1. Cashflow is making more net income off a property than the outgo of expenses.  This is income that comes in every month and means that you have positive income increasing your cashflow in your business.  Cashflow can come from lending money on real estate or purchasing cash flowing properties such as; rental properties, apartments, storage units, commercial, retail, etc.  The old saying is cashflow is king.  Without cashflow one will never have a business and end up owning a job.  If an investor must create Cashflow and eventually have passive income from their real estate investing business to live a life of economic freedom.      

 

2. Equity is the next profit area.  Equity is the amount of money one has in any real estate they own.  It’s the difference between the amount of money an investor owes and the amount of money they can sell a property for.  Creating equity can come from multiple places.  One can use sweat equity by putting in the work to update or rehab a property and do the work themselves, thereby creating more value in the property.  They can have tenants that pay down the mortgage every month through rent and each month the equity will increase.  Inflation in the market can create equity for an investment as well.  Buying a property at a discount below market value can create equity.  If a person purchases multi-units, they can increase equity by lowering expenses.  They can also force appreciation of the property beyond inflation and increase equity.  See below what forced appreciation is and how to become a great investor by being good at forcing appreciation. 

 

   

3. Depreciation is learning how to get the tax benefits from real estate holdings.  I recommend reading up on depreciation and learning all one can and then have conversations with a CPA about how to best maximize profit through tax benefits and depreciation.  One time in Columbus, OH we were able to donate a property we purchased for $4,400 and it had a tax value of $40k.  We got a dollar for dollar tax deduction on that property.  Against our income it was worth $35k in our pocket at the end of the year.  Anyone can do the same by depreciating real estate holdings.  Through proper strategies one can also eliminate the recapture of depreciation down the road.   

 

4. Appreciation comes from the market getting hot and going up, lack of housing, lack of rental units, forced appreciation by forcing value to go up by stabilizing a whole neighborhood or increasing rents on a property or rehabbing a property and forcing the value up.  Appreciation is an amazing opportunity in real estate.  When I think of my grandfather purchasing a property for 51K in the 1950’s and selling it for over 800K in the early 2000’s, I think of appreciation.  Right now, where I live properties are already higher than they were in 2006 before the crash.  If a person purchased any real estate between 2007 and 2010 after the crash and are selling it right now, you will realize a great profit due to appreciation.  If someone else paid the mortgage during those years, then the profit margin becomes exponential.   

Anytime an investor can combine all four profit centers in an investment they maximize their Return on Investment (ROI) and create massive security for themselves and their family.  In a previous article I talked about having your wants, desires, and needs met and this is how you meet those by combining Cashflow, Equity Growth, Depreciation, and Appreciation of your assets.