35% of Americans believe that real estate is the best option for long term investment. However, within real estate, there is a myriad of choices presenting profitable opportunities. Investing in income properties seems to be on the rise as a strategy that can get you immediate income.
An increasing number of investors are purchasing properties with the only goal of developing it as a rental business. It could be commercial, single-family homes, or multi-family buildings depending upon the extent of your investment.
If you are pondering whether it is worth investing in rental properties, here are four benefits to help you make up your mind.
1. Increasing Property Appreciation
The first thing all real estate professionals recommend is to consider the property appreciation before making any purchase. Rental properties are often bought foreseeing an income period of seven to ten years.
Over this time, depending on where the property is, the appreciation is bound to increase. With the national average of rent growth at 11.1%, there can never be a better time to consider this a prime choice. This ROI exceeds almost every other investment you could make, including stock. Now, this appreciation would defer based on the location and property type, yet the national average is expected to become higher in the next ten years, offering you better prospects.
2. Reduced Mortgage Payments
The “build to rent” niche is a rapidly growing sector in real estate. If you invest in the right property, the chances are that the rent could break even the mortgage payment. On a fixed-rate mortgage, after the first few years, you will be paying more to the principal amount, and less towards the mortgage interest. This means that eventually, you would be using the rent to pay off the loan completely.
Consequently, you can think about refinancing this additional income as the ROI would only increase if there is property appreciation.
3. Savings and Deductions on Tax
Rental incomes are taxed; however, there are several ways to make deductions. The two main deductions come from including the depreciation and subtracting the mortgage interest from the rent. Additionally, you can also reduce the cost of cleaning, maintenance, insurance, HOA, payments to the property manager, property taxes, and other services such as utilities.
The extent of these deductions would be based on whether you classify yourself as active or passive investors. You should be able to find a realtor who can help you select the right classification. Platforms like Upnest can help, check out reviews here. Regardless, the tax benefits are exceptional, even with a few write-offs.
4. Scope for Good Cash Flow
Whether a rental property is advantageous or not will depend on how economical it is. The right investment can create a good cash flow and will result in the other aspects falling into place. On the other hand, an unfortunate investment, even in an income property, could make you lose money.
There could be several expenses to consider before you would be able to rent the property at all. Minimizing these expenses would offer you the best benefit in terms of ROI. When you look for the best realtors to make a purchase, it is thus necessary to be explicit that you are looking for an income property to rent out.
To reap the best benefits of renting as a business, it is essential to combine all the above factors and weight out. The ROI should be worthwhile, and with the right property, you could get double or even triple the rates. It is no surprise that some of the most successful people own rental properties, and with the rise in demand, you could also be profiting from the real real estate.