The 5 Critical Components of Real Estate Investing Return

Real estate investing is a big piece of my financial pie. The way I think about real estate investing in the same way, I think about public markets investing…

I'm going to give you a breakdown of The 5 Critical Components of Real Estate Investing Returns, so you can ensure the property you're looking at will meet your goals.

Before I get into the list, I want to establish upfront that you should generally approach real estate investing with a “buy, rent & hold” strategy: buy it, then rent it out, and hold onto it as an investment.

The Buy, Rent & Hold Strategy of Real Estate Investing

1. Cash Flow (Cash on Cash)

Cash flow can be positive or negative and is basically the monthly financial net result of your property's general income (rent received) and expenses.

Every month as you cover your PITI, the “P” goes toward paying down your loan principal, so your principal balance is almost always going in the right direction…down.

2. Principal Paydown (Amortization)

Throughout the timeline of a property's ownership, its value in the open housing market may go up or down. Like the stock market, the housing market has a long recorded history of performance.

3. Appreciation

The US government offers a host of tax advantages to owners of real estate. These advantages translate into potentially significant real money that further lines your pockets.

4. Tax Effect

While also known as “capital improvements,” here's what it includes: the money you spend improving your property that is not part of the usual “expenses and maintenance” of cash flow.

5. Capital Expenditures (CapEx) & Renovation Cost

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