Welcome to short-term rental riches will discuss investing in real estate but with a specific focus on short term rentals quick actionable items to acquire manage and scale your portfolio I’m your host Tim Hubbard.

Welcome back to the short-term rental riches podcast I’m Tim Hubbard your host today were talking about the difference between investing in and short term rentals and sublease seen properties to rent as short term rentals there is a big difference and when I say invest I’m referring to actually purchase scene the properties versus sub leasing the properties to rent them short term or what’s often referred to as rental arbitrage and you can make a lot of money during rental arbitrage and it’s relatively easy to get started with that as well but I want to really hone in on on why it’s important that we invest and purchase these properties or at least are working towards that the biggest reason is that we will be building wealth when we buy properties so we have other people paying down our assets and they’re growing in value hopefully they’re appreciating hopefully you’re in a good market with strong appreciation but over time we’re actually building wealth versus just generating cash flow so with both options you can generate cash flow buying the property you make more rent than your expenses your earning cash flow.

Renting a property and sublease the nets you can also cash flow and make more than it costs you to rent and all your other expenses but in the end if you’re using the rental arbitrage model you maybe generate a lot of cash flow but you’re not actually building wealth the end of the day it’s just a job really and while you may become financially free momentarily or even for the long haul if something were to happen and you quit running those apartments you wouldn’t have anything left over at the end and we always want to have the property at the end.

So I know that’s easier said than done and I do want to say that the lease arbitrage model is a great one and you can generate a lot of cash flow but let’s just make sure that we’re focusing on buying properties at the end of the road that that’s what our goal needs to be and that’s why I’ve started this podcast to help you guys with that so let’s talk about some of the other benefits you get from actually owning the property versus leasing that one of them are your tax write offs there’s a really great thing that happens with real estate an amazing tax benefits that you would not get if you were leasing a property and that’s depreciation so when you buy a property let’s just call it a single family home every year the government lets you deduct a certain amount of money off of your taxes and that is the depreciation so they will take the property I used to be 27 years I think the move it to 30 years now but divide the value of the property by 30 years in each one of those years you get to write that amount off from your taxes so comes right off your taxable income let’s say your taxable income was $50000 and you had $10000 and appreciation that means you at the end are only paying tax on 40000 now what’s even greater about this tax write off is that it’s what we call a ghost expense so it didn’t actually cost you anything at the end of those 30 years you’re still going to have a property there.

You know it’s still gonna be there so when you have depreciation working for you that really helps your taxes now if you’re buying a property I always recommend financing this specially with the historically low rates we have in U. S. today you get to write off all of your interests which for the first part of those loans is the majority of the payment to get the right of all your interest you get to write off your closing costs remember if you have a loan on the property you’re not actually paying the loan either remember your tenants or in this case your short term rental gas are paying that loan off for you.

So those are a couple of amazing tax benefits we have appreciation happens every night when you go to sleep all during the day and that adds value to the property that you own another great benefit to actually owning the property is that you have full control of the property let’s say you’re doing the lease model and you found a property in you and you rented it but you really wanted to paint you wanted to add some gardening in the front you wanted to make it look nicer chances are and that’s going to come out of your pocket and at the end of the day you’re not going to add any more value to your property because it’s not your property you are improving the owner’s property so if we do that as owners.

Great value in our property let’s say we do the gardening we paint we want to change the kitchen or the door locks we have full control to do whatever we want and all of those dollars that we’re putting into the property is actually improving and raising its value and what’s really nice about a property owner that’s increase in value is that you have the option to refinance it later on so let’s say you bought a property in your operating as a short term rental and a couple years down the road it’s raised in value by.

I don’t know let’s say let’s say it was a 200000 are property in a raise in value by $50000 so you have a bunch of equity now on your property and lenders will loan you usually up to 75 even 80 percent the value of your property so if you own a property and you have a lot of equity in it you can do what we call a cash out refinance so you can go back a couple years down the road talk with the lender get a new loan so it’s safe the lender loans you 80 percent of your $250000 property it’s for $250000 that would give you $200000 and let’s say you only owed 175 on it that means $25000 you can put right back in your pocket you don’t have to pay tax on it unless you sell this property sometime in the future and there’s ways to avoid that as well but for the moment you just made $25000 tax free just one right in your pocket right your bank account and you can’t do that if your leasing a property either unfortunately.

So just to kind of recap if we buy the property we get appreciation working for us we get amazing tax write offs we get full control of the property and we get the bility to take out our initial investment maybe it’s a few years down the road we get the bility take out our initial investment completely and tax free and put it right back in our pocket which essentially means you have an infinite return because you have no money invested in that property more in those benefits unfortunately you don’t have if you’re using the rental arbitrage scenario not to say that that’s not a good way to get started you really learn the short term rental business doing that because you operate in the same way but at the end the goal of all of this and the go my podcast is that help you guys acquire properties so that you can build wealth and become financially free until next time.

Want to get on the fast track to financial freedom through short term rentals little search of the property you want to make sure that you acquired the right. I want to give you my. Just that there is no charge my gift to you for one of our subscribers just go to rest method.com R. E. S. T. methods.com

RELATED PODCAST EPISODES

• Episode 74: How Appraisals Impact Your Loan & Refinances
• Episode 71: Negotiating a Better Lease Rate for Lease Arbitrage
• Episode 62: Professional Tax Advice From My CPA – Part 2
• Episode 61: Pro Tax Advice directly from my CPA (part one)
• Episode 20: Are You Getting Denied By Lenders?