your mortgage, the faster the property is 100% yours.
Rental Properties Mitigate Inflation
Now, don’t get us wrong: rental properties aren’t inflation-proof.
But they’re as close as you can get.
When you own a rental property, you can raise rents based on — but your mortgage costs don’t change. That means that over time, it actually gets easier to pay off your properties — and you drive more profit in the process.
The lower the cost of your property is when you purchase, the more you stand to earn from inflation and increasing living costs.
If you want to maximize your rental properties mitigating inflation, try to buy when prices are low — the lower the cost of your property is when you purchase, the more you stand to earn from inflation and increasing living costs.
Using Rental Properties to Buy New Rental Properties
Once you own a rental property, you can use that property as collateral to secure funding for another rental property. And the more you repeat this process, the more money there is to be made.
It’s important that you make sure you can afford it before you leverage one property to purchase another, but if you can, you can add to your portfolio, diversify your income streams, buy more properties, and drastically increase your profits over time.
If you want to maximize your ROI, try to keep your mortgage balances as low as possible; the more equity you have in a property, the more money you can secure to purchase more properties.
As you can see, there are tons of different opportunities to make money with rental properties. And when you maximize your ROI — and get the most out of every opportunity — you’ll be able to drive more profit, build your portfolio, and take your real estate investment business to the next level.