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How many businesses do you know where you can increase your income in more than one way? Real estate investing has three ways to make money.

Positive Cash Flow

Positive cash flow is exactly what it states. Rental or leasehold income pays for the mortgage, fees, taxes, insurance and other expenses. The property owner hopes that, after paying all the expenses, at the end of the month, additional funds will help produce income. The prudent investor also sets aside a reserve fund to protect his income level for several months if vacancy rates increase. A positive cash flow is the most obvious instance of three ways to make money in real estate investing.

Equity growth through amortization

The second way in which you can use real estate investing to make money is by paying down the mortgage loan. The investor makes payments of principal and interest to the mortgage lender. The principal balance of the mortgage loan goes to a lesser amount. The equity or difference between the value of the property and the amount of the mortgage held against the property, increases. The growth of equity means your net worth is increasing, providing a second way to make money by real estate investing. Growth of equity by using OPM (other people’s money) is one of the most powerful methods of building net worth. The investor receives thousands of dollars during each rental period. The money pays off the debt against the property. Debt reduction in turn results in additional equity for the property owner.

Reduction of tax bills

One of the greatest benefits of investing in real estate is that of the multitude of tax breaks allowed by the governments for this type of investment. The federal government allows tax credits, tax deductions and various other government sponsored programs related to the field of real estate investing which can significantly reduce the investor’s tax bill. Due to the increased bottom line that results from the payment of less in taxes, equity in the property is once again increased. There are even some state and local government tax-bill reduction programs.

Every investor is interested in the growth of his capital, but few investment strategies are as effective as real estate investing.

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