Why Rental Properties are a Great Investment

Why Rental Properties are a Great Investment

If you are thinking about investing, choosing to invest in rental properties may be the best decision that you can make. Rental properties are income-producing, allowing you to enjoy a positive cash flow that normally exceeds the dividend returns that you might receive from stock investments. You can also leverage others’ money instead of using your own to purchase real estate, meaning that you may need far less cash on hand to purchase a rental property than you would need to purchase stock of the same value. There are several things that you should do to make certain that you choose the right rental property so that you get the highest return on your investment.

Benefit of leveraging

Leveraging means that you can use money that you borrow from the bank in order to increase your returns on your investment. Instead of having to come up with a huge lump sum, you may need to use very little of your own money to purchase a rental property. You may also place debt on several real estate rental properties so that you can build equity in them all while paying down the debts with the income that you receive, helping you to multiply the value of your real estate assets significantly.

Stable investment over time

Real estate investments are stable over time. The real estate market generally follows a predictable pattern, which means that you can predict with reasonable certainty how well your properties may perform. If you invest with an eye towards long-term gains, you may also enjoy far greater asset appreciation with your rental property investments than you might with other investment types.

Tax advantages

The Internal Revenue Service provides multiple tax advantages to owners of real estate, including investors who have rental properties. With real estate, you are able to enjoy unlimited mortgage interest deductions. You are also able to shield some of the income that the properties provide to you by using depreciation accelerations. If you elect to take a 1031 provision at the time of the sale, the IRS allows you to defer all of your gains from the property until it is later sold.

Due diligence

You can maximize your returns by conducting due diligence prior to purchasing a rental property. Most new real estate investors do best by choosing single-family homes or condos. You’ll want to make certain that you research the neighborhood in which the property is located, including the home values of comparables, the crime rate, the schools and other factors that may help to drive up the value of your rental property. If you plan to manage the property yourself, you will need to choose one that is close enough to allow you to do so.

With good research, you can choose a rental property that may provide you with an added income stream for as long as you keep the property. Investing in real estate may provide you higher returns on your investment than other types of investments might.

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