Rent pays for the property and in essence, the tenant is buying the property for you. Aim for a positive cash flow, but be willing to endure a little negative cash flow to ensure the potential for future appreciation for the property.
2. DEPRECIATION & OTHER TAX BENEFITS
Depreciation is a non cash expenditure and can be used to offset income from other sources. That's a tax shelter. The profit from a home sale is taxed at long term capital gain rates which are lower than regular income tax rates. The profit isn't subject to Social Security tax for over 5% like ordinary income.
3. EQUITY BUILD-UP
Sooner or later, the loans on all the property you own will be paid off. After that, it's just taxes.
Each day houses are worth a little more than they were the day before. The stock market is volatile, while real estate tends to be stable. When home sales are slow, prices tend to be flat. When the market is hot, prices tend to jump, but it's unusual for prices to decline.
Leverage is the ability to use other people's money to control a large asset. It allows you to acquire and control huge dollar amounts of real estate without having a lot of cash. By using the 1031 tax deferred exchange technique, you can move from property to property leveraging your way up without having to pay income tax.