The Benefits Of Duplex Ownership: Principal Reduction

Nest eggWhen I ask the general public what the benefits of owning a duplex or investment property might be, most immediately come back with the term “cash flow”.

While that is certainly one of the reasons to own investment property, there are several others that are often overlooked, including: principal payoff, tax savings and appreciation.

Of these, principal reduction is probably the one most duplex buyers consider least when investing in real estate.

And yet, in a turbulent real estate market, it is the one that is most sure.

Every month when you pay the mortgage with the rent you’ve collected from your duplex, a portion of that payment goes toward paying off the balance of the loan.

In the first year of the mortgage alone, this is often several thousand dollars; an amount which grows over the life of the loan.

Let’s say you went out this month and purchased a $150,000 duplex. Provided it has a positive cash flow, and you manage it well, thirty years from now you will have $150,000 in equity. And that’s in the unlikely event that the property never increases in value.

That’s like saving $150,000 for retirement.

The only difference here is all you contributed was the down payment; which could be as little as $5250 if you’re an owner occupant and $37,500 if you’re an investor.

By the way, investors, that’s a 400 percent return onyour initial down payment.

Not to mention that when it’s paid off it should cash flow beautifully; which should help supplement retirement.

Next week? Cash flow, appreciation and the tax benefits of duplex investing.