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Return To Cashflow Article Archive   Search the Article Archives Why Real Estate produces money By Josette Pajotte 1.The Money Machine Real Estate is definitely a money machine because when you buy a piece of property it will always make money for you. Due to appreciation and tax saving you can always count on making money in real estate. The following are the two primarily different ways that you can use real estate as a money making machine. Buy low and sell high This method of making money in real estate is a little harder because you must find and purchase property below market value in order for the resale of the property to be attractive. You get the following in return. *Profit *No appreciation *No tax savings Buy and hold property *In order to buy and hold property you must be able maintain all payments on the property, as well as being able to have the smallest amount of negative cash flow, if any at all. The longer you hold the property the greater your long-term capital gain. You get two benefits: *Increase appreciation *Tax savings 2.Types of returns of Real Estate *Cash flow The amount of monthly rental income minus all monthly expenses such as interest, taxes, principal, and insurance. You have three possibilities of cash flow *Positive cash flow- when rental income is less than monthly payments *Negative cash flow- when rental income is more than monthly payment *Neutral cash flow- when rental income is equal to monthly payment *Appreciation Appreciation is an increase in worth of value of a property because of the economic. The reason that real estate has gone up at the rate of 1.5 times the rate of inflation every year since World War II is because of the tremendous demand for housing. You should then realize that when there is an increase in inflation that the best investment is real estate *Equity build up Equity build up is generated by the amount of your monthly payments going towards the principal. About 95% of your entire monthly payment goes towards the interest and the 5% goes towards the principal. As you continue making payment the balances of the mortgages on your property continues to decrease. If the property doesnt appreciate at all, which is extremely unlikely, the difference between the appraised value of the property and the mortgages grows. This difference is the equity and is reflected in your net worth. *Tax savings The government allows you to deduct depreciation from your taxable income you can lower your tax bracket and pay less tax. Depreciation is an artificial expense that says your income property is actually decreasing in value due in time. Realistically the property is appreciating over time because of inflation. About the Author: Real estate investor as well as, a trainer that teach wealth building seminar, where conservative Americans learn how to become wealthy in their existing cash flow. www.lfinvestmentgroup.com American Cash Flow System

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