A couple days ago—after telling you that it is a big “no no” to say that an investment has a “guaranteed return,” I went on to suggest that—while it is not guaranteed—the return from paying off the mortgage on your rental property happens if you make the mortgage payment.
That’s regardless of how the market does—whether prices or rents go up or not—and regardless of interest rate or vacancy rates.
However, is it possible that there’s even a second return on rental properties that is also guaranteed?
Well, we won’t say guaranteed return… because that would be dumb.
But, the return from the tax benefits of depreciation also exist regardless of whether the property goes up or down in value, or whether you have positive or negative cash flow, or whether rents go up or down or even if you pay your mortgage payment or not and get the debt paydown return.
So, while not guaranteed… as long as the tax law doesn’t change… you’re very likely to get the return from the tax benefits of depreciation.
Top Quadrants - More Speculative, Less Certain
That suggests that the two returns at the top of the Return Quadrants™ are more speculative and less certain.
Bottom Quadrants - Less Speculative, More Certain
And the bottom quadrants are less speculative and more certain… not guaranteed… but as close as you can get without saying they’re guaranteed:
If you make your mortgage payments as agreed on an amortizing loan, you get the debt paydown returns.
If tax law doesn’t change, you’ll get the tax benefits of depreciation.
If you’d like to see me walk through how to calculate depreciation check out that blog post.
Reserves
Now that we’ve talked about the four areas of return in the Return Quadrants™, it is time I brought up reserves.
Up until this point—unless you’ve seen me teach this before (video below)—you’ve been analyzing real estate deals wrong.
More on that soon; in the meantime watch the 2-hour class recording below.
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