It's Not Just Rent!

By Don Clifford, REALTOR®
Realty Executives, TRI COUNTY

Income producing property, such as multi-family houses, retail plazas, or office buildings can offer investors some great returns on their money. Unlike some other real estate investment vehicles, such as flipping, which is solely reliant on the market and appreciation, income property actually offers four different ways to realize a return on your investment.

Income. This includes rents and other revenue streams such as coin-op laundry services on the property, tenant parking fees, tenant storage fees, etc. Income revenue should cover your expenses and produce positive cash flow. This is the fuel that keeps the profit engine running!

Appreciation. Property values have historically, always increased. Even though this has not been the case over the last few years, history tells us that if we ride out the current down turn, values will almost certainly increase.

Amortization. One of the great things about income property is that your revenue streams pay down your mortgage debt. So, even when property values are stagnant or even decreasing slightly, the property's equity is still building. And in the ideal climate of increasing property values (appreciation), your property becomes a double-barreled equity building machine!

Depreciation. Believe it or not, the government actually credits you at tax time for depreciation of your property; even though they know the value may have increased! Why? Because the government realizes the value of property owners furnishing suitable housing for those that need it. So they use tax incentives such as depreciation to encourage investors. Depreciation is considered "phantom income" because it is not direct cash in your pocket. However, the money you save in taxes can be substantial.
Consult your accounting and tax professional for expert advice on the effects of these items; and you should always consult your real estate, financial and legal professionals before investing in real estate.

Want more information on this subject? Contact Don at 508-803-5028 or email him at donc@.DonCliffordRE.com.