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Key Returns

Investment properties have a few key sources of income.

Rental Income

This is pretty straightforward. This is all the money that the tenants pay you.

Increase in Property Value

In all but the very worst case scenarios, the property you are renting will likely go up in value. The increase in value here increases your overall return on investment, and also your overall net worth.

⬆️ Net Worth

If the property goes up by $100,000, your net worth has increased by $100,000 (though you should look at the Real Estate Fees portion of the page).

Rate of Return

If you ignore all the other expenses and income related to rental properties, you can do some simple examples to determine the return on your initial investment.
Say you have a $100,000 rental property that you put $25,000 down on. This means you owe $75,000 to the bank. If you sell the property for $125,000, you will pay $75,000 to the bank and get $50,000 for yourself. With your $25,000 initial investment, you've got an overall 100% return, because you got back twice your initial investment.
Now, an example to show why you want to put as little as possible into the down payment.
Imagine you put $50,000 down on that house instead of $25,000. When you sell the property for $125,000, you'll pay $50,000 to the bank and get back $75,000 for yourself. In this case, you've only got a 50% return, since you only got back one and a half times your initial investment.

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