Deciding whether rental property investing is right for you or not can be hard. Depending on whom you ask, you will get a lot of conflicting information. Unless you have access to a successful property investor, knowing the facts about being a rental property owner can be a struggle.
Most people you talk to will try to scare you by reminding you of the risks involved in the investment. Others will tell you about how hard it is to get a loan to buy your rental property. You will hear a lot of opinions about how difficult it is to maintain a rental and how a recession could easily wipe out your investment.
Should you listen to these opinions?
Before you got to this point, you already knew that becoming a rental property investor is not going to be a walk in the park. As a matter of fact, that is the reason you are doing the research. You have probably seen people lose money in property investment and you don’t want to be one of them.
But at the same time, you can see proof of how profitable rental properties can be. At some point in your life, you may have lived or worked in a rented building and there are thousands of rental properties around you. The truth is, if those properties didn’t make money for their owners, they would not exist.
Owning rental properties is one of the time-tested ways for becoming wealthy. One rental well-managed property can become a foundation for wealth that will last many generations. This is why many of the super-rich families and individuals in the world hold a lot of their wealth in real estate.
What is it about owning rental properties that make it such a good investment?
1. A source of passive income
This is the most well-known reason for investing in rental properties. A rental property is perhaps the only asset class where the owner of the investment has almost full control of how much they earn from the asset.
A landlord can determine the monthly rent for their property. They can also take steps to reduce costs and boost income. The income from a rental property is steady, unlike income from stocks which is highly unpredictable.
2. Unrivalled use of leverage
No other asset offers investors the opportunity to use leverage like real estate. While it is considered a risky strategy to invest in stocks using borrowed money, buying real estate with other people’s money is the norm. Real estate investors can own and control assets over and beyond the amount of capital they have. The investor only needs 25% of the sales price of a building to own it.
3. Property value appreciation
In addition to the rental income, they earn from their property, property investors also profit through value appreciation. The fact that real estate meets a vital human need – shelter – means it is always in demand and therefore always appreciating in value. The market value of land and buildings is constantly rising due to demand. In order to make a profit, all an investor has to do is hold the asset for a reasonable period of time.
4. Control of the investment
When investors put their money in assets like stocks and mutual funds, they essentially give up control of the investment. They only control decisions about what assets to buy and when to sell those assets. All the other decisions regarding how the asset is managed are made by the asset manager and the company’s management team. It is different with a rental property; the owner is fully involved in every aspect of managing their asset.
5. Forced appreciation
In addition to value appreciation because of market forces, rental property investors can forcibly raise the value of an asset. They can do this through the various improvement projects they undertake in the building.
These projects not only give the property owner the ability to make money in the short term (by charging a higher rent), but they also let the landlord make more money in the future when they sell the property.
6. A hedge against inflation
A rental property is one of the few assets that stay ahead of or is at par with the rate of inflation. Inflation is a gradual increase in the cost of goods and services. It reduces the purchasing power of money over time. But because the rental rate on the property also increases with the cost of other goods and services in the economy, the owner’s income is really not affected by inflation.
7. Tax benefits of owning rental properties
Property investors are vital in society; they provide a valuable service. Landlords invest their own capital and take considerable risks to provide shelter for a vast number of citizens.
The government recognizes this role and compensates property investors by offering them tax write-offs on many of the operational costs of their property. Property investors can use these tax incentives to boost the profit of their investments.
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
