One of the biggest decisions most people will ever make with their finances and their lifestyle is to buy (or sell) a home.  Getting the best bargain in the purchase, or making the most profit on the sale, give buyers and sellers so much to think about that many may never stop to consider keeping that old house - or buying another - as an income-generating property.  But the rewards, in savings, profits and problem-solving, can be high.

One option for buyers who otherwise might consider home prices beyond their reach is the property that pays for itself: a house you live in part of and rent out the rest (the simplest form is a duplex).  This offers not only an obvious balance of cost and income, but perhaps lesser-known benefits in taxes and mortgage.

The rental unit(s) can be depreciated over time; considered to offset the rental income, this can lower your taxes on that income.  At the same time, the addition of the rent to your finances helps you qualify for a larger mortgage, and investors who occupy their rental properties can, under certain conditions, get interest rates lower than those who do not.  Of course you'll want to decide if the demands of being a live-in landlord are for you.

One of my early clients as a Realtor® is a prime example of what you can accomplish with an income-generating property.

Rob was in his late 20s, had a great job in the area, and earned a nice income.  He could qualify for a mortgage for a "trophy" home, if he chose.  Instead, Rob followed a game plan which I would have loved to have followed at his age.

Rob bought his first duplex with me in my first year of business.  It needed some minor work (sweat equity) on the owner-occupied side, while the rental unit was nicely updated.  Rob fixed up his side in the two years he lived there.  On the two-year anniversary of the purchase of his duplex, Rob called to ask about the available duplexes on the market.  He bought his second duplex a month later.  He moved into the new duplex, taking the "worst" side for himself, and renting out both sides of his first duplex.

Over the next two years, Rob fixed up the unit he lived in, building more sweat equity.  As Rob and I were regularly in contact, I knew to send him the list of available duplexes at his purchase anniversary date.  Rob bought his third duplex almost four years after his first duplex.

Why always two years between purchases?  Tax purposes only.  Not being a tax-law expert, I'm not qualified to explain exactly why Rob always waited two years between purchases, except to say that he always explained it as being for "tax purposes".  Ok.

To make a long story short, Rob now owns five duplexes.  The first three are fully paid for.  The income from those three are used to pay down the fourth duplex.  By the time that Rob is in his mid-40's, he will have all five duplexes fully paid for.  He can retire, if he wishes, and live off the passive income for the rest of his life.  But knowing Rob, he'll keep building his empire.

Owning an income-generating property is not for everyone, but - from younger buyers offsetting their purchase costs, to seniors easing the expenses of their retirement years - it can be for all kinds of people.

Who know?  You could be the next "Rob" that I'll be writing about?