Benefits of Owning Rental Properties
Benefits of Owning Rental Properties
Whether you put your money in stocks, mutual funds, Cryptocurrencies, commodities, or real estate, every type of investment has its pros and cons. But among all of the investment options available to you, investing in rental properties is easily the one with the most advantages versus disadvantages.
Although investing in stocks is a viable way to grow capital, investing in real estate trumps stocks in many ways. Investment properties are less risky and usually offer better returns than stocks. There is also more room for diversification and real estate is not as unpredictable as stocks.
If you have been toying with the idea of buying a rental property, you are on the right path. Below Dawson Management outlines some of the benefits of owning a rental property. By the end of the list, you will see why real estate is the best investment option for new and experienced investors, alike.
1. No special skill needed
Almost anyone can become successful at investing in real estate. Unlike the stock market and investing in foreign exchange, no specialist knowledge is required to successfully operate a rental property.
As long as would-be investors understand simple mathematics, how to identify a good property or promising location, and the basic laws of demand & supply, they are good to go. And this knowledge is easily obtained, as long as the investor is willing to go out of and get the required information.
2. Cash flow from rental income
A rental can produce enough cash every month to cover 100% of the cost of maintaining the property. The owner can settle the monthly mortgage payments, insurance fees, and other costs from the rents that tenants pay. And after meeting these monthly obligations, landlords can still have money left over to declare a profit.
Basically, a good investment property is self-sustaining and a source of steady income for the owner. The only thing investors need to do to assure this result is buy in a viable location, keep the home in good shape, and establish a thorough tenant-screening processes.
3. Capital growth
The value of real estate always trends upwards in the long-term. In a few years after you buy it, the market value of your rental will be higher than what you originally paid for it. The extent of the increase will depend on the property market in the asset's location and the overall state of the economy. But whether the price goes up by much or by little, property prices generally tend to go upward. The simple reason for this is that land is a natural resource that is in limited supply and the population is constantly growing. More demand than supply equals higher prices.
4. Greater control
One of the best things about owning rental properties is that you are not forced to surrender control over your investments. With investments like mutual funds, for instance, an investor can only decide what to buy, when to buy and when to sell.
They do not determine how the asset is managed after it is purchased; that privilege is surrendered to the fund manager. This is not the case with real estate; a property investor is fully involved in every aspect of the management of their asset. They can choose to manage the property directly or hand it over to a property manager.
5. Forced Appreciation
In real estate, increases to the value of a property do not come through market forces alone. It is possible for property owners to intentionally move the price of their property upwards by carrying-out strategic renovations to the property. By increasing the visual appeal and functionality of a home, the owner can increase how much rent they charge and the selling price of the property.
It is hard to find another investment option that can rival real estate in this regard. Forced appreciation is just one more way property owners control the performance of their assets.
6. Option to use home equity to buy more properties
Equity in a property is created when you pay deposit money to get a loan to buy a home. Your equity in the home is how much of it you own versus how much of it the lender owns. By paying the mortgage diligently, you gradually reduce the loan amount and increase the amount of your ownership in the home.
After you have built up substantial equity in the property, you can use that equity to get a home equity loan. That loan can be used to make a deposit for the purchase of another property. In short, your rental property can help you build your property portfolio.
7. Tax benefits
There are several tax advantages that make a rental property more profitable than other investments. Property investors can get tax deductions on many of the costs associated with owning and operating their rental.
Costs that are tax-deductible include maintenance & repairs, interest payments on the mortgage, property management fees, and insurance. They can also get tax deductions on natural wear and tear to the property. Tax deductions allow rental property owners to earn tax-free income.
Investment real estate stands head and shoulders above rival investments. And before you seriously consider investing in anything else, think about investing in a rental property.