With this year's tax deadline quickly approaching, many of you may have already filed your taxes and perhaps even have a refund coming your way. Are you still trying to decide what to do with that refund? If you don't have it earmarked for bills that must be paid or other immediate expenses, investing in a rental property is one option to consider as it will provide a steady passive income and likely provide you with attractive tax benefits.
Building your Investment Portfolio
Investing in rental properties is one of the best ways to build your investment portfolio for many reasons. Using borrowed money for an investment with the expectation that profits will exceed interest owed (also known as leveraging) provides some great perks for real estate investors in that those borrowed funds can generate monthly cash flow. Property investments often generate a larger cash flow versus traditional types of investments like stocks and bonds.
Rental property investments also offer the benefit of depreciation. Property owners may deduct a portion of the property’s value from their gross annual income and this advantage is made greater by the fact that rental properties can appreciate in value. In a stable, growing market like the Wilmington area, this can create tremendous financial benefits for property owners.
Those who own rental investment properties have several tax benefits available as many expenses associated with the property can be deducted. Repairs and upgrades, maintenance costs, insurance, and property management fees can be considered tax-deductible items. But, it’s important to keep in mind that in order to claim these deductions, some general guidelines must be followed. For instance, repairs and upgrades are only considered deductible while the property is being used as a rental – in other words, the property needs to be occupied while these upgrades and repairs are being made. Making improvements to a rental investment property will only make the property more attractive to potential renters as well as allow it to command a higher rental rate, therefore increasing the value of your investment.
Please note that you should always speak with a tax professional regarding possible deductions related to your rental investment.
Keeping an Eye on Market Conditions
The state of the local real estate market should always be taken into consideration when purchasing a rental investment property. If the market in the area in which you’re purchasing is continually trending upward, that’s a good sign that your rental investment will garner a good return. It’s also important to keep an eye on rental rates in the area as well as have a general idea of housing supply vs. demand. In the Wilmington market, single-family homes are becoming increasingly desirable and the availability of those properties is often low. This allows investors to command higher rental rates as well as leads to shorter vacancy periods due to the popularity of these properties.
Recently, there has been a huge increase in people moving south and wanting single-family homes versus apartments or condos as single-family homes provide the space and privacy they desire. With a large portion of the population working from home, single-family homes also typically have room for the in-home offices tenants may need.
Where and What Should I Buy?
If you’ve decided that a rental property investment is the right choice for you, you, of course, need to know what type of property to buy and what locations within the area are most popular. This is where real estate and property management professionals come in – a sales agent can assist you with the purchase process while a property management professional can advise on popular and upcoming areas in the local market. Using these professionals to your advantage will help you steer clear of purchasing a property with undesirable features that may sit vacant and devalue your investment.
Though there is a lot to consider when purchasing a rental investment property, these investments have proven time and again to be greatly advantageous to property owners. By doing your due diligence in researching the area and tax benefits as well as employing the expertise of real estate professionals, you can put this year’s tax refund to good use and bolster your investment portfolio.
Are you a first-time investor searching for a property to purchase? Or an experienced investor looking to grow your portfolio? Reach out to our new business director today. Sweyer Property Management’s experts maintain relationships with top local brokers and together, can guide you in purchasing the perfect rental investment property.
If you have additional questions or are ready to start looking for your investment property, please reach out to us today via our website or at 910.239.1338.