10 REASONS TO INVEST IN RENTAL PROPERTY IN 2016
Megan Webb - Monday, February 8, 2016
TOP 10 REASONS TO INVEST IN RENTALS IN 2016
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Rental Demand is on the Rise: Home ownership rates are down so more people are renting for a number of reasons. Some don’t want the responsibilities of owning. Others perhaps can’t get a mortgage or they are just not sure where they want to put down roots. Homeownership is still the American Dream but for some it’s just easier to rent.
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Homes in our area are affordable: We are lucky that in southern IL property is affordable. Make your money going into the deal so that you have built in equity and better cash flow. Finding a bargain may mean doing repairs or dealing with distressed properties. If that doesn’t appeal to you and you buy a turnkey property, don’t pay retail value.
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Interest rates are LOW: Even though the rates are creeping up, the cost of borrowing money is still cheap. Commercial loan rates are higher then a home loan, but only slightly. Banks will loan on rentals unlike other start up businesses.
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Monthly Cash Flow: Most investors get into real estate for the monthly “mailbox” money that can supplement or even replace their income.
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Tax shelter for income: Owning rentals can offset income taxes from your job. Repairs, mortgage interest, and management fees are deductible. The phenomenon of depreciation allows you to write off the “cost” of wear & tear of time on the building, land improvements and even the appliances.
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Diversify your portfolio: We all know we need to diversify our investments but that doesn’t mean buying stocks AND bonds. You can try to time the markets to achieve the returns you will see in real estate, but it may feel a little like gambling. If you prefer tangible assets that you can physically improve and control, real estate is a safe bet.
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Avoid or defer income taxes by doing 1031 Exchanges: When you are ready to sell a rental property you have a couple of options; pay income tax on the gain or exchange through a 1031 Exchange where you can sell your property and roll the funds into a another commercial property. It’s fun to exchange your houses for an apartment building or motel.
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Use leverage to increase you Return on Investment: The bank will require a 10-20% downpayment to secure financing. Your $20,000 downpayment will buy a $100,000 asset that your tenants will pay for over the course of the next 15 years while you collect rent and tax benefits. Your initial investment has a return greater then most investments and is far less risky.
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Property Managers can help you through the purchase, finding tenants, collecting rent and make the process smooth and more of a passive investment. On average, it take about 4 hours a week to manage one property. If you don’t have the time or experience, hire someone who knows the business.
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You already know a Pro in Property Management: Megan Webb started House 2 Rent in 2016, but she has been buying rentals for over a decade. It’s a small fee to keep your rental business running like a well oiled money machine!
