I have spoken many times about buy and hold investing for long-term wealth. There are many reasons that I believe rental properties are by far the best investment out there over the long term.

Rental properties are not very sexy which is why so many avoid investing in them. But, this is a HUGE mistake. Just because a small rental house only provides $150/mo of cash flow does not mean it is something you should not do. We must take a look at the bigger picture.

Don’t get me wrong I love fix and flipping and wholesaling. These endeavors provide immediate stacks of cash. However, one of the downfalls to these strategies is that you only get paid from the property one time. With rentals you can get paid indefinitely.

I believe one of the reasons that more people don’t get involved in buy and hold investing is because they are unwilling to plan for the future. Rental properties is a sure fire way to build your retirement and grow your long-term wealth.

Other people say to themselves, “I don’t want to get a call at 2AM saying that the toilet is clogged.” I get that. However, in my 16+ years of investing in rental properties I have NEVER gotten that call. The reason for this is because I hire good management.

Management can be the make or break of your property investment portfolio. Finding and hiring the right management can provide you with true passive income and lots of peace of mind. The wrong management can give you heart-burn, an ulcer and nightmares…if not more!

There are really 4 main reasons that I believe so strongly in rental property for long-term wealth creation…appreciation, amortization, depreciation, cash flow.

Cash flow: I wanted to start with the last one first as I believe this is the most important. Cash flow is the actual “cash” you receive after paying all of your expenses on a monthly basis. Things like mortgage payment, taxes, insurance, maintenance, reserves. My number one rule when buying a new rental property is DOES IT CASH FLOW TODAY!? If it does not cash flow at least $150/mo (this is my rule, yours could be a little less or a little more) after all expenses are paid, I pass.

Depreciation: This is the magic bullet that the federal government gives us that no other investment class has. Essentially what this is, is Uncle Sam saying “Hey, I know that the carpet in your property is going to wear out in a few years, and so is the paint etc. so I am going to give you a break on your taxes for these things!” In lay-mans terms you get deductions on your taxes just for owning rental property. That’s a pretty sweet deal.

Amortization: This is the paying down of your loan. If you buy a property right every month your tenant will be the one that is paying down your mortgage for you. Over time your equity will grow, regardless of what the market is doing, as a result of the mortgage paying down. If you have a long-term horizon a 30 year mortgage probably makes sense. If you’re getting closer to retirement a 15 year might be a better choice. Keep in mind that once the mortgage is paid off your cash flow then really goes through the roof!

Appreciation: I saved this one for last as it is the one I want you to focus on last. Don’t be a speculator and assume the property will be worth “X” by such and such a year. That is a gamblers game. However, historically speaking real estate appreciates 3%-5% per year over the long term. At a bare minimum this is a great hedge against inflation.

As long as you bought the property with cash flow in mind first you should never have to sell in a down market. Let the cash flow build, with your tenants paying down your loan, Uncle Sam giving you tax breaks and some day you will wake up and that lousy $150/mo will be thousands of dollar per month or more.

Keep a focused approach, buy only what cash flows TODAY, continue to add to your portfolio and one day you will wake up and not ever have to work again (unless you want to). Happy Investing.