Owning an investment property can be an excellent way to supplement your current income or help secure a comfortable retirement. Real estate investors primarily make money through rental income or by reselling a home after increasing its value. Like any business, you’ll need to do your research and calculate expenses before you buy an investment property, but the advantages are clear.
A steady cash flow
If you’re ready for the responsibility of being a landlord, renting out your property can be an ideal way to earn recurring income. Rental money provides you with a constant cash flow that can be put toward the home’s mortgage or other expenses. In fact, if you’re considering becoming a landlord and can afford to do it, now may be a good time for you. U.S. homeownership is declining for the first time in two years,* which means the rental market is booming.
If you’re just starting out as a landlord, single-family homes are typically the easiest type of property to buy and maintain. You might also be interested in renting out a vacation home for shorter amounts of time throughout the year. If you buy in a highly desirable area, it’s possible to make just as much money as you would with a year-round tenant. When purchasing a rental property, you should also plan for the possibility of not being able to find a tenant year after year. Make sure you can afford the home’s mortgage payments, without depending on rental income, so you don’t wind up losing money on your rental.
- Tax benefits
There are many tax deductions available if you own a rental property. Landlords can deduct mortgage interest, maintenance and repair costs, utilities, occupancy taxes and more. These appealing tax breaks are important for ensuring a profit on your rental home.
- Inflation benefits
As a landlord, you also have the ability to increase the rent. This can be a beneficial way to protect your investment from inflation. Another bonus: Inflation won’t affect a fixed mortgage rate, so you can continue to profit from the increased rental income.
An increase in property value
While there are some investors who buy real estate to rent out, others purchase a home that they plan to fix up and sell for a higher price than they bought it for. Are you someone who likes doing home improvement projects? Purchasing a fixer-upper home can be a great way to make a profit. If you buy your investment home at a good price in a good neighborhood, there’s a very good chance you can raise its value.
Consider your skills, knowledge of the market and disposable income when taking on this project. You don’t want to end up losing money on this potential investment by going about it the wrong way. Small repairs are always a safer bet than large home improvements. If you’re the entrepreneurial type, this method of real estate investing can work well for you.
Property is a physical investment
Unlike the stock market, a home is a physical asset you can see and regulate. It’s impossible to predict the stock market, but you have more control over a real estate investment, and it doesn’t fluctuate as much on a daily basis. You can set the rent, decide how you want to renovate it and choose when to sell it. If the housing market isn’t great, you have flexibility to wait and sell when the time is right, or choose to rent it out. Rental properties are always in high demand, especially in popular cities that continue to grow. Like most investments, your home is likely to gain value over time. With less risk than other investments, real estate can be a great way to diversify your portfolio.
Lifestyle flexibility and personal reasons
Whether it’s a home you inherited or a home in the town you grew up in, you may not want to give up a piece of real estate for sentimental reasons. Utilizing it as an investment property allows you to hold on to the home, without having to actually live in it at this time in your life. That option will always be there for you.
If you decide to move away from your investment property, the idea of having a home to come back to can be reassuring. Or, you may decide you want to downsize from your current two-story home to your smaller investment property in retirement. If you’ve bought a vacation home, you can always rent it out now and enjoy it for yourself at some point later in life.
With knowledge of the market, dedication and patience, real estate can be a great way to add financial security to your current lifestyle and future. Ready to get started? Start your investment property search by searching for homes for sale under $200,000.