In today’s finance minute, let’s talk about the three Profit centres in Rental Properties or Real Estate Investments. In a typical Investment, for example stocks, mutual funds or GICs, you profit from what your fund, stocks or GIC Interest rate makes.
So your Profit comes from one Centre. In real estate there are three Profit centres – Cashflow, Mortgage Principal Paydown and Appreciation.
If your investment has Positive cash flow, meaning your rental income covers all your cost. There’s your first profit centre. Second, when you make your monthly mortgage payment some of it goes to interest and the rest goes to principal, effectively reducing the mortgage principal balance that you owe. There’s your second Profit centre. Finally, over time the value of your property goes up, hence your third profit centre is the Appreciation or the increase in the value of your property. I work with hundreds of investors and they never regret the property they bought, they always regret the property they sold.
Real estate is not about timing the market it is about time in the market.
The longer the time horizon the better the appreciation.
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