Owning rental property offers many benefits to property owners. Whether you are looking to earn passive income or you want to grow equity with an eye towards the future, owning rental properties is a smart investment. Below are four main advantages of owning rental properties. To maximize these benefits, we suggest enlisting the service of an experienced property management team. If you would like to learn how we can help, contact us at Red Door Company today.
Cash Flow
Rental income tops the list of benefits that come with owning rental properties. Ideally, a rental property will deliver monthly cash flow after covering your mortgage payment and expenses. Generating passive income before and during retirement is one reason owning rental properties is a popular strategy for real estate investors.
Creating cash flow from rental properties is not, however, a given for landlords. There are many factors, including maximizing monthly rent, minimizing vacancies, attracting and retaining high-quality tenants, which come into play when ensuring your rental properties produce an income year in and year out. Red Door Company offers property management expertise to help our landlord clients maximize monthly cash flow through their rental properties.
Mortgage Reduction
With a rental property, it’s not all about cash flow. Another advantage of owning rental properties is that your tenants help pay off your mortgage and grow your equity. Initially, the majority of your monthly rent will go towards paying interest. The longer you hold the property, however, the more of the loan principle your tenants are paying down until you own the property free and clear. If you like the sound of using other people’s money to generate wealth for yourself, then investing in rental properties is the way to go.
Appreciation
Potential appreciation on a highly-leveraged asset is a third benefit of owning a rental property. For those not familiar with the term, here is a quick explanation. Let’s say you make a down payment of $10,000 and then borrow $90,000 from a bank to complete the purchase of a $100,000 rental home. You have now leveraged that $10,000 investment into owning an asset that is worth 10 times your initial investment.
Let’s suppose that after ten years, the rental property is now worth $160,000 (close to 5% annual appreciation). You now leveraged your initial investment of $10,000 into an $60,000 profit. Now, keep in mind, the rate of appreciation is not a given. To maximize this rental property benefit, you will need to invest in the right rental markets.
Red Door Company represents clients in the Raleigh, North Carolina area, which was recently named the best market for rental real estate investment in the Southeastern U.S. and the sixth best market in the country. Contact us today to learn how we can help you take advantage of this hot rental property investment market.
Tax Write-Offs and Depreciation
The fourth benefit of owning rental real estate comes in the form of tax benefits. Real estate investors who own rental property are entitled to numerous tax deductions. These tax write-offs include, but are not limited to, insurance, property maintenance and repairs, and mortgage interest.
Another tax benefit the government offers real estate investors is depreciation. Based on a set depreciation schedule, Landlords are allowed to depreciate the purchase price of your property even while your property is appreciating in value. (Disclaimer – The above is not tax advice. Always seek the counsel of accountant who is well-versed in investment real estate.)
If you are thinking of purchasing rental properties in the Triangle area or you already own rental homes in Raleigh, Chapel Hill, and Durham, please do not hesitate to contact us to learn why Red Door Company is The Right Way to Rent®.
