Why Invest in Rental Property?

Posted by Teresa on April 13, 2010 under Landlord Tips | icon: commentBe the First to Comment

iStock_000003697418XSmall-300x199Becoming a landlord is not for everyone. A few of the attributes one needs are patience, people skills, and good business practices—and there is still no guarantee it’ll work out.

But if you’re thinking about buying your first rental property, the same factors that most landlords consider before diving into the business apply to you, too. Here are a few reasons to consider investing in rental property:

You want a diversified investment portfolio. Ask your financial advisor (preferably a professional, not your brother-in-law!) how rental property would fit into your investment mix. Diversification can help you protect your assets.

You want additional income. Most rental property owners are middle-class working people who decide another income source would be beneficial. It takes time to manage a rental property business, but you can do it part time and keep your day job. And who knows? If you’re successful, you can always work into making your rental business a full-time venture.

There are tax advantages. Again, check with your tax professional, but real estate is one of the most favored investments, tax-wise. A few benefits are deductible expenses, depreciation write-offs, and favorable capital gains tax rates. Writing off depreciation alone can offer a large tax break against annual cash flow.

In the long run, real estate holds value. Despite the housing bubble the US recently experienced, depreciating home values and foreclosures, over the long term, rental properties have held their value through all the boom and bust housing market cycles. Of course every business has up periods and down periods, and rental property is no exception. Think long term, and be cautious.

Investing in rental property can help you in retirement. Done well, and with a thought-out strategy, real estate investment can augment your retirement fund. As with any investment, the earlier you begin, the better your results will be. Think about holding properties for 20—30 years, not 5. Think tortoise—not hare—when it comes to making decisions about rental property as an investment.

The contents of this article are intended for general information purposes only, and should not be relied upon as a substitute for obtaining tax advice applicable to your situation.