The pandemic saw an increase in home sales as first-time homeowners took advantage of lower interest rates imposed by the Fed. Even as most homebuyers aim to live in the new homes that they bought, some purchased new homes for their home rental business.
The health crisis saw more Americans shifting their perspective when it comes to investing. A recent survey showed that people are more inclined to invest in real estate than in the stock market. They also prefer owning a rental property since it provides stability and comfort. Here are the other advantages when people invest in a property rental business.
Investors Decide on Everything About the Property
Investing in rental property allows the property owner to decide on the property he wants to purchase. He also decides the tenants he will accept and the rent he will charge for the property. The property also decides on how to maintain and manage the property while a tenant rents it. He can also hire a property management company to manage the property if he has no time to do so.
It is unlike investing in a mutual fund where the investor depends on someone else to manage their money. While they can choose the stock or mutual find to put in their investment, someone else takes charge of the investment.
Rental Income
Rental properties also give property owners monthly income as long as they have a tenant leasing the property. The amount they earn depends on the rate and the expenses for maintaining the property. To increase the chances of getting a tenant to lease the property, they can hire a property management company to advertise the property online.
Another option is for the property owner to sign up for a real estate online marketplace and promote the property himself. They can either promote it as a short-term vacation rental or a long-term rental property.
Helps in Loan Payment
Investing in rental property also allows an investor to buy properties through a mortgage loan and earn income to pay off the loan. Among the more popular loans are the 30-year fixed-rate loans. While the interest rate stays the same throughout the payment period, their payment will decrease as they slowly pay off the principal loan.
They can use the rental income that they earn each month to pay off the loan. For instance, the rental rate for the property is $1,500 per month, and their monthly loan payments only amount to $270 per month. Even if they include the maintenance cost and taxes, the homeowner will still earn a monthly income from the investment.
And as the years pass, their monthly income will increase since the amount paid for the principal loan will decrease. After paying off everything, the homeowner will receive the full amount of the rental income minus the expenses for the maintenance of the property.
Increase in Property Values
After paying off the loan, the property owner can look forward to an increase in the value of their property. The appreciation comes even if they only used a small amount of their own money to purchase the property. For instance, they used only $10,000 as the down payment for a $100,000 property and paid the remaining $90,000 using a loan. They can pay off the loan using the rental income they get every month.
At this point, they acquire a property worth $100,000 using only $10,000 of their money. And as the years pass, the property value starts to appreciate. An appreciation of five percent per year will give them a property that has a value of nearly $163,000 after 10 years. This means that after 10 years, their $10,000 initial investment has grown to become a property valued at $163,000.
But property owners should remember that they should have a tenant leasing the property every month so that they can cover the loan they used to buy the property.
Tax Write-Off
When property owners offer their property for rent, they can get tax deductions from the Internal Revenue Service (IRS). The deductions they are entitled to include some expenses, including property tax, depreciation, mortgage interest, repairs, and operating expenses. They can deduct these items from their tax return.
They can also deduct ordinary, necessary expenses covering the management and maintenance of the property. These expenses include taxes, interest, utilities, insurance, and advertising. Property owners can also deduct the cost of acquiring materials and supplies needed to maintain the property. Additionally, they can deduct any expenses that their tenant pays for if they are considered deductible rental expenses.
Many people acquire property to take advantage of the benefits they can get from offering the property for rent.