The Three Sources of Financial Growth That Investment Properties Offer

Wednesday Mar 09th, 2022


Many people look at investment properties from a cash flow perspective only. Will the rent payments cover the expenses and a little extra to make me rich? But wait, there is more – much more. When you are considering the value of a property and how it is going to pay you, you need to consider three different sources of income and growth.

1. Monthly cash flow – this is the simplest and most commonly considered source of income. Say for instance your monthly expenses, including mortgage per month, are $2000 and your monthly rental income is $2200, then you have a positive cash flow of $200 or $2400/yr. In years past, this was often the only consideration with looking at purchasing investment properties. Investors have since become savvier and are looking at the full picture.
2. Property appreciation value – this is the amount of value that your property increases over time. This is the beauty of real estate and why you’re looking into it. Real estate increases dramatically over time and is one of the most solid, least volatile forms of investment. Take a look at your local market or reach out to your favorite real estate agent (moi) to find out what sale prices have done over the last year, 2 yrs, 5, 10 years. You’ll be surprised to find out how much real estate appreciates over time. When it’s time to sell, this appreciation is money in your pocket!
3. Mortgage paydown – you purchase the property and have tenants who pay you rent. With this rent, you pay your mortgage and other expenses, and of course, over time, your mortgage is decreasing – without you paying a dime! This is a commonly missed pay-back component of investment properties.  
Let’s review one actual investment property’s numbers to see how it will provide great wealth and growth over 5 yrs. This property was purchased in August 2021 in Ontario for $438,000.

1. Monthly rent income from 2 units: $2775 (positive cash flow of $475/mth)        
$5700/yr * 5 yrs = +$28,500. 

2. Very conservative appreciation of 4%/yr –
Value in 2025 $532,893 +$94,893.

3. Original Mortgage amount $404,000.
Mortgage balance in 2025: $362,204 - pay down of $41796.
The total growth/income this property has offered the owner in 5 yrs
is $165,189 or approx. $33,000/yr
The moral of the story here – don’t just look at cash flow. Take time to consider the entire situation and all 3, yes THREE sources of profitability. 
*This is an actual scenario for one of my investor clients*

Post a comment