Adding rental properties to investment portfolios can have many benefits for investors today. Compared with other investment products on the market, real estate is second to none. Obtaining real estate allows investors to use the power to leverage borrowed funds and often offers several possibilities for tax deductions. These items can make real estate investments a much more attractive and reliable option for investors than items such as stocks and bonds.
Create wealth with real estate investments
Leverage (using borrowed capital for an investment in the expectation that the profits made will be greater than the interest payable) is one of the biggest advantages of real estate investments. By securing a mortgage to purchase rental property, investors can leverage the borrowed funds to generate monthly cash flow and realize a gain on the underlying value of the property. In addition, the monthly cash flow generated by a real estate investment is usually much greater than the cash flow generated by the purchase of other types of investments such as stocks and bonds.
Depreciation is one of the main advantages of real estate investing because no other type of investment offers the benefit of depreciation. Depreciation allows owners of investment property to deduct a portion of the property’s value from their gross annual income. The benefit of depreciation is increased by the fact that rental properties have the potential to appreciate in value. In a stable or improving market, like that of the greater Wilmington area, this can be of great benefit to homeowners. However, it should be noted that only the cost of the physical structure can be depreciated, not the land itself, as the value of the land does not decrease.
Tax benefits for owners of investment properties
There are several tax deductions for rental property owners in addition to mortgage interest and property taxes. Current operating expenses associated with investment properties can also be used as tax deductions. Things like repairs and maintenance, insurance, utilities, property management services and associated costs and even travel expenses can often be considered tax deductible items.
Repairs are only considered deductible when the property is used as a rental; therefore, making improvements to the home while it is rented can be of great benefit to homeowners. Improving a rental property will often result in higher rental rates and shorter overall vacancies. This is great news for those who own properties that may be aging outside of the competitive rental market. Instead of selling, homeowners can invest in improvements and get tax benefits while enjoying higher rental rates.
Of course, it’s always advisable to check with a tax professional or CPA to make sure you qualify for these deductions before relying on them at tax time.
What market conditions are preferred for investors?
Rental property investors may wonder what market conditions indicate if this is the right time to continue in the rental market versus selling a property. There are a few indicators that one should continue to stay in the rental market, and one is if the market prices go up. The informed investor should always keep a close eye on the market in which his investment properties are located. Some markets, like the greater Wilmington area, remain stable and tend to increase each year, making them a prime location for real estate investors.
It is also important to keep an eye on market prices in general, but also rental prices in the area in which an investment property is located. If you find that you can get higher rental rates each year, now is a good time to continue as a real estate investor.
Use a professional property management company
One of the best things real estate investors can do is hire a professional property manager to take care of their investment properties. A professional property management company will help you provide market analysis, manage maintenance and upgrades, and ensure your property is properly maintained by tenants. Plus, professional property managers can manage all aspects of your investment, making rental property ownership a relatively straightforward investment. Property managers can take care of everything from advertising and tenant selection and rental, to collecting rent, keeping financial reports and managing turnover once tenants are vacated.
If you have any questions about how a rental investment might benefit you or how working with a professional property management company might increase the value of your investment, to reach to the Sweyer Property Management team of experts today.
Sweyer Property Management has shown continued growth in the Wilmington, Leland and Hampstead areas while maintaining excellent Google+ note for customer service. To learn about the company’s comprehensive management services or to view homes for rent in the area, visit them online at WilmingtonForRent.com.