{"id":111152,"date":"2023-08-22T10:49:00","date_gmt":"2023-08-22T14:49:00","guid":{"rendered":"https:\/\/www.shortform.com\/blog\/?p=111152"},"modified":"2023-08-24T15:27:53","modified_gmt":"2023-08-24T19:27:53","slug":"how-rental-properties-make-money","status":"publish","type":"post","link":"https:\/\/www.shortform.com\/blog\/how-rental-properties-make-money\/","title":{"rendered":"How Rental Properties Make Money: 4 Profitable Ways"},"content":{"rendered":"\n

Why do people buy<\/a> rental properties? How do rental properties make a profit?<\/p>\n\n\n\n

Whether it’s a commercial property or a single-family home, rental properties are valuable to invest in. If you’re wondering how these properties generate income, Brandon Turner’s book The Book on Rental Property Investing<\/em> explains the process.<\/p>\n\n\n\n

Keep reading to learn how rental properties make money.<\/p>\n\n\n\n\n\n\n\n

How Rental Properties Generate Income<\/strong><\/h2>\n\n\n\n

Turner recognizes that most people buy rental properties for income, and he specifies how rental properties make money in four ways: <\/p>\n\n\n\n

1) Cash flow:<\/strong> This is the money coming in after you pay expenses. It\u2019s usually regular rent from tenants. Turner argues that cash flow is the most vital income source\u2014it creates an immediate return on your investment and funds future growth. Therefore, he advises selecting properties that produce cash flow immediately.<\/p>\n\n\n\n

(Shortform note: It\u2019s possible to increase your cash flow through revenue streams beyond rent\u2014for instance, through paid parking or coin-operated washers and dryers. However, experts warn, too many fees like this can ruin tenant morale<\/a>. Instead, consider charging only for things that the tenant would deem a luxury. This gives the tenant the option of saving money by avoiding these extras.)<\/p>\n\n\n\n

2) Tax benefits:<\/strong> Turner notes that governments see rental property owners as economically beneficial because they provide housing for people who can\u2019t afford to own property. Therefore, they often give owners tax benefits.<\/p>\n\n\n\n

(Shortform note: One of the specific tax benefits of renting real estate properties is the pass-through deduction<\/a>. If you own rental properties, either as sole or joint owner, the income you collect from them counts as qualified business income (QBI). You can then deduct up to a fifth of this QBI from your personal<\/em> taxes through the pass-through option.)<\/p>\n\n\n\n

3) Appreciation:<\/strong> A property\u2019s worth increases over time. Turner explains that real estate has two main forms of appreciation: <\/p>\n\n\n\n