Covid19 has highlighted the impotance of having your own Home assets for the future of your family. Many individuals invest in residential rental property and find that with the right property and the right planning, being a landlord can be financially rewarding.
The following are some financial advantages that can make Residential asset investing attractive:
1. Use of Borrowing Power
With real estate investing, there is a benefit to using debt to increase the ability to purchase, especially if multiple properties are involved. One property can be leveraged to purchase the next. As additional properties are purchased, the an investor’s cash outlay can potentially decrease if the property values have increased enough to support the next purchase.
2. Cash Flow
If the rents charged exceed the cash carrying costs of the property, the result is positive cash flow. Cash carrying costs take into account real estate taxes, debt service, insurance, capital improvements, repairs and maintenance, utilities, association fees, and management fees. Many retirees use income streams from rental properties to supplement or provide for retirement income.
3. Increased Investment
If the property is mortgaged, part of the cash carrying costs noted above include the principal portion of the monthly mortgage payment. This amount is not truly an expense of the rental property, since it builds equity in the investment. Consider this the dividend reinvestment program of the real estate world. Also, the hope is always that real estate markets will flourish and the fair value of the property will grow. However, as with stock that appreciates, the only way to realize that appreciation is to sell the property.
4. Tax Deductions
While rental income is taxable, it comes with some viable potential tax deductions. Taxable rental income can be reduced by cash expenses, including some of the same costs listed under point two above – real estate taxes, mortgage interest, insurance, repairs and maintenance, utilities, association fees, management fees (or travel costs to and from the property if the property is self-managed rather than serviced by a third party manager).
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