Five Reasons to Invest in Rental Real Estate (and One Caveat)

By John Drachman

What if you could design the ideal investment from the ground up?

Your investment might first offer attractive monthly income – especially good if you are one of the 10,000 baby boomers a day joining the ranks of the newly retired.

If the bull market stumbles, make sure your investment can offset a market pullback and still pursue upside potential down the road. Give yourself significant tax breaks too right from the start. Finally, diversify your stock and bond securities for an investment that’s feels closer to home – a real asset.

Now add up income potential, non-correlation with stocks and bonds, total return potential, substantial tax breaks and the comfort of real assets – and what do you have? The income-generating power of rental real estate.

Keeping It Real

Income properties come in a wide array of single or multi-family properties, as well as commercial properties like strip malls. For those who can afford the upfront costs of acquiring a property, rental real estate offers five attractive advantages.

  1. The Joy of Rental Income Any of the rental money from your tenants that you realize after paying your expenses is money in your pocket.
  2. Leverage Your Investment for Growth Many purchase their rental property with a relatively small amount of their own money and borrow the rest. Through smart property selection and careful financing, many investors have seen their properties appreciate five- or six-times over the mid-to long- term.
  3. Let Tenants Pay Your Mortgage Every year you own the property means you are letting the tenant’s money pay off your debt. The longer the property is held, the more of the loan principal is paid – and the more wealth you generate for yourself.
  4. Take a Big Tax Break As a rental property owner, you enjoy substantial tax deductions and write-offs for interest on your mortgage and credit cards used to make purchases for the property, maintenance repairs, travel expenses, property taxes –and much more.Additionally, you can depreciate the purchase price of your property.
  5. You’re in Control It’s no surprise that do-it-yourselfers gravitate to rental properties. You choose the property, screen the tenants and decide what to charge. Unlike stocks and bonds, rental property is a hands-on investment for most.

The Caveat: Rental Real Estate Isn’t for Everyone

Like any investment, real estate has its risks. More than about “location, location, location,” successful real estate investing takes education, patience and expertise. Consider meeting with a financial advisor to review your portfolio, tolerance for risk, credit score and savings before taking the rental real estate plunge.

John Drachman is a contributing writer to www.myperfectfinancialadvisor.com, the premier matchmaker between investors and advisors. John is an IABC award-winning writer, who applies his 30 years of financial marketing experience toward advancing the dialog between investors and investment professionals.

Leave a Reply