There are several financial benefits that come along with owning a rental property. A lot of investors focus solely on the rental income itself, however, there are other financial benefits to consider.
Owning a rental property, with a tenant occupying the property, enables you to receive rental income. Let’s suppose that you have one tenant. Your tenant pays you a monthly rent amount of $1,100 a month. Your PITI (principal, interest, taxes, insurance) mortgage payment is $700 a month. By subtracting $700 from $1,100 it will leave you with $400 cash to go into your pocket each month, right? NO not exactly, there are 2 more costs to consider.
From the $1,100, you will want to assume about 5% a month for vacancy costs, and 5% for maintenance costs. These are costs that you do not want to ignore. After deducting these additional costs, you will now have about $290 a month that will count as your cashflow income.
Tax Write Offs
There are huge tax deductions for rental property owners. For example, you can write-off interest on your mortgage and credit cards used to make purchases for your property. Other write-offs included; insurance, travel expenses, legal fees, maintenance repairs and property taxes. You can find a more extensive deduction list on www.Nolo.com.
Appreciation is when your property increases in value over a period of time. It could also depreciate and experience a decrease in value. However, real estate is a relatively safe long-term investment because of increasing value or “appreciation” that occurs over time. Most appreciation happens because of increased demand for properties or a change in interest rates or inflation.
Let’s assume you purchase a property for $100,000. This property appreciates 5% in value every year for 10 years. After 10 years, your property will have increased in value by almost $63,000.
Owning a rental property brings immediate financial benefits along with long-term financial benefits, making rental properties a top investment option for investors. With careful planning, rental properties can be a significant piece of your investment income portfolio.