3 Financial Benefits of Owning a Rental

3 Financial Benefits of Owning a Rental

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.

Rental Income
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
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.