Owning and renting out real estate is an investment strategy that’ll allow you to reap plentiful rewards. When looking for ways to generate income through investments, you may be surprised at how beneficial it is to oversee a rental property. Here are five reasons you should own rental real estate:
1. Cash Flow
Every month that your tenant pays rent, you’re getting a little positive cash flow into your life. Cash flow is simply your rental income minus your rental expenses. Determining the likelihood of positive cash flow is the litmus test that many investors use when evaluating a rental property.
However, in the Bay Area today, it’s quite challenging to find a rental property to invest in that is cash flow positive. That is why many investors are going out of the Bay Area or even out of state to buy a rental property.
2. Tax Deductions
Some investors own rental real estate simply for the tax deductions and, right off the bat, you have many. These include your property taxes, insurance, maintenance and capital expenditures, like a new roof. Property management, meaning when you engage with a property management company, acts as a write-off as well.
The biggest write-off is depreciation. Each year, you’re able to cancel a depreciation from your gross income, which can be, for many properties, many thousands of dollars. It’s your biggest tax deduction.
3. Equity Buildup
Every time your tenant pays rent and you, in turn, pay down the mortgage, you’re building up equity. When you pay down your mortgage, your equity and net worth in the company increases.
If you buy a hundred-thousand-dollar home today, who’s to say that in ten, twenty or thirty years from now, it’s not going to be worth more? Here in California, over the last fifty years, there’s been an appreciation of five percent, which is the average throughout the state. Appreciation in property value is proven and a great benefit.
By being able to visit and interact with your property, with your tenant’s permission, you’re granted more control over your investment. It’s the kind of control you wouldn’t have otherwise with, for example, a stock portfolio, which simply results in receiving monthly statements. With real estate, you have a greater role to fulfill.
These five reasons for owning real estate are significant benefits. Real estate is an investment that can provide financial security and help you greatly in the future. If you have any questions about real estate or investing, contact East Bay Property Management and Consulting.