Are you looking to grow your personal wealth?
When you make smart investment decisions, achieving financial independence and greater wealth is possible. If you’re seeking long-term growth, rental property investing is a sound approach.
Nowadays, investing in properties is easier than ever before because there’s a slew of information online. However, keep in mind that finding the right properties and growing your investment requires research and commitment.
There are multiple ways to make money from rental properties. In this article, we will list the major ways you can financially benefit from property investing.
The Starting Point: Assess your Situation
The following are types of profit that you can make. However, not all of them will apply to your rental property investment. Use this article to learn more about each of the potential profits, and then you will understand which apply to your real estate investments.
1. Cash Flow
Your rental income is the leftover money you have at the end of each month after you pay all of your expenses. This means that a rental property can have a positive or a negative cash flow.
The flow is positive when you have extra income. The flow is negative when you don’t have extra income, and thus, you lose money on a monthly basis.
One or two months of negative cash flow won’t necessarily signal a failed investment. For instance, if you have an empty rental unit, you’ll have running expenses, but you won’t be getting any income. Therefore, that month’s cash flow will be negative.
Here are the main regular expenditures that will decrease your positive cash flow:
- Mortgage instalments
- Property insurance
- Utility bills
- Repairs and maintenance
- Property taxes
- Condo/HOA fees, if applicable
Appreciation refers to any increase in the property’s value over time. It’s one of the biggest advantages of rental property investing. That said, it’s important to remember that not all properties will appreciate as years go by.
In fact, you can never be completely sure that a particular unit of real estate will appreciate. Though, there are some factors that can predict the potential for the appreciation to a certain degree.
The real estate cycle plays an important role here. If you buy in the middle of an economic downturn, you are likely to end up in appreciation.
The particular market where you do the buying is a key factor as well. Certain areas may experience a surge in appreciation due to booming industries.
3. Tax Benefits
Property investors can benefit from tax deductions. When you compare the tax advantages of property investments to other forms of investing, you’ll see a stark difference in terms of taxation rules.
Here is a closer look at some of the top tax benefits for rental owners:
- You can deduct interest from your mortgage interest payments and repair expenses. For example, you can deduct the costs of fixing a plumbing emergency or repairing a broken HVAC system.
- You can utilize a depreciation schedule in order to depreciate the closing price of your investment property. Even if your rental home’s value has appreciated, this is still an option.
- You may deduct rental insurance premiums regardless of your chosen policy and add-ons.
- There are more possibilities when it comes to tax write-offs including transport costs, professionals’ fees, and payments for legal consultation.
Ideally, you want your tenant’s monthly rent payment to cover your mortgage payments. This means that you can pay off your purchased property without paying anything from your own wallet.
You could use the gained equity to further invest in or improve the properties you already own. As a prerequisite, you should maintain a great credit score, already have years of ownership behind you and have all the necessary financial paperwork ready for inspection.
5. Inflation Hedging
No one is entirely safe from the detrimental effects of inflation. That said, investing in rental properties may help you hedge your savings against inflation’s erosive impact.
In many cases, rising prices will be followed by the growth in your property’s value. Therefore, it’s recommended to buy an investment property at a low-interest rate. Whenever the local real estate market growth tops inflation, your potential loss is countered by capital growth.
The Bottom Line: How Rental Property Investing Makes You Money
There is great potential to make money when investing in rental properties.
Some of the necessary conditions for this to be successful include:
- Studying the market
- Analyzing the trends
- Calculating financial sustainability
This type of investment has its own unique perks that you can’t get from any other form of investment. Here are a few of the ways you can potentially make money when investing in real estate:
- You have the chance to build equity and put it to use
- Positive cash flow provides personal income
- Some rental investments may hedge your money against inflation
- You can financially benefit from your property’s appreciation
- Tax benefits will leave you with more money
This article has been provided by Windermere Property Management of Spokane.