If you’re thinking of investing in the rental market, you might be asking yourself what exactly is in it for you? What do the financial benefits look like to owning a rental property? How much work is in it for me?
Rental properties can be a great real estate investment tool. Today’s market has reached an all time high for pulling out a mortgage. The next generation of homeowners are struggling to afford the down payments. The majority also seems to be experiencing wanderlust (a strong desire to travel), so the idea of settling in one place forever (aka, 30 year fixed is forever), is extremely unappealing. We are seeing a large rise in the rental market due to this.
With the conditions of the market, and the demand for rentals, the rental real estate investment market has found itself in the green. As a long term holder, you would be able to manage a rental unit and produce a positive cash flow each month. Say you are renting a house out for $1250 per month. Within a year you are generating a $15,000 gross profit. Whether you use it for saving, travel, or retirement, it can be a great source of extra income.
With the profits you make, you can renovate units in your building, whether you repaint them, add new flooring, new appliances, or landscaping the property, these will all increase the value of the property, allowing you to charge more rent, and increasing your profits.
But what about taxes? With rental properties, you pay less. You can deduct certain expenses from your income – reducing the taxes you owe.
The list includes:
-utility bills (if you include them in the rent).
The government offers preferential tax breaks for owners of rental properties, such as depreciation, which allows you to use paper losses to offset any profit you make on the rental. Losses generated by depreciation can also be used to offset other taxable income you might have. You can also write off all the other standard operating expenses that go along with owning a rental property: utilities, insurance, repairs and maintenance, yard care, association fees, and so forth.
Remember, owning a rental property also takes a good bit of work. If you have the right resources, tools, and skills, you will be making profit in no time.