Adding rental properties to investment portfolios can have a vast array of benefits for today's investors. In comparison to other investment products on the market, real estate has no equal. Obtaining real estate allows investors to utilize the power of leveraging borrowed funds and often provides for several tax deduction opportunities. These things can make real estate investments a much more attractive and reliable option for investors versus things like stocks and bonds.
Building Wealth with Real Estate Investments
Leveraging (using borrowed capital for an investment with the expectation that profits made will be greater than the interest payable) is one of the greatest benefits of real estate investments. By obtaining a mortgage to purchase rental properties, investors can leverage the borrowed funds to generate monthly cash flow as well as realize a gain on the underlying value of the property. Furthermore, the monthly cash flow generated by a real estate investment is usually much greater than the cash flow generated by purchasing other types of investments such as stocks and bonds.
One of the biggest advantages of investing in real estate is depreciation as no other type of investment offers the benefit of depreciation. Depreciation allows investment property owners to deduct a portion of the property's value off their gross annual income. The advantage of depreciation is made greater by the fact that rental properties have the potential to appreciate in value. In a market that is stable or improving, like the market in the greater Wilmington area, this can be a tremendous benefit to property owners. However, it must be noted that only the cost of the physical structure can be depreciated, not the land itself, as the land value does not decrease.
Tax Advantages for Investment Property Owners
There are several tax deductions available to rental property owners in addition to mortgage interest and real estate taxes. Standard operating expenses associated with investment properties can also be used as tax deductions. Things like repairs and maintenance, insurance, utilities, property management services and associated fees and even travel costs can often be considered tax-deductible items.
Repairs are only considered deductible while the property is being used as a rental; therefore, making improvements to the home while it is being rented can be of great benefit to property owners. Improving a rental property will often result in commanding higher rental rates and overall lower vacancy periods. This is great news for those who own properties that are perhaps aging out of the competitive rental market. Instead of selling, owners can invest in upgrades and secure tax benefits while also gaining the advantage of securing higher rental rates.
Of course, it is always advisable to check with a tax professional or CPA to ensure that you qualify for these deductions before relying on them come tax time.
What Market Conditions are Prime for Investors?
Rental property investors may wonder what market conditions indicate whether it is a good time to continue in the rental market versus selling a property. There are a few indicators that one should continue to stay in the rental market, and one is if market prices are increasing. The keen investor should always keep a close eye on the market where their investment properties are located. Some markets, like the greater Wilmington region, hold steady and tend to trend upward each year, making it a prime location for real estate investors.
Keeping an eye on not only market prices in general, but specifically rental prices in the area in which an investment property is located is important as well. If you're finding you can get increased rental rates each year, it’s a good time to continue as a property investor.
Hiring a Professional Property Management Company
One of the best thing real estate investors can do is hire a professional property manager to care for their investment properties. A professional property management company will aid in providing a market analysis, managing maintenance and upgrades and ensuring that your property is being properly cared for by tenants. Furthermore, professional property managers can handle all aspects of your investment, making owning rental properties a relatively hands-off investment. Property managers can take care of everything from advertising, tenant screening and leasing to collecting rent, maintaining financial reports and handling turnovers once tenants vacate.
If you have questions about how a rental investment could benefit you or how working with a professional property management company could increase the value of your investment, reach out to Sweyer Property Management's team of experts today.