When considering a rental property for an investment, there are several things to include in your analysis of potential profit. First of course is the rental income that you generate from the property. You want to make sure you are buying a property with a positive net cash flow. This means the amount of profit you make after expenses. There is no rule that says how much you can make from a specific property. In some locations, a single room can get $500-$1,000. In other areas the same space may only rent for $200. Check to see what other properties are charging for rent in your area to get a good idea of the revenue you could earn. If the property is currently or previously rented, ask the owner for information on the rental history.

Generally, the more bedrooms or units that are in the property, the more revenue you can collect. A five bedroom house should be able to collect more revenue than a four bedroom house that is about the same size. When renting to students, they are usually willing to share rooms, but will pay more for their own room.

Another area where you will gain financially with a rental property is with a tax deduction. In the beginning years of owning real estate, you can generate significant tax deductions from your mortgage interest, expenses and depreciation. Eventually the depreciation will decrease to the point where you will be declaring a profit each year but the tax advantage in the initial few years can be considerable.

Of course, over time, your property will experience capital appreciation. The value of your property will increase each year and you will also be paying down the mortgage with the money you collect for rent. The combination of the mortgage reduction and capital appreciation will accelerate the longer you own your property. Upon sale of the property, you can realize the capital gain from your investment.

Once your mortgage is paid off, you can collect and keep all of the rent after taxes that your property generates leaving you with a secure steady cash flow. While this may sound intriguing now, you will likely be better off selling your property well before the mortgage expires and using the equity to purchase a more profitable rental property.

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