We can never say it enough: real estate is one of the best areas to invest and grow your wealth. Buying your main residence is good, investing in an income property is even better!
However, it’s important not to buy a rental property on a whim and think you’ll make it profitable one way or another later. It is essential to think about how you will benefit from it. We immediately think, of course, of the rents that the tenants will pay, but that is not the only thing that can bring you benefits. Nova city Islamabad payment plans
In this article, we will show you how to get four different types of income on just one property!
1. Liquidity (“cash flow“)
Also called “cash flow” or “cash flow”, it is a measure that will allow you to assess the profitability of your rental property. After payment of all monthly expenses (reimbursement of the mortgage loan from your bank, any work, maintenance costs, etc.), there remains a certain amount called liquidity.
This “extra money” can be used as income, saved or reinvested directly in real estate. Regardless of the use you make of it, the essential
thing for your rental property to be profitable is that at the end of the month, this cash flow must be positive.
Increasing the term of the mortgage loan can also be a solution to improve profitability. A longer loan requires a lower monthly amount than a loan with a shorter amortization, so it will increase liquidity.
2. Appreciation (Added value)
Before any purchase, it is important to estimate the value that your property will take in the long term. To do this, you need to find the percentage of annual appreciation in the value of the property and subtract the final value with the mortgage balance that you still have to pay. You will be able to project the net value of your building.
Forced capital gain
Please note: improvements to the building can increase the value of your property, but often not repairs. Repairs make it possible to maintain the good or restore it to its usual state but will not bring any added value.
Forced capital appreciation consists of making improvements quickly to increase the profitability of the building and thus increase its value. In other words, we don’t wait for the market to rise by itself, we make it increase through improvements, such as renovating the kitchen, the bathroom, changing the flooring, etc.
3. Tax benefits
On your tax return, you can deduct many rental expenses if you receive rental income. These expenses can include mortgage interest, property taxes, operating expenses, depreciation and repairs.
An income property offers more tax-reducing benefits than a primary residence or vacation home. In addition to mortgage and land interest, you can deduct operating expenses.
4. Capital repayment: (Capitalization)
It doesn’t matter where you are and what you’re doing, by making sure your income property is rented out, your mortgage debt will “pay itself off”. In other words, tenants pay off your mortgage by paying for their accommodation.
Also, if the rental income is greater than the total repayment of monthly expenses, you may decide to pay more than the required mortgage amount per month. This way, you’ll pay off your mortgage faster and pay less interest. Be careful not to give too much, at the risk of not having enough money to pay the expenses if a major problem occurs, for example, water damage: always keep a certain amount in case of unforeseen events.
Finally, once your mortgage loan has been repaid in full, you have a building that belongs to you 100%. From there, you can decide to resell your building and make a profit immediately. You can also choose to keep this building and continue to rent it. Thus, all income (or almost) less current expenses will belong to you.
Want to know more about the profitability of a multiple dwelling? Don’t miss the video training on: Is this a good deal? We explain profitability in depth as well as the concept of economic value. The training also includes the Excel calculator that will allow you to properly analyse the building and not forget anything.