The Benefits of Residential Real Estate Investment

Residential real estate offers5 Major Benefits.

1. Cash Flow -The rent provides income, i.e.“Wake-Up Money”. This is your ultimate goal. When your property is “free and clear,” you have the maximum cash flow and“Wake-Up Money.”

2. Leverage- You can own $100,000 worth of real estate with only 0% - 20% cash. You can also borrow cash out of one property to buy another. Your short term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties free and clear.

3. Debt Reduction -Real estate is one of the few investments where someone else will make your payments.In essence the tenant makes the payments and reduces your debt.

4. Tax Savings -You are allowed to depreciate the house and write off your expenses in order to reduce your taxes.

5. Appreciation- Over time the value of houses and condos have risen.

“Free and Clear”

These are three magic words for the person who’s committed to creating“Wake-Up Money.”Many investors consider“Free and Clear houses”as theultimate investmentfor three reasons:

  1. The house generates large amounts of cash flow.
  2. The house is appreciating in value.
  3. There is very little risk because there is no debt.


“Wake-Up Money” Example

Here's an example of how to purchase a“Wake-Up Money” property. This property was priced at $150,000 and sold at full price.  Here's how the investment works on this property. 

$150,000        Price

$37,500          25% down payment

$112,500        Loan @ 7.5%; 30 year;fixed rate

$781.73          Monthly principal andinterest payments

$100.00          Monthly taxes andinsurance payments

$25.00            Monthly reserve formaintenance and repairs

$925.00          Monthly rental income

$906.73          Total monthly expenses       

$18.27            Monthly cash flow 

Here are the5 Major Benefitsof owning this “Wake-Up Money” property.

    1. Cash Flow-$219.24/year;
    $219.24/$37,500= .6% Return on Investment

2. Leverage -You own $150,000 of real estate for a $37,500 cash investment.

3. Debt Reduction- $1,037 in principal reduction the first year. In essence the tenant is buying you the house and giving it to you at the end of the loan.
$1037/$37,500 =2.7% Return on Investment

4. Tax Savings -About $3,300/year in depreciation. This means that your income from this property will not be subject to tax.

5. Appreciation -If this house goes up 5% in value this year, it will increase by $7,500.
$7,500/$37,500= 20% Return on Investment

(If the house doesn't go up at all, there is no return from appreciation.)

Total Return on Initial Investment of $37,500:

0.6% from cash flow

2.7% from principal reduction

20.0% from appreciation

23.3% Total Return On Investment

When this property is free and clear, you will have nearly $10,000 a year in “Wake-Up Money.”Of course by then the rents (and the“Wake-Up Money”)will probably be a lot higher, as will the property's value.Home values and rents have more than doubled in the last 15-years.

The “Wake-Up Money” Easy Investment Analysis and documentation was developed by Larry Kendall and The Group, Inc. Real Estate, and Tim DéLeon of Focus 1st,LLC, and all information associated with it is copyrighted and is used with permission.