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Do you have some funds to invest and don’t know what to choose? Are you looking for a great way to earn a passive income? Then maybe you should think about joining the 10-11 million investor landlords in the US!
Of course, no investment is risk-free. However, there are lots of great reasons why investing in property to rent is still a wise choice.
Let’s take a closer look at 5 key reasons why it’s a great idea to try real estate property investing.
1. Asset Appreciation
One of the key reasons people love to invest in real estate is the fact that you have an asset at the end of it. Rental properties can generate an income, or pay off financing for the term of the mortgage.
If all goes according to plan, you’ll have a wholly-owned asset at the end of the mortgage term. The best part is though that property tends to appreciate in value.
Of course, you need to do your sums. Not all rental property is created equal. You’re going to need to take into account a number of factors when making your decision.
Properties can tend to fall in value during recessions. These usually come along every few years, so it’s good to take a long-term approach when you invest in real estate.
You do also need to factor in maintenance. Even properties that are great when you buy them will need some TLC in the future. See this as an important part of maintaining your asset with one eye on a future sale.
2. Rising Rents
Just as properties tend to appreciate in value over time, rents also tend to rise.
This can mean that the longer you own the property, the higher your cash flow. If you get a long-term deal on your mortgage with predictable monthly payments, this can mean a greater profit each year.
Another great thing about owning property is that you have something everyone needs. People will always need somewhere to live.
Even if tenants move on, possibly due to rent hikes, you should be able to find a new tenant. Keep your rents competitively priced, and you should have a steady stream of interest when you need it.
3. Tax Advantages
Currently, there are many tax advantages in the US to owning rental properties.
Firstly, you are able to deduct a number of expenses that you incur in the management of the property. These include some big ones, such as:
- Property taxes
- Mortgage interest
- Maintenance costs
- Fees paid to property management companies
It’s important to get into the habit of collecting receipts and keeping good records. If you do, you can also claim additional expenses involved in running your real estate business. This can go right down to costs like advertising and business equipment.
The IRS also allows you to deduct depreciation each year. That’s right – depreciation on an asset that generally appreciates.
The IRS sets the life of the property at 27.5 years. You can then deduct the purchase price of the property divided by 27.5 from your taxes each year as depreciation.
For example, if you buy a house in Jacksonville for $150,000 in 2022, you can claim $5,454 as depreciation every year. Just be sure to hang onto that asset though. If you sell, you may be liable for depreciation recapture.
4. You’re in Control
Do you like a lot of control in your life? Well, if you do, real estate rental property investing might be right for you. That’s because no one else needs ever be involved in managing your investment.
If you choose, you can control every part of the process. From purchase to advertising, tenant screening to raising the rent – you are in control and can make things happen.
For many people, this makes real estate investing a more attractive proposition than, say, investing in stocks and shares. You are dependent on the market and other people’s decisions for things to work out.
When you own a rental property, you can also do work that will add value. If you have the experience and skills, you can turn a fixer-upper into a great rental property. If you make wise choices and stick to your budget, this could yield great returns.
5. Earn Money Remotely
As many East and West Coast dwellers have realized, you do not need to live in America’s heartlands to make money from them.
More and more people are taking advantage of attractive property prices in the interior of the US and deciding to invest in property. How do they make it work?
By working with a property management company. They provide different levels of service, depending on your needs. There are even companies that renovate, sell, and manage properties for out-of-town investors.
You can take advantage of the property manager’s local knowledge when it comes to setting the rent level and finding tenants. Local property experts can also help you to invest wisely by directing you to areas with rising property values and rents.
If you choose to manage the property yourself, doing it from afar will be more challenging. You will be the one on the end of the phone when a pipe bursts at 3 am. Property management is also tax-deductible, and it’s a great way to make remote real estate investing work.
Is Real Estate Rental Property Investing for You?
Real estate rental property investing has the potential to be a great investment.
Do your homework and try to minimize your risk by investing in a solid property and area. In the end, you should find that you’ve got an asset that’s all yours and it will have appreciated in value. With lots of tax breaks, it’s a great way to invest!
If you’ve enjoyed this article, we’ve got lots more tips on making the most of your finances. Check out our Finance blogs today!
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