How real estate investments in the US help you make passive income in multiple ways 1

In the United States, investment properties usually help investors make money in the following five main ways. It won't make you rich overnight, but it will accumulate considerable assets for you over time and with the accumulation of compound interest. So how does investing in US real estate allow you to accumulate passive income while you sleep? Our next series of articles will tell you step by step from concepts to calculation examples.

1. Rental income (Cash Flow)

This is the most direct source of income. Tenants pay rent every month, and after deducting costs such as loans, insurance, taxes, and repairs, the remaining part is your net cash flow. A good investment property should be able to generate positive cash flow continuously.

2. Property appreciation (Appreciation)

Over time, the value of a property may increase due to market demand, economic growth, location improvements, etc. Investors can realize capital gains (i.e. earn income from the difference between buying and selling prices) when they sell the property in the future.

3. Principal Paydown

If you buy a house with a loan, part of the monthly rental income is used to repay the principal of the mortgage. This means that over time, the equity on your balance sheet will increase, which is equivalent to your tenants helping you "save money".

4. Tax Benefits

The US government provides many tax benefits to encourage real estate investment, such as: house depreciation, loan interest deduction, operating expense deduction, etc. These exemptions can greatly reduce your taxable income and improve your overall return on investment.

5. Equity Capture

Equity capture refers to buying assets at a price lower than their value. In the real estate industry, you buy a house in a community worth $100,000 for $50,000, spend $20,000 on renovations, and finally "all in" for $70,000.

You just got $30,000 in equity, which will be directly included in your net worth. Few other investment tools can create wealth so quickly. Without equity, you will be at risk of market declines. We always buy assets with equity so that we will not be affected by market declines.

6. Forced Appreciation

Increasing the rental level or property valuation by actively improving the property (such as renovating the kitchen, adding a washer and dryer, re-dividing the number of units, etc.). This method does not rely on market changes, but directly increases the value of the property through your active actions.

In the next article, I will give you a detailed example of how a property can achieve these ways of making money at the same time.