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How Do You Make Money When You “Buy & Hold” An Investment Property?
3 Ways To Make Money From An Investment Property
I have had several conversations recently with people who believe that the only way to make money from an investment property is if the price goes up. NOT SO.
In fact any increase in value is the icing on the cake.
As well as appreciation there are 2 other ways that investors make money even if the market falls:
- Cash Flow- on a $200,000 single family home the mortgage, property tax and insurance costs in the region of $1,100 per month. This figure can vary depending on the size of the down payment and type of mortgage but $1,100 is at the upper end of the range. Rent will be $1,250 to $1,300 per month. Resulting in a positive cash flow of $150 or $200 per month.
- Mortgage Paydown- the rent pays off some of the principle each and every month. Even if the home’s value stays the same an investor is realising appreciation as the mortgage is being paid off by the renters, by using “other people’s money.”
Several clients with income generating properties in Wasaga Beach, Collingwood and Barrie and would be more than happy to provide actual, real life figures. The example above is a fair reflection and even a little on the conservative side but does highlight the 3 ways to make money.
There are also very favourable tax advantages to property investing but this post is more about the basics.
ALSO with a mortgage the return on actual investment can be substantial.
Our $200,000 example would require a down payment of $40,000 and say $5000 closing costs
Over 2 years there would be $4,800 from the positive cash flow. Working on a 25 year mortgage with 4% interest after 2 years $7,798 would have been paid off the principle.
The investor has made $12,598 ($4,800 + $7,798.) This is a return of 28% on the $45,000 invested. How many banks will give you that sort of return 
Plus the investor still owns the house and it continue’s to make money even when she is a sleep!
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