Is Rental Property A Good Investment?
Investing in real estate is one of the most effective methods to build your wealth. Many well-known entrepreneurs, financial moguls, and advisors are on record saying that they have used real estate to grow their net worth. One thing that holds the average person back from getting into real estate investing is the perceived high barrier of entry in terms of cost. Is it worth the risk? Does it really work? Let’s explore the 5 benefits of owning rental property and let you decide for yourself.
1. Earn Passive Income
Rental properties can be an incredible source of earning a passive income. If you are looking to make some extra money on the side or start saving towards retirement, then making rental income might be a great option for you. Before purchasing a rental, it is very important to understand your current financial situation and cash flow and know what your monthly break-even point is when setting the price of your rent. Any money left over after the cost of your expenses you are able to keep. So if your monthly mortgage payment and other expenses (such as real estate taxes, property insurance, and utilities) is $1,000 and you are charging your tenant $1,300/month, you’re bringing home an extra $300 each month with little to no extra work.
2. Your Investment Is Under Your Control
One of the biggest benefits of owning rental property is having significant control over your investment. When you buy a rental, you can physically see and control the investment, something that you can not do with a stock or a bond. If there is an issue with the home, you have the ability to make repairs or hire contractors of your choosing. You can make any improvements to the investment that you would like over the years to modernize it and make it more attractive in the sales market. After purchasing a rental property, you can draft your own lease and select the tenants that will be renting from you. You also have the option of hiring a property manager to watch over it for you if you live far away from the property. Not many financial investment options are under your control, but with real estate, you are able to make crucial decisions that will affect the future value of your investment.
3. Having Others Pay Down Your Mortgage
Typically at the beginning of a mortgage, your monthly mortgage payments are going primarily towards the interest of the loan rather than the principle. Having tenants pay off the interest on a loan significantly builds the value of the investment property for you, especially as it accrues in value over time. The longer you hold your rental property, you will be building your wealth and increasing your profit margin when you do eventually sell the home. Rental property investing is a long-term strategy to building wealth, but with patience, it can pay off in a big way.
4. Tax Write-Offs
As a real estate investor, you are likely to be entitled to tax deductions. Some items that you may be able to write off include:
- Property taxes
- Repairs and improvements to the property
- Interest on your mortgage
- Necessary expenses associated with owning and upkeep of the home
You are also able to depreciate the purchase price of your property, whether it is actually appreciating or depreciating in value. This makes real estate a more attractive option in terms of income compared to stocks and bonds in terms of how it’s taxed on your earnings.
So not only are you earning money from having others pay your mortgage (plus more each month in most cases), but you are also earning tax breaks. By owning rental property, you are saving money and earning money at the same time.
5. Sell When The Time Is Right
By renting out your investment property, you allow yourself the ability to sell the property at the best possible time. Some homeowners sell well before they should because they need the money now. Maybe they are moving and can’t pay two mortgages, but when you rent out your home that is no longer an issue. By having tenants pay to rent from you, you can buy a new home or move and hold on to your investment until you get better value.
Over time, your home is ideally accruing in value instead of depreciating. By holding onto your home longer, you have a better chance of your initial investment on the home growing into something much larger in value. Also, you can wait for the housing market to become a seller’s market in your area. Maybe that’s several years down the road, but you have afforded yourself the ability to be patient until that time comes. You can also wait for the right offer to come in on your home. Allow buyers to place bids and you can wait to sell until you receive an offer that you feel is worth making a sale on your investment.
Buying Your First Rental Property With Deca Property Management
If you are interested in looking through rental listings or you want to find a real estate property to begin accruing wealth with, look no further than Deca Property Management. Based in the St. Louis area, Deca is a local real estate company established in 1990 and family-owned. Deca Property Management will work with you to find the best price to rent your property for to help you reach your investment goals. We will design a customized plan that will help you achieve your goals and earn higher profits.
If you want to learn more about how you can start building your wealth through real estate, contact us here or give us a call at (314) 631-3306.