Why New Investors Should Consider Rental Properties

by / Friday, 01 June 2018 / Published in Financing Blog

Making investment decisions for yourself gives you the freedom of being your own boss. The choices of tenants and rent amounts are yours. With that freedom also comes the responsibility of managing and maintaining your property.

Optimal property choice is key to attracting quality tenants. Let’s look at some things to consider when searching for the right rental properties that will attract quality tenants. Is the property in a decent neighborhood with good schools? What is the crime rate where you are considering to buy? Other less obvious factors that will affect your bottom line include the cost of property taxes opposed to the amount of rent you will be able to charge at that location. The availability of amenities such as shopping and recreation round out the list of considerations.

Use Your Leverage

The simple definition of leverage is the act of using more loan money to purchase a property than your own funds. When purchasing an investment property, using your leverage can literally pay dividends and potentially increase the return on your investment. If you buy a $100,000 property with $10,000 of your own money, the appreciation of the property is based on the total value of the property. After five years, assuming a five percent rate of appreciation each year, your $10,000 investment will have turned into approximately $40,000 dollars.

Put Money in Your Pocket

Renting your investment property to tenants will enable you to receive rental income. Even with subtractions for mortgage and routine maintenance expenses, you should have a little money left over. For example, by using a 30-year fixed rate mortgage and owning the property at least fifteen years your tenants are paying off your debt. This translates to creating more wealth for yourself.

Write It Off

Owners of rental properties are able to take sizeable tax deductions. The mortgage interest on your investment property as well as any expenses can be written off. This includes legal fees, insurance, maintenance, and property taxes. In addition, the property can be depreciated according to a depreciation schedule set by the government even though it may be appreciating in value.

Being an income property owner is a huge commitment, but, if handled properly, that huge commitment can bring equally large financial rewards.