A new decade brings new interest to real estate investing. It’s easy to see why, with the vast amount of profit that successful real estate investors have earned from investing in income properties. Even so, many aspiring real estate investors are asking the same question about rental properties: Are income properties a good investment for 2020? The answer is…absolutely!
Why is income property a good investment? Overall, there are seven reasons why this is the case and we’ll explore them all in this blog!
High Return on Investment
Above all, buying an investment property is a good investment due to the high returns you can expect. Return on investment (ROI) depends on 3 main components. First is rental income. It’s quite simple: a good investment property must earn a high rental income. And what’s more, there are always ways to increase your rental income and therefore, your ROI.
However, rental property income alone does not indicate net profitability. Instead, cash flow (the second component) will indicate whether or not the rental property generates a high net profit. Specifically, you want to look for positive cash flow properties. A positive cash flow rental property has a positive difference between rental income and expenses (rental income > rental property expenses). And just as there are ways to increase rental income, you can always find ways to cut your rental expenses and increase returns.
The third component is the cost of the real estate investment. When investing in income properties in 2020, you want to look for a rental income property for sale that offers good cash flow but also comes at an affordable price. Seem impossible with the high prices of the 2020 US housing market? It’s not if you Invest in the 5 Cheapest Housing Markets in 2020 and such opportunities make income property a great investment for 2020.
By performing a rental property cash flow analysis and having an idea of the budget, investors can calculate rental returns on investment. If you know what you’re looking for and perform the analysis, you can easily find a rental property investment with a high return on investment.
High rental returns are easily the prime reason to invest in a rental property in 2020. However, there is another form of profit investors will benefit from. This profit is achieved through real estate appreciation. Appreciation refers to an increase in value over time. When residential income properties appreciate, their selling price increases as well. As a result, an investor can make a large profit by selling the rental property. Even if you decide to hold onto the rental property for longer, you can typically charge higher rents as value increases.
The real estate appreciation outlook for the US housing market 2020 is quite high. According to Zillow, the average income producing property in the US will appreciate by 2.2% in 2020.
Significant Tax Benefits
For many, filling out their 1040s isn’t the most pleasant of activities. However, for real estate investors, this burden is more enjoyable. By renting out a property, investors become eligible for many tax benefits. The bulk of these benefits involve various tax deductions. Common examples include repair costs, income property financing payments, insurance premiums, depreciation, and property management fees. The multitude of tax benefits is another reason why buying an income property for sale will be a good investment in 2020.
Low Risk Investments
Risk is a common feature of all types of investments. Some investment assets carry a high risk, which can demotivate investors. However, with a real estate investment property, risk is significantly lower and can be easily mitigated. This is especially true when comparing real estate to the stock market. Unlike stocks, real estate properties are tangible assets. As a result, it is essentially impossible to lose everything from the investment overnight (barring a natural disaster) making it a low risk investment. Even if another housing crisis were to occur, which is not in the real estate market forecast 2020, real estate will always be in demand.
With low risk and high profitability, investing in income properties will remain a great investment in 2020.
Low Interest Rates
Investing in real estate is very accessible to potential investors, particularly due to the fact that there are many different investment property financing options available. So even if you don’t have cash in hand, you can get a loan. At the same time, interest rates can severely bring down your return on investment. Luckily, 2020 will be a particularly good year for buying an income property because this year, income property loans will have relatively low interest rates. As of the time of writing, the expected mortgage rates for 2020 will be around 4%. While investment property mortgage rates are usually a little higher, you’ll still enjoy lower rates. Such low interest rates will help investors to easily secure income property financing in 2020.
Choice Between Active or Passive Real Estate Investments
Flexibility is a feature that isn’t common to many investments. With real estate investing, however, flexibility is one of the major benefits. Flexibility in real estate is most epitomized by the fact that you can choose to be active or passive.
Active real estate investing is when an investor gives full-time commitment to an income property investment. A passive income rental property, on the other hand, is when an investor isn’t involved in the day-to-day operations of the property. Passive real estate investing usually places all of the management duties in the hands of a professional property manager. Having this choice is a major reason why income property is a good investment for 2020.
Diversity of Rental Property Types and Strategies
With real estate, you also have a choice of different rental strategies and property types. Traditional real estate investing is undoubtedly the most common rental property investment strategy. It involves renting properties to long-term tenants. Traditional income property for sale can range tremendously, with everything from single-family homes, condominiums, apartment complexes, and townhouses. Short-term renting, such as with Airbnb vacation home rentals, is another strategy. Airbnb income properties, in particular, are popular for their active or passive options and high return on investment.
How to Find Good Income Properties for Investment in 2020
Investing in an income property is the best investment you can make in 2020- that much is clear. You should definitely plan to buy income property in 2020. So, now you may be asking yourself “Where can I find an income property for sale near me?” The answer is, right here, with Mashvisor! Mashvisor’s assortment of real estate investment tools, including its rental property income calculator, is all you need to find lucrative and affordable properties in 2020.