Short term cash-flow

Most investors do not have cash available to purchase a property so they take a loan from the bank or a private lender. Before purchasing a rental property, there is a lot of due diligence work necessary to make sure you will are able put money in your pocket after all expenses. This is referred to as positive cash-flow. Every market is different but there are a few general rules I follow when analyzing properties.

First, I look for houses in the area that are currently up for rent and see how much people are asking in that area. Finding some properties that are currently rented helps gauge prices in the area.

Next, I find out what the property taxes are because high taxes will cut into the monthly cash-flow. Where we invest, in Baltimore, we have found that houses priced over $150,000 do not cash-flow well so I typically try to find properties between $90,000 and $150,000.

I also have found that houses that need cosmetic renovations are great for cash-flow. Finding a reliable contractor in your area to renovate your property is a great way to build some instant equity. The typical home buyer wants a turn-key property and building equity through renovation is extremely beneficial.

Long term appreciation

Real estate, just like any other investment, is subject to fluctuation but seems to constantly increase in value over time. There are more people trying to invest in real estate than ever before. My perspective is that there is a limited amount of land to build on. As the available land decreases, the prices trend up.

Tax benefits

In addition to the short term cash-flow and long term appreciation there are also many tax benefits to investing in real estate. The first benefit that comes to mind is the 1031 exchange.

A 1031 exchange allows an investor to sell a property, to reinvest the proceeds in a new property and to defer all capital gains tax. This benefit increases the purchasing power by 15-30% depending on your tax bracket. There are also many tax write-off incentives when investing in rental real estate.

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-Ryan Greenberg