5 Ways a Rental Property Makes Money

Hey Pittsburgh property owners!

Are you currently worried that your property investment is breaking even? Well, congrats!

As a homeowner, it’s not uncommon to assess your monthly expenses and feel like you’re just keeping your head above water. You look at your mortgage and rent, and the numbers seem to cancel each other out. “I’m only breaking even,” you say, “this house can’t have any more expenses.”

But let’s take a closer look at reality. There’s more to real estate than meets the eye, and you might be missing out on significant gains without even realizing it.

Here’s an example:

My mortgage: $2300
My rent: $2300

Real estate pays in five major ways:

– Cash Flow: This can be negative at times, especially in markets like Pittsburgh, where appreciation tends to overshadow immediate cash flow.

– Appreciation: Historically averaging 6% per year, appreciation can bring substantial gains over time.

– Amortization: Each mortgage payment chips away at the loan balance, contributing to your equity. Typically around $1,000-$2,000+ a month.

– Tax Benefits/Depreciation: +$10K yearly tax savings.

– Inflation: As with appreciation, inflation helps with both the overall equity in your property and the tangible cash flow hitting your pocket.

Let’s break it down like a fraction:

Owner: “I’m negative $200 a month; I need to sell this property. I lost $2.4k this year!”

The Reality

Cash Flow: -$2,400
Appreciation: A half-million-dollar house can appreciate by $30,000 in one year (based on historical 6% appreciation).
Amortization: +$1500 per month ($18,000 per year when fully occupied).
Tax Benefits: +$10K yearly tax savings.
Total Benefit to Owner: $52,000 in one year.

So, before you decide that breaking even is the end of the story, consider the hidden gains that come with real estate ownership. It’s not just about covering your expenses; it’s about building wealth over time.