Updated: Sep 12, 2020
Have you considered purchasing a rental property?
Owning a rental property carries some serious potential for earning passive income that can grow your long-term wealth.
Investing in properties has become easier over the years. There are more online resources that cover the basics of rental property investments, and you can access statistics and data to help you make wiser investment decisions.
However, the real value lies in putting in the necessary time and effort to make it all work. A significant part of rental property ownership means assessing the current trends and predicting future ones.
In this article, we will list the major benefits of rental property ownership. You'll learn how owning an investment property could bring you a considerable return in life, not only in terms of investment.
Investing in rental properties means you can benefit from high leverage. In other words, you can purchase a rental property using more debt instead of equity. In some cases, you can borrow 15-20 times more money than you put in yourself.
The appreciation affects the full value of the asset, not just the partial value of your own investment.
#2: Tax Deductions
Tax deductions are one of the key advantages of owning a rental property. You can reduce your owed taxes by deducting numerous expenses from your rental income.
Here are the major tax deductions that you can benefit from:
Rental property insurance
Mortgage interest payments
Utility bills (if included in the rent amount)
Repairs and maintenance costs
Fees related to rental property management
Also, if your annual expenses exceed your rental income, you may be eligible for deducting the loss from any other personal income streams. As a result, you'll enjoy a reduced total tax bill.
#3: Regular Income
Rental units that are filled with quality tenants provide you a steady income. Plus, any leftover money from rent payments, after running costs and emergency expenses, is rental income.
For instance, if you set the monthly rent at $1,250 and you need to pay a mortgage of $750, you would be earning $500 of regular rental income. That is, as long as you aren't dealing with a vacancy.
Also, a good rule of thumb is to take at least 10% of your monthly rent and set it aside. This budget should cover maintenance, repairs, and marketing costs when you need to find a new renter. Ultimately, you will receive $375 of gross rental profit.
#4: Greater Freedom
If you want to have investments, you have many options. But how many of them give you a high degree of control and plenty of freedom like investing in properties?
For example, you can invest in stocks. However, although they have the potential to grow your wealth, you really don’t have any control it.
That said, when investing in properties, you maintain oversight on every aspect because you are in control of it.
#5: Potential to Beat Inflation
Inflation puts your investments at risk. That said, investing your hard-earned dollars into real estate properties could help you beat the detrimental effects of inflation on your savings.
When the rental market growth rate exceeds inflation, you can balance your loss with sustainable capital growth. And this return doesn't even account for the monthly rental payments that offer an additional boost in wealth.
Things to Consider Before Buying a Rental Property
Now that you know the benefits of investing in rental properties, there are some crucial things you should consider before owning a property. Here are a few:
Where will your rental property be located?
What type of rental are you going to establish? Will it be long-term or short-term?
Which amenities will be featured in the rental unit?
How will you stand out among similar properties in your area?
What is the monthly rent amount you'll charge?
Will the rental property be a pet-friendly one?
What can you realistically afford to buy?
Do you have contacts and connections that can help you? You should consider a team of real estate agents, appraisers, contractors and more.
Will you hire a property manager or work with a property management company, or will you self-manage?
Do you know and understand all the laws and regulations? If not, you’ll have to consider contacting a lawyer.
As you can see, there is a lot to think about before buying a rental property. However, its benefits are clear.
In a nutshell: Benefits of Owning Rental Properties
Owning a rental property has the potential to become a profitable investment. As a rental property owner, you have complete authority over the various decisions that can make or break your investment.
In general, these are the major benefits of owning rental properties:
Earn regular passive income.
Reduce the effects of inflation on your assets.
Enjoy various tax deductions.
Benefit from high leverage and appreciation.
Have greater control over the outcomes than with any other type of investment.