How to Make Money by Owning Rental Properties

Investing in rental properties can be a lucrative investment.  It takes time though and some of the ways do not end up in instant cash in your pocket.  This can be a deterrent for those who just want to make money quickly.  For the patient investor, however, it pays off in the long run.

The four main ways to make money on rental properties are:

1) Rental income;

2) Depreciation;

3) Tenants pay down the principal of the mortgage increasing the owner's equity; and

4) Appreciation of the property.

A few of these are obvious and others take some explaining.  

Depreciation is a tax concept, which can be confusing.  On a basic level it means that you can deduct a certain percentage of the purchase price from your taxable income every year.  This can be a tax savings of several thousand dollars every year depending on the purchase price.  (I'll do a more in-depth post on this concept alone at a later date).

You don't see this money right away but you'll get it back in a tax refund or you can adjust your withholdings to receive more money every month. 

Another invisible way you get paid is the fact that the tenants are paying down the principal on your mortgage.  Eventually you will own the property outright and someone else will have bought it for you! 

Lastly, if you buy a property with low costs and good rental income then appreciation will just be a side benefit.  You do not want to expect to make most of your money that way because as we have seen the last few years you cannot necessarily count on it!