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Many variables go into having a rental property as an investment, some
riskier than others. If you are averse to investing in the stock market,
owning additional property is another alternative to consider for garnering
wealth. In principle, it makes a lot of sense. While it might seem like a large
financial undertaking early on, there are several key benefits that make the
case for rental properties as an investment.

Depending on your level of familiarity, you might already be aware that real
estate investment is a great way to reap a residual income. If that alone
does not sell you on the value of investing in a rental property, perhaps the
appreciation and tax benefits will.

Passive Income

For starters, investing in real estate is touted as a great method for
generating a low-maintenance, passive income. You invest in the beginning,
but it is your eventual tenants that pay the mortgage, effectively growing
your equity long-term. Once the property is paid off, you will be able to
collect passive income. In essence, you are generating revenue from the
money you have already invested in the property.

There are many benefits of passive income from a rental property. Once
you have set it up, it should require little to no upkeep from you. Of course,
this will depend on the condition of the rental property when you initially
make your purchase, but after any needed updates are complete, the
ongoing maintenance should ideally be minimal.

Passive income is great for adding a bit of extra money to your retirement
fund and reaching your additional wealth-building goals with little to no
effort. With the right ingredients and dedication, you can eventually build
your wealth with ease.

Property Appreciation

There are various factors to consider that will influence property
appreciation. Appreciation is the growth in value that is generally a
byproduct of the community conditions and quality of the neighborhood
where your property is located.

Finding a good, solid property or area where real estate prices have
consistently risen in recent years is a strong indicator that the
neighborhood will continue to develop and maintain a high value.
Additionally, you can attract good tenants this way. Having an attractive
property that is close to major transportation or highways makes for a
great selling point to potential renters.

If it is your first time purchasing a rental property as an investment, you
could consider investing in something nearby so you can monitor the
condition of the place and efficiently handle anything that might come up.
Buying something lower cost and fixing it up can be good if you are looking
for a short-term turn-around, though you should try to avoid “money pits”
when it comes to rentals. Attractive and move-in-ready options are optimal
for keeping the initial investment smaller on the front end.

Collateral

Real estate is commonly an asset that is used as collateral. Before being
issued a loan, lenders want to see that you can repay it and keep up with
your financial obligations. In the event you establish a successful rental
property, you can build your collateral as evidence that you are a
responsible steward of the investment.

Collateral is an important consideration when investing in rental properties,
and one you should feel relatively sure of before investing. Having a healthy
amount to invest and put into the property at the onset is key to ensuring
you will maintain strong financial health and good collateral with your
prospective lenders.

Tax Advantages

One of the greatest advantages of owning rental property as an investment
is the availability of deductions for the investor. In fact, real estate is one of
the most tax-advantaged investments out there.

Tax write-offs that are available include costs associated with interest on
mortgages, operating expenses, depreciation, interest, repairs, and more.
Because many real estate investors choose to own their properties with an
entity (for example, a limited liability corporation), they are eligible for
deductions related to the operation of a business. This savvy tip allows
investors to avoid shouldering individual expenses and taking on
unnecessary costs.

Deducting depreciation, the property's total loss in value over its expected
lifetime is another way of lowering your tax burden. The natural loss in
value is a huge advantage for real estate investors, as it gives way to
greater deductions on expenses long term.

If you ultimately sell the property for more than you purchased it, you are
also eligible for capital gains taxes. These tend to have lower rates than
ordinary income taxes. As a real estate investor, you are also able to
leverage various tax-deferred methods on your real estate depending on
the transaction. One example would be swapping an investment property
for like-kind property, essentially avoiding any changes in cost or
depreciation.

Conclusion

When investing in rental property, it’s important to partner with individuals
who have extensive property ownership and management experience.
Contact Herman Boswell Property Management to discover all we have to
offer.

2020-09-14T21:29:37+00:00