​Cash flow is the net spendable income derived from the investment after all operating expenses and mortgage payments have been made. A good real estate investment should provide you with 6% or greater cash flow.​

​Since 1968 appreciation for real estate has been 6% per year, including during the downtime in the economy beginning in 2007, according to the National Association of Realtors.​

​The most important advantage of real estate investing is leverage. It is the use of borrowed capital to increase the potential return on an investment. In real estate transactions, leverage occurs when a mortgage is used to reduce the amount of investor capital required to purchase a property.
​**(see example)​

​Most real estate is purchased with a small down payment with the balance of the money being financed through debt financing from a lender. Over time, the principal amount of the mortgage is paid down, slowly at first, and then more rapidly at the end of the amortization period. This principal reduction builds equity.​

​One of the most unique and attractive advantages of real estate is that it is improvable. Because real estate is a tangible asset made of wood, concrete, and glass, you can improve the value of any property with some elbow grease and sweat equity. You can make your real estate worth more money by improving it.​

​When real estate is purchased, the cash flow is lower and the principal reduction on the mortgage is less. Over time, the mortgage is paid down or paid off, and the cash flow increases. In some respects, it's a forced savings plan, yeilding a greater amount as time goes by which is a perfect investment for retirement as it increases in cash flow down the road.​

​Tax codes allow various deductions for the normal expenses incurred in owning real estate, such as property upkeep, maintenance, improvements, and even interest paid on the mortgage. The deductions can offset income and reduce your overall taxes.​

​Depreciation is a non-cash expense permitted by tax code that depreciates the value of your investment property over time. However, the value of your investment property actually appreciates. The depreciation deduction allows a real estate investor to generate a larger positive cash flow while reporting a lower income for tax purposes. ​

​If your investment property has been sold after a year, the gain is subject to capital gains tax rates which depending upon your individual tax bracket is generally 15% or 20% which is usually less than one's personal tax bracket.​

​Our tax code, under a 1031 exchange, permits the gain on the sale of an investment property to be transferred from the property being sold to a new property being purchased, hence deferring the payment of any tax on the sale of the property.​