So often I get the question, "is owning a rental house really worth it?" Here's my take on it... every investment portfolio needs diversity, and very few other investments offer the benefits that owning a rental does in America. In this blog I'm going to go over just a few of the pros to owning an investment property.
One of the least understood perks to owning a rental home is the tax benefits associated with it. Here are some of the tax deductions to look out for:
- Mortgage Interest
- Real Estate Taxes
- Legal & Professional Fees
I could write all day about all of the complexities of the tax code and how you can use them to your benefit, but I'll go over that in more detail some other time!
Just like any other investment, the goal is for the value of whatever you have to appreciate. Rental properties have the added value of not only appreciating in value naturally, but improving withthe help of rental income. Let’s say you hold onto a rental property for 6 years and the value of the property appreciates on average 4% (which one would hope is a conservative estimate) each year. If the property is valued at 100k, then your property would be worth over 125k 6 years later (not factoring in any sort of inflationary forces). This doesn’t even include the rental payments that have been made in that period that help pay down the mortgage, offset repairs, and keep the investment maintained!
Rental properties can generate cash flow, but I've always viewed this as the least impactful benefit to owning. If you're truly looking for a "cash flow" real estate investment you'll need either a large volume of properties, multifamily rentals, or storage facilities. Investment savvy individuals use the net profits from renting out property to build a nest egg towards future repairs or down payments on additional properties.
Okay, here's the thing... it's not all unicorns and rainbows. Owning rental real estate will always come with bumps in the road, and there will always be nightmare stories of terrible tenants or bad investment decisions. However, if you are working in tandem with a REALTOR and a professional property management company you can help ensure that you will find the right investment and minimize issues that arise during any leasing period. If you've ever been on the fence about whether it's the right choice for you, or if you have any questions about how we can help you navigate the market - we're here to help!
Jake Evans, REALTOR