Are rental properties profitable?

10 Replies

Hi everyone, I am very new a the real estate investment world. I have seen the cash flow of many properties being only a couple of hundred dollars a month. How can this be very profitable if the income is such little. Would I need to own many properties for the incomes to add up?

More is always better in Real Estate investing

The more units you own the more cash flow, the easier to manage and the easier life will be to make a living.

My typical rule of thumb is I want to make at least $250 a door net profit - Otherwise I don't buy.  The more units I have the less I worry about an empty apartment here and there 

Also don't forget about the depreciation!  Cash flow is certainly the meat, but depreciation is the cheese.  That is where the government assumes that over time the property deteriorate and become less valuable.  Everything I have seen depreciates in a straight line over 27.5 years.  (Just the value of the structure, not the land)  With that you end up not paying taxes on much or sometimes ANY of the cash flow you generate, so that cash is worth more than what you might get if you got a $300 a month paycheck!  And then, if you're lucky and chose the right property at the right time in the right location, you might also get the icing on the cake:  appreciation in the value of the property!

Depreciation is nice.  The bank pays for most of it and you benefit from it.  The interest deduction  is nicer.  The Cashflow is nicest. 

I have 5 units and bring in about 25% of my take home pay from work (after expenses).  Where else could I do that and spend about 10 minutes per month dealing with the properties (I have property managers on 4 of 5)?  

Aside from cash flow and depreciation/appreciation, remember someone else is paying for you to own that home/paying down your loan in the form of equity which can give you a multitude of options!  

If you do it wrong, as I did the first time around, no. If you do it right as I am this time, then yes! :)

It depends on how much you paid for that property that cash flows $136/month. 

It does take quite a few, but it's worth it. The cash flow isn't all you get from rentals either. Tax benefits and appreciation add a good bit, and equity build. But it also doesn't take as many as you might think...

Of course they can be profitable. Are you going to be able to live of one or two rentals? Of course not. 

Many of the advantage of holding rentals comes over time as values rise, rents go up, and the mortgage pays down.

How can this be very profitable if the income is such little.

Well if you are earning 1% return in a bank account or 2% return in a bond or CD then earning 8-10% or more on your money looks like a pretty good deal .

@Jake Arbour  

welcome to the site.

It's a get rich slow game. Nobody is sitting on the beach because they own 4 rentals. Now 400 rentals is another story.

Thanks for the link @Ali Boone  !  I must have missed that post.  It was a great one!  @Jake Arbour  -Welcome to BP!  You will find quite a bit of info by reading blogs and forum posts.  The community here is great!

It's nice to see a fellow Ontarian! Yes, the initial cash flow can be a little light. However, as others have said, you write off depreciation, benefit from appreciation, profit from rent increases, and watch your mortgage principal get paid for you.

With the exception of the condo boom in Toronto, you've probably noticed that rental housing inventory is generally tight in Ontario. This helps ensure that rent increases and property appreciation will continue.

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