I wanted to start this thread to detail the benefits of rental property. Whenever I happen to speak to friends or strangers about owning rental property, I often find there is a general thought that owning property can be a difficult and cumbersome investment, especially in comparison to the status quo investment of owning stock or mutual funds. While it is true that there is more to be aware of and track in regards to your investment, I believe there are many huge upsides to using rental property as a way of building wealth/savings. Plus many of the things that people fear about property (dealing with tenants, liabilities, repairs) can often be dealt with by hiring professionals(property management, insurance, handymen) to deal to deal with them and you can still end up with a profitable investment. There are many places to start but I figured I'd give an overview as to how a rental property provides value. to do that, I'll use one property I bought 5 years ago as an example.: This is a property I bought in Texas. Its a 3br/2ba attached side of a duplex. The cost at the time was $122K. Buying that property with 20% down required a 24K down payment. I'll be rounding my numbers here for simplicity but there about 2K in closing costs when purchasing the property so in sum my initial investment was 26K. Now when you have a rental property there are 4 different ways you are accruing more equity for yourself: 1. Appreciation of the property value 2. Increase equity in the home by paying down the principal 3. Rents from the property provide a positive cash flow after expenses 4. Tax benefits allowing you to shelter your own personal income or future income from the property Let's go through each of these individually: 1. Appreciation of the property value. This is the most common way people think you can get rich by owning property. Buy it cheap and sell it for more. If you are in a hot real estate market then this might be a keystone to your investment however when I invest in real estate, I'm not necessarily looking for the property to shoot up in value, but I do want to know it is in a stable area with good growth potential. For this property I'm not going to assume any appreciation, I want to know I can depend on the other 3 factors to bring me a good ROI. 2. I believe at the time, when I bought the property I had an interest rate of 6% on my loan. My monthly payment came out to about $600 and I was putting about $100 towards principal every month so every year I was gaining $1200 more equity in the property. 3.Here's a quick breakdown of the monthly expenses for the property: Mortgage:$600, HOA fee: $65, Prop Mgmt:$70, Property Taxes: $275. The sum of those expenses is $1010. The monthly rents I was initially getting from the property were $1225/month. Now just to be conservative, lets only take 90% of the rental income to account for potential vacancies or possible repairs needed during the year. That take the monthly rent down to about $1100 and the monthly cash flow to $90/month or $1080/year. 4. Now seeing that we have a positive cash flow on the year most people might think that we're due to owe uncle same based on this cash flow. What most people don't realize is that when you own rental real estate, you are required to depreciate the cost of the property and apply that towards your income/expenses on your Schedule E(real estate profit/loss tax form). Without getting too complicated this means that a portion of the property value(not including the land it sits on) gets to count as an expense over the next 27.5 years of your ownership. So while you get the benefit of claiming an additional expense(albeit an invisible one) on your profit/loss sheet, this does effect the basis value of the property for when its time to sell. For now, based on the property value I get to claim $3000 of depreciation for the year. If I count this against the 1080/year in cash flow, I have a $1920 tax loss on the year. The nice thing about losses from your Schedule E is that they can be counted against your primary income(as long as your income is below 150K, between 100K-150K the amount of losses you can claim against income is phased out and above 150K you can only carryover those losses to use against future capital gains from sale of property). In this case, assuming I am able to claim the loss against my income, that $1920 loss could equate to about a $500 in tax savings(assuming a 25-30%ish tax bracket) Adding the gains from factors 2,3,and 4 we get: 1200+1080+500=$2780. So in the first year of ownership I have had a 10.6% return on my initial investment of 26K. Remember, this is being relatively conservative and we are not even considering the potential appreciation in the value of the property. With a leveraged investment a 3K rise in property value would be yet another 10+% added to the return. In reality, I've achieved closer to 15% returns, not including appreciation on most of my properties. I find that difficult to do consistently in the stock market. Here are some quick additional points to make as they pop out of my head: -If you are disciplined with the cash flow you can reapply those funds to mortgage payments and compound the gains you are making, or even reapplying those funds to different investments will turbo charge your return. -I didn't really touch on how I went about choosing this property but doing your homework in crunching these potential numbers and finding the right opportunity is important. -When your investing in real estate, cash flow is what people tend to look for, but if you are trying to build savings or gain wealth, you actually want to find an investment that will help you grow your capital. Often times cash flow in real estate is gotten at the expense of capital growth. I hope that was a helpful look into real estate investing for those that are thinking about it. I'd be happy to address other details or questions about rental properties if anyone is interested but I figured I'd start here.