Find a Better Return
A certificate of deposit will generate a cash flow based on the interest rate that it pays which is the only way it generates a return for the investor.
An investment in a stock that doesn’t pay dividends, would need to be worth more than you paid for it to earn a profit. On the other hand, a stock that paid dividends could make the investor a profit even if it sold for the same price that he paid for it.
- Cash flows that result from having a surplus after collecting the rent and paying the expenses.
- Equity build-up results from a portion of each monthly payment reducing the unpaid balance.
- Tax benefits can result from the depreciation allowed on the property and the preferential long-term capital gains tax rate.
- Appreciation benefits the investor when the value of the property increases.
The most conservative investors in real estate make decisions to purchase a rental property based on its ability to generate a cash flow and reduce the mortgage through normal amortization. If the property can offer an acceptable rate of return compared to other available investments, the tax benefits and possible appreciation become an added bonus.