Thinking about buying a rental property? Are you trying to save for retirement, or just looking for a great side project with the potential to turn into more? Investing in a property and renting it out can be a great idea! Here’s why:
You’ll get a direct income stream from tenants.
Once you get your rental property ready to go and you begin to accept tenants, you won’t have to worry about your money being tied up— you’ll have a monthly stream of cash coming your direction. Even though it might take several months or a few years before you feel like you’re gaining momentum, that little bit of cash flow can make a difference and it will almost definitely build up over time. Since rental rates tend to go upwards and mortgage rates tend to be fixed, you’ll start seeing more and more income over time. You can use it to pay yourself and pay off the mortgage. If you’re successful and you want to purchase more properties—it’s always smart to diversify as much as possible— you can put the money toward your next investment property.
You can sell for profit if property values increase, or if you make improvements.
When you own rental properties, you can take advantage of favorable changes in the market and resell when the time is right. Since you’re not personally living in the property, it’s a lot easier to make a quick decision to sell (of course, don’t leave your renters in a lurch when you do this!) If you’ve put in some time and elbow grease to improve the property during your ownership, you might be able to make quite a bit of profit by selling the home, and you can use the profit to help fund your next property.
You can benefit from tax deductions.
With the federal tax deductions that are available to rental property owners in the U.S., you get to keep more of the money that you earn on rental income. The specifics will depend on whether investing in real estate is a full-time gig for you or it’s just a side job, but in both cases, there are a variety of laws in place that will help you save money when you’re renting out a property. Maintenance expenses, mortgage interest, insurance, travel, legal fees, advertising costs, and many other expenses can be deductible against the income of the property. If you qualify for a 1031 exchange, you can defer all the taxes on the gain from the sale of one rental property and put all that money toward a new rental property.
You’re your own boss.
If you’re really serious about real estate investing, you can become your own boss and make a full-time or part-time living off of managing your rental properties. When you make the move to earn a substantial amount of your income from real estate, you have a flexible schedule and you can choose how to spend your time. Some property owners really enjoy tasks like maintenance and repairs, while many choose to hire those jobs out. Others who go into real estate investing like to spend their days tracking down new investment properties and shopping for the next big project. You’ll get into your own groove and figure out what you enjoy and what you need help with. With the proper dedication, experience, starting capital, and some luck, it’s possible to be your own boss and spend time doing what you like while making income from investment properties. It can be stressful, just like any job, but the flexibility and freedom may be worth it to you.
You can make money even after retirement.
No matter your age—whether retirement is decades away or just around the corner—income after retirement is something that you’ve likely worried about. Rental properties may be the answer. Rental properties are a good way to make income post-retirement if you want to maintain the standard of living that you’re used to (who doesn’t?!). If, like many of us, you don’t have a pension or vast amounts of savings rental properties are a great option for you. If you start investing in rental properties now and keep them well maintained, you can end up with a steady stream of income by the time you retire. If you go this route, you don’t even have to do any work if you don’t want to. You can hire a property manager to take care of everything for you, allowing you to relax and have the retirement you always dreamed of without any extra hassle. Or, if you’re already retired and you’ve found yourself to be one of those people who just can’t stand to be idle, you can make rental properties into your new project. We know quite a few people who enjoy spending their retirement painting houses and planting shrubs, so if that’s you, you might want to consider making a smart investment into real estate by tackling some rehab/renovation projects, and then renting the properties out for a lifetime of income.
You can get a seasonal rental house and use it as your own vacation home.
It might seem like a bit of a hassle to look for investment properties outside of your hometown, but it can be a great experience, especially if it’s in a vacation destination like a beach town, in or near a top tourist city, or close to some great ski slopes. Having a seasonal rental property in one of your favorite vacation destinations can allow you to travel, relax, and unwind in a place you can truly call home! Granted, you can only stay at the house for up to 2 weeks of each year if you’re going to maintain the deductibility of the expenses, but it can still be a fun and worthwhile investment that allows you to get away for a few weekends each year while making rental income the majority of the time. And don’t worry about the travel costs if the property is far away from your home base: travel costs can be deducted from your taxes, and you can hire a trustworthy property manager who will take care of everything while you’re not in town.
Of course, it’s not all sunshine and daisies, but the downsides of owning rental properties can be saved for another blog post!