How a rental property actually makes money

A rental can build wealth four ways: monthly cash flow, the tenant paying down your loan, the property rising in value, and tax treatment. Beginners tend to lump them together. Don't.

Cash flow is the only one that shows up in your bank account each month. The rest are real, but slow, uncertain, or locked up until you sell or refinance.

That's why a deal has to stand on its cash flow under conservative assumptions. If it only works when you count appreciation, you're speculating, not investing.

Start every analysis with the income statement: rent, minus vacancy, minus operating expenses, gives net operating income. Subtract the loan payment and what's left is your cash flow.