Have you ever considered owning an investment property?
Investing in real estate is a smart decision, particularly when it comes to income-generating rental properties.
In this article, we’re going to discuss seven key benefits of owning an investment property.
1. Passive Income
Perhaps the greatest benefit of owning an investment property is the rental income generated by the property. As long as your monthly rent covers your monthly mortgage and operating expenses, you get to pocket the difference as income.
If you choose to manage the property yourself, you will need to invest some time and energy in activities like finding renters, collecting rent, and arranging maintenance services. But you also have the option to hire a property manager to handle the day-to-day operations on your behalf, making your income purely passive.
2. Appreciation
Real estate values naturally increase over time due to the inherent scarcity of land. By owning an investment property, your net worth grows as your property becomes more valuable. You’ll be able to capitalize on this appreciation in the future when you’re ready to sell. Or you can capitalize on your increase in equity by borrowing against the equity to purchase a new rental property and expand your portfolio.
3. Tax Advantages
Rental properties provide multiple tax benefits. First, you can deduct qualified property expenses from your income taxes. Secondly, you can claim depreciation each year, which also reduces your income tax burden. You also have the option to take advantage of 1031 exchanges to defer capital gains tax on the sale of a property, which allows you to grow your real estate portfolio faster.
4. Flexibility
Owning an investment property gives you options. You can rent the property to long-term renters or maximize the nightly rate by making your property a short-term vacation rental (local law permitting). You can occupy the property yourself if it suits you down the road, or you can allow friends or family to stay there for a time. You might even build an ADU on the property to create a whole new income stream.
5. Diversification
Owning real estate allows you to diversify a traditional stock-and-bond investment portfolio. Diversification is important as a means of mitigating risk. If your stock portfolio stumbles, for example, you still have rental income, appreciation, and tax breaks from your real estate holdings to buoy your overall investment portfolio.
6. Hedge Against Inflation
Real estate acts as a hedge against inflation because property values typically rise with inflation. Even better, inflation drives increases in rental rates, which can boost your rental income to help you weather rising inflation.
7. Tangibility
Unlike many other investment options, real estate is a tangible asset. Stocks, bonds, and even cash itself are only valuable as long as we collectively agree that there is a value assigned to them. Uncertainty in the value of such securities can cause the value to plummet. But with income properties, you have a plot of land and a structure that can’t simply evaporate because of a lack of trust.
Are You Ready to Buy Your First Investment Property?
Take our five-question quiz to determine if you’re ready to buy your first investment property. And when you decide you’re ready, contact the real estate experts here at Sequoia Real Estate. We can help you find suitable properties and negotiate the best price and the best terms to get your new investment a successful headstart!