Rental Property Benefits: A Dummies’ Guide

Rental Property Benefits: A Dummies’ Guide

3 min read
Ali Boone

Ali Boone is a lifestyle entrepreneur, business consultant, and real estate investor, who has literally defined non-conformity when it comes to her career. Ali left her corporate 9-to-5 job as an Aerospace Engineer—despite the “dream job” status that came with it—to follow her passion for being her own boss and truly designing her lifestyle. She did this through real estate investing.

Experience
Using primarily creative financing to purchase five properties in her first 18 months of investing, Ali’s real estate portfolio started with pre-construction investments in Nicaragua and then moved toward turnkey rental properties in various markets throughout the U.S. With this success, she went on to create her company Hipster Investments, which focuses on turnkey rental properties and offers hands-on support for new investors and those going through the investing process.

Ali’s written roughly 190 articles for BiggerPockets and she’s been featured in FOX Business, The Motley Fool, and Personal Real Estate Investor magazine. She has over 300K views on her “Calculating Rental Property Numbers” video on YouTube, has sold over 200 copies of her Turnkey Rental Properties 101 eBook, and was awarded Top 100 Real Estate Investing Blogs & Websites. Her articles teach successful rental property fundamentals, investor psychology, and strategies to help get new investors started.

She still owns her first turnkey rental properties and she is also a co-owner and the landlord of a local property to her in Venice Beach.

In addition to running Hipster Investments and working as an active business consultant, she’s a pilot and teaches flying. She can often be found snowboarding, hiking, or volunteering in California prisons. Her ultimate goal is to one day challenge Tim Ferriss to a lifestyle design duel.

Education
Ali has two master’s degrees: a master’s in Aerospace Engineering from Georgia Tech and a master’s in Spiritual Psychology from the University of Santa Monica. Her undergraduate degree is a bachelor’s in Aerospace from Middle Tennessee State University.

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Instagram & Twitter: @HipsterInvest or @aliboonedotcom

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There are a million articles floating around on the internet and probably even in some books that talk about the benefits of owning rental properties. You’ve probably read them and even heard everything I’m about to tell you already, but sometimes it’s good to bring it up a notch, leave out major details, and really hammer in the big picture.

You’ve inevitably heard that owning rental properties is a very strong investment method with tons of benefits. Could you explain those benefits to a kindergartner? If you can’t, it means you don’t quite understand them fully yourself so how about I explain them for you. Very simple, straight to the point, no nonsense or confusion.

Rental Property Benefits

  1. Cash Flow. Every month your tenant pays rent. That rent should cover all of your expenses on the property with some leftover. That leftover money is free money in your pocket. Score.
  2. Equity. This one is a kicker. You buy a rental property and after however many years let’s say your mortgage has been paid down $40,000. The cool thing is you didn’t have to pay a penny to pay down that mortgage, your tenants essentially paid that down for you. So now you have an additional $40,000 equity to which you can now take a cash-out refinance on the property or use that as a home equity line of credit, or whatever other way you can pull that $40,000 out. That is $40,000 of free money you just earned! Oh, and it’s tax-free too.
  3. Appreciation. Or, your property appreciates a good bit and you decide to sell. If you’re smart you sell it for more than you paid for it, so any profit there (a lot due to inflation) is free money in your pocket. You can also get that money tax-free if you 1031 exchange it. You also profit from whatever principal your tenant paid down for you too, so maybe it’s that $40,000 plus whatever the house appreciated for. Holy mother.
  4. Tax Benefits. Have you ever stopped and thought about how much more money you would have in your pocket if you didn’t have to pay anything out in taxes? Seriously, think about it. So how cool would tax-free income be then? Well guess what, income from your rental properties is basically tax-free. You get to write-off depreciation on your properties which just about cancels out any taxes you would owe on the income. And whatever amount isn’t covered by depreciation is probably covered by the gajillion other write-offs you can take when you own a rental property.

You’re making so much free money people!

Cash flow every month is free money, the equity you build in the house is free money to you, anything you make with appreciation is free money, and you get to save what you would normally have paid in taxes… for free! Yes, all investing methods should give you free money (if it doesn’t it’s a bad investment), but rental properties stand out a lot from the rest because of how many ways the free money can hit your pocket.

While rental properties may not put as large of an amount of cash in your pocket in a short amount of time like some other methods, those other methods also force you to take a huge tax hit (so you have to forfeit a good bit of your free money) and the income stops if you stop working.

Now do you see why rental properties are awesome? On the surface it seems like they only bring in a small amount of cash flow every month, but there is sooo much as far as your returns going on behind the scenes. At the end of it, you gain serious financial gain. All the while, rental properties are really nice because you have so much control over the operation of them. If something starts going sour with them, you have quite a few options on how to remedy the situation.

If you are more of a flipper or want to focus on wholesaling or whatever you want to do, that is all great but make sure that you are investing whatever profits you make from those into smart passive investments, such as rental properties. Flipping and wholesaling will never make you financially free (unless you are able to put an entire team together who does all the work for you, but even then you essentially just started a business), but rental properties, whether small residential or large commercial, will.

In case you didn’t grasp the overall benefit, it’s free money. I love free money. Do you?

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