Buying rental property for the sole purpose of generating income can be incredibly profitable. It’s not without risk, but if you are willing to do your research and put the work in, income property is a wonderful investment. Let’s look at five benefits of investing in and income property:
1. You Are In Control
In some ways, you can think of your income property not just as an investment, but as a business. You make the choices. You choose which property to buy, who you will rent to, and how involved you want to be with the property. Some owners are hands-on, some leave the details and management to a third party. If you are looking to be your own boss, you can make income property your business.
2. Increase In Value Equals A Highly Leveraged Asset
In most cases, your actual out-of-pocket cost at the outset is low, with the bank picking up the rest. Over the next few years, your property will go up in value. If it was originally worth $100,000 and now it’s worth $180,000, and you put only $10,000 of your own money down, then you have effectively turned $10,000 into $180,000. Not bad.
3. Rental Properties Generate Income
In addition to the value of your investment, your rental property can also generate income. Depending on your situation, it may not be much. For example, if you purchased a single-family home and you have a mortgage of $750, but you rent it for $1250, then you are theoretically making a profit of $500. However, you must keep in mind other expenses such as property tax, maintenance and other fees. Over time, however, this amount will grow, and if you purchase a larger property, such as a duplex or a small apartment building, your potential income may be much larger.
4. Your Tenant Pays Your Debt
Even if you are not making a large initial profit off of your rental income, you are creating wealth through leveraging your tenant’s money. They are paying down your mortgage for you every year, allowing you to build equity at little or no cost out of your pocket.
5. Generous Tax Write-Offs
Owning an income property brings a surprising amount of tax benefits. You can write off interest on your mortgage, the cost of improvements and more.
While there may be risks and pitfalls involved with income property, it is for the most part a sound investment. Be smart about it, and over time, you can build considerable wealth and security.