The United States’ real estate market is worth a staggering $202.6 billion in 2022. It’s no wonder investors are streaming in from all over the country, looking to grab a piece of the $202 billion cake. This makes perfect sense, given that real estate is promising, a tangible asset, and is a more stable investment than other options, like stocks.
If you’re looking to get your foot into the real estate business, why not invest in rental properties?
Investing in rental properties is an excellent way to earn passive income and make a killing with your real estate venture. If you’re still mulling over whether you should invest in rental properties, we’re here to help you make the right choice.
In today’s post, we’ll be highlighting a couple of reasons why investing in rental property works for the best.
Boasts a High Return on Investment (ROI)
While it’s true that investing in real estate requires considerable capital investment, the returns on investments make it worthwhile. Rental properties boast one of the highest ROIs among common investment options.
The average ROI on rental properties is about 9%, which doesn’t sound like a lot. However, it’s pretty high when you compare it with other investment options. Plus, you could be looking at an ROI of up to 25% with some rental properties.
Turnkey properties have one of the highest ROIs among rental properties. They’re ready for occupation, and investors can save on taxes and other expenses. Read more about turnkey properties and decide whether they’re worth investing in.
An excellent ROI means you shouldn’t have second thoughts about borrowing to invest in real estate. That’s because you’ll make enough to pay back the loan and make a lot more money on
Rental Properties Appreciate in Value
Rental properties almost always appreciate in value, translating to increasing returns. While most assets depreciate over time, real estate properties don’t. This means you can sell your property after a while and still make a profit.
However, one of the most significant determinants of a property’s value is time. The longer you hold on to a property, the more it will be worth. Plus, you’re set to make a huge killing with increasing house prices.
Enticing Tax Benefits
Investing in rental properties comes with a couple of enticing tax benefits. For starters, you can deduct mortgage interest and operating expenses from your rental income. Plus, there are other tax-deductible expenses with rental properties, including:
- 1031 exchanges
- Owner deductions
- Property taxes
These deductions can significantly lower your taxable income, translating to better profit margins.
Inflation Hedge
Inflation is the silent wealth killer. It reduces the purchasing power of your money, eating into your profits. However, rental properties are an excellent hedge against inflation.
Rental income usually increases along with inflation. As the cost of living goes up, so does rent. This means you can keep up with the rising cost of living without pinching your pennies.
Allows You to Diversify Your Assets
Investing in rental properties is a great way to diversify your income portfolio. With rental property, you can invest in more than one market. For instance, you can have multiple properties in different regions.
That way, you can spread your risk and invest in multiple properties that increase in value. However, you need to know how to invest in rental property before acquiring multiple properties. A firm understanding of local markets is necessary before investing in rental properties.
Provides Retirement Income
Investing in rental properties can provide you with an excellent source of retirement income. With a steady rental income stream, you can comfortably enjoy your golden years without worrying about money.
Plus, since most people live longer nowadays, having a reliable source of retirement income is essential. It would be best to start investing in rental properties as soon as possible to enjoy the maximum benefits.
Seamless Exit Strategy
It’s not uncommon to want to relinquish ownership or sell off your rental property after raking in enough money from your investment. If you opt for the latter, selling your rental property will be a cakewalk.
Many investors are itching to get their hands on rental properties, and you can sell yours at a profit. This is much better than other assets that are a headache to sell off and sell at a loss.
How to Invest in Rental Properties
For beginners, investing in rental properties might seem overly complex, but it’s not. Here are a few steps for investing in rental properties:
Create an investment strategy: The first step is to create a plan for your rental property investment. Decide whether you want to buy the property to rent or to buy the property and sell it at a higher price.
Research the local housing markets: You’ll need to properly understand the local housing markets before making any major investments. Ensure you find a market with stable prices and a promising future.
Assess the property: The next thing to do is find a piece of property worth investing in. You can buy anything from affordable student housing to an expensive vacation home. Just make sure you can afford the property in question.
Find a suitable funding option: As mentioned above, there are several ways to finance your investment. You can use your savings, find potential investors, or get a bank loan. Choose a financing option that works for your credit score and financial situation.
Calculate expected returns: Naturally, you’d want to know how much you could make from your venture. Assess your capital growth potential, considering both internal and external factors. This will help you establish whether investing in the property is good.
Find suitable tenants: Promote your property on social media and other means and find qualified tenants for your property. All you have to do now is maintain the property and watch the money stream in.
Secure Your Future With Rental Properties
As you can see, there are plenty of reasons to invest in rental properties. Not only are they a great source of passive income, but they’re also an excellent hedging tool against inflation.
Plus, you can achieve financial security and peace of mind in your retirement years with a well-diversified portfolio of rental properties.
Check out our other posts for more informative content.