Buying rental properties is one great way to start your journey into real estate investment. Besides helping you accumulate long-term wealth, owning rental homes ensures a financially stable future. However, you’ve got to take the appropriate steps and plan accordingly.
Investing in rental real estate is less flashy, but the combination of significant tax benefits, ongoing cash flow, and capital growth makes it a worthwhile venture. Owning rental property comes with lots of work, especially if you don’t work with a property management company. Finding the right property, late-night maintenance calls, dealing with tenants are part of the problems rental property owners face regularly.
However, if you spend time searching for a rental property thoroughly, you’ll enjoy the rewards later. The following are nine significant benefits of owning rental property. You can also read up more details here: theshorttermshop.com/benefits-of-rental-property/.
Pros of Buying a Rental Property
The following are some advantages of rental property ownership.
1. Passive Income Source
One significant benefit of owning rental properties is that they serve as passive income sources. Simply put, it’s a recurring income requiring little effort to maintain. You can use it as a form of additional financial security, especially during retirement, or utilize it to make money on the side.
More so, rental income is taxed differently from employment income. Don’t forget to work out the cash flows before buying a rental property. You might want to factor in your entire expense if you wish for the venture to be profitable.
Once you’ve gotten a grasp of your cash flow, evaluate the numbers to be sure they’ll make a consistent income if you purchase the rental home.
2. Help With Your Mortgage
One popular loan type you’ll want to use while buying a rental property is the 30-year fixed-rate mortgage. This loan has an interest rate that remains the same throughout the loan. While starting repayment, the money goes into interest rather than principal; however, by the 15th year, it becomes a 50/50 split.
Simply put, your tenants continue to pay the loan principal the longer you hold the rental home, creating more wealth for you. Suppose you have an $85,000 loan and a monthly mortgage payment of $500; about $385 of the monthly payment gets utilized for interest while $115 goes to the loan principal.
Each year, you’ll continue using the tenant’s money to settle your debt. More so, reducing your loan amount means you’re building wealth, seeing as you can re-access the funds either by selling your property or refinancing your loan.
3. Greater Security
Suppose you inherited a family home you can’t sell due to sentimental reasons, or you moved temporarily for work; several reasons might necessitate your having an empty property.
A vacant property will prompt squatters and vandalism, plus maintenance issues that might escalate into more significant problems. Keeping an eye on a property you aren’t living in is hard. Therefore, it’s best to rent out the house and enjoy the peace that comes with knowing someone is watching after and maintaining the home.
4. Tax Write-Offs
You enjoy some tax deductions as a rental property owner. Some of the tax write-offs include:
- Travel expenses
- Property taxes
- Maintenance repairs
- Mortgage interest
- Professional and legal fees
- Interest on the credit card used for the property purchase
In addition to these deductions, the government allows you to depreciate the property’s purchase price based on a fixed depreciation schedule, regardless of whether your house is appreciating.
5. Flexibility to Sell
Suppose you want to move, but the current market conditions aren’t okay. Rather than sell your property at a loss, you can rent it out until the market bounces back. Renting your property makes selling it flexible, seeing as you can sell the house any time you’re sure of making a substantial profit.
6. Option to Move Back
One of the primary benefits of buying a rental property is that you’ll always have a place to return to when you move out temporarily or have some setbacks in your new location. Of course, you’ll have to respect your lease with the new tenant and check the local and state housing laws to avoid breaching the regulations.
7. Property Value Appreciation
Renting out the home allows you to own the house while appreciating it until you’d want to sell when the value is high. However, the appreciation varies by market. Consider researching the appreciation potential of various neighborhoods and cities to know what to expect.
8. Doesn’t Require Expert Knowledge
Unlike other investments like foreign investment trading and shares, you don’t require specialist knowledge to own a rental property. However, you might want to do your research to avoid making mistakes.
What you buy and where you purchase it will affect your ROI. Consider buying in suburbs where vacancy rates are low, rents are high, and growth is expected. Also, target properties that might appeal to diverse tenants.
9. Investment Diversification
Owning a rental property helps in investment diversification through equity. Equity means the difference between the amount owed on the property and its current rental value. The higher your rental home’s value, the more your equity grows.
You can use this equity to improve your existing rental or purchase another investment property. Don’t forget to ask your financial adviser whether it’s best to leverage the equity in your rental to buy more properties.
There you have it; nine benefits of owning rental property. You can see it’s advantageous personally and financially. However, before you get all excited and dive right into buying a rental home, read up on the pros and cons of owning rental property.
Of course, real estate investments, including rental property, often come with risk. Nonetheless, there are ways to reduce the risks, especially when it comes to bad tenants. Constantly implement an extensive tenant screening process to protect your property and yourself. If you seek to buy your first rental property, contact TheShortTermShop. Their professionals with local knowledge of the rental market are always available to make sure you get the best deals.