Owning rental property is your way to riches!
Have you ever wondered why investing in the real estate market is an attractive business for many? The simple answer is: Thanks to the many benefits it has to offer. Becoming a real estate investor is one of the best ways to create wealth. After all, 90% of the world’s millionaires are real estate investors! So, what makes real estate a money-making machine? Here are the main benefits of owning rental property:
Steady Cash Flow
The main motivation that drives property investors when entering the real estate investing business is to make money. As a real estate investor, you can make money from cash flow and appreciation – which are both benefits of owning rental property whether traditional or Airbnb.
Rental properties provide investors with a steady stream of cash flow – profit made after calculating the difference between the monthly rental income and the monthly rental expenses. In real estate investing, cash flow comes in the form of monthly rent collected from tenants of investment properties. This is an attractive aspect of owning rental property because property investors use the rental income to pay for their expenses like mortgage payments, running costs, and investment property taxes.
However, to maximize this benefit of owning rental property, a real estate investor has to ensure this cash flow is positive – that the monthly rental income outpaces the monthly rental expenses. Positive cash flow indicates a successful investment property and guarantees a good return on investment. On the other hand, if the investment property generates a negative cash flow, you’ll start to lose money instead of make money, which goes against your goals as a real estate investor.
Click here to read more about the challenges of owning rental property and the best ways to overcome them!
One of the benefits of real estate investing, in general, is hands down the tax perks property investors can claim for running and managing investment properties. If you’re owning rental property, you’re entitled to many tax benefits which will help you mitigate your risks and grow your returns. One example of these benefits is that the cash flow that the investment property generates is tax-free!
These tax benefits of real estate investing also include a wide range of tax deductions. For example, the government offers tax breaks for rental property expenses like insurance, investment property taxes, maintenance and running costs, and legal fees, as well as depreciation. Thus, assume you’re making $50,000 from owning rental property. As a real estate investor, you’ll get to keep much more of this than you would in any other industry.
Think of this as the government’s way of saying thanks to property investors providing residence to the general population. Exactly how much property investors can deduct depends on their rental income and the housing laws of the real estate markets in which they’re owning rental property. Nonetheless, these tax benefits certainly increase your profit and return on investment.
Real Estate Appreciation
As mentioned in our first point, property investors can make money from real estate investing through cash flow and appreciation. Real estate appreciation is the increase of the investment property’s value over time. In simple terms, this means that while a real estate investor is generating cash flow, his/her investment property is gaining more value.
Appreciation is an attractive feature of owning rental property because it allows property investors to sell their investment properties for a price higher than the initial investment and make a profit. Say you’ve bought the investment property years ago for $300,000. Today, the value of this property is bound to increase, thus, you can make a decent profit from selling it.
However, keep in mind that there are some factors that allow for real estate appreciation, mainly the time factor. Real estate experts agree that in order for investment properties to appreciate, property investors need to hold onto them for at least 10 years. In addition, the location of the investment property also plays a role in how much it appreciates. Some real estate markets have higher expected appreciation rate than others.
The best real estate markets for owning rental property are those in which mortgage rates are going down, and demand for real estate investing is increasing, while supply is lacking, and land is becoming limited. These locations generally have high expected real estate appreciation rate. Thus, make sure you find them before buying an investment property in a certain location.
Are you owning rental property in the right location? Click here to find out!
Most people fear the term inflation; however, you don’t have to if you’re owning rental property! One of the best benefits of real estate investing is that it works as a hedge against inflation. This basically means that property investors are not negatively affected by inflation.
When inflation occurs, a real estate investor owning rental property can increase the amount he/she charges as monthly rent, while the value of the investment property will increase (appreciation). Moreover, if you’re planning on selling your investment property during times of inflation, you can list it for a higher price and reap profits, especially in real estate markets with a low supply of investment properties.
Yet another benefit of inflation is that it doesn’t affect fixed mortgage payments! Meaning, in case of inflation, cash flow will only increase for property investors owning rental property – just another attractive aspect of real estate investing.
With these benefits of real estate investing, it’s no wonder why this is considered one of the best ways to make money. Through owning rental property, anyone can enjoy these benefits and join the class of wealthy property investors.