Today I want to talk about seven benefits of buy and hold rental properties. Now this video is for those of you that are considering buying rentals, maybe you own them and you want to be more informed of some of the benefits, or those of you that own them and are maybe looking to sell because you’re not feeling the love of the rentals. And I hope that this video shows you how over time, and in the long run, they pay off big time.
So number one is cash flow. Rental properties as an investment is one of the only cash producing investments where you can get consisted cash flow over time. And it’s something that continues to generate cash in the long run, forever if you choose, because you have someone that’s willing to pay you monthly for that asset.
Now I want to show you an example, so if we buy a rental and we have monthly rent of ,500, which will grow because of inflation and other reasons, 3% on average per year, we grow that over 30 years now that’s ,600 dollars a month. We more than doubled our rent over the course of time. We start out here, let’s assume a 15 year mortgage, we actually tend to do 30 year mortgages, but let’s just assume a 15 year mortgage so I can show the growth of this. Now after 15 years of course that mortgage gets paid off. Now our cash flow spikes, right? And it continues to grow over the course of time. At the end of 30 years about £2,600 a month that we have in cash flow.
So how that looks on the mortgage side, because you have a tenant in there that’s paying down the principle balance, that continues to decrease and get paid off over time. In this case it’s the thirty years. Cash flow is number one.
Number two is appreciation. Real estate appreciates. Now although it may not appreciate by 10, 15, 20% a year, it’s going to be slow appreciation, sometimes some spikes, sometimes some dips depending on the market. But if we look over the course of time, although it’s not a straight line, we can draw a straight line here and we’ll see consistent growth. And you can look back over the last 30, 40 years and you’ll see that. Even the last 10, 15 years. So appreciation is number two, and I’ll show you how that impacts things.
Depreciation is number three, so real estate as an investment is an interesting asset. Not only does it appreciate and grow, but on your taxes … Now I’m not an accountant, please talk to your accountant, your accounting professional about this, how it impacts you specifically, but it also depreciates in value on paper, and I’ll show you that. So this is our line of appreciation I showed you earlier where we’re appreciating this asset. Now, this is showing the value of the structure, because land never depreciates, land will always be there, but the asset on paper can depreciate. So let’s say we’ve got a structural value of 125, it’s going to be a flat line depreciation schedule over 27 and a half years as of today. So that will depreciate, giving you back that expense on your taxes.
Again, talk to your accountant about your specific situation as well as appreciation re capture if you chose to sell that asset. So depreciation can be a big part of that on the back end of your taxes.
Leverage is number four. Leverage is a huge part of why Warren Buffet even in 2012 said if he could, if it made sense to him, to have the manage with single family homes, he would take out mortgages. Now why is that? Well if we buy a property for 0,000 we have a 0,000 asset that we’re only putting down ,000 for if we put down 25%, okay? So cash invested 25% down, there’s very little assets that the general public can get into where you can leverage like that and have a great return.
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7 Benefits of Buy and Hold Rental Properties in Houston