Purchasing a rental property is an excellent way to generate income, build wealth and invest in yourself. first-time landlords are essentially acting as an investor, purchasing real estate with the intention of renting it out and making money from the tenants who will occupy the space.
However, being a landlord also comes with its fair share of responsibilities. You’ll need to find tenants, manage maintenance issues, and have enough money set aside for inevitable repairs—all while accounting for property taxes, insurance premiums, and other expenses that come with owning real estate.
Fortunately, there are plenty of benefits to investing in rental properties that should encourage you to take the leap! Here are some good reasons why you should buy a rental property…
Diversify Your Investments
Whether you’re investing in stocks, bonds, or mutual funds, diversification is one of the most important principles of investing. By purchasing a rental property, you’ll diversify your investments and reduce your risk of loss.
Real estate is one of the most stable investments, and it’s also highly liquid—which means you can sell it quickly if you need the money. Plus, it’s fairly easy to get financing for rental properties because they’re considered low-risk investments.
If you have all your money in stocks, for example, a sudden economic downturn could wipe out your entire investment. But if you have some money in stocks and some in real estate, the real estate investments will act as a buffer.
Build Wealth
The best way to build wealth is to make an investment that will appreciate in value over time. Buying rental properties is one of the best ways to do this. You can make improvements to the property and raise the rent to increase your profit.
A good rule of thumb is that you should aim to make at least a 10% profit on each rental property. You can also take out loans against rental properties to inject more cash into your business.
The extra cash can go towards purchasing new properties and improving existing ones. When you make an investment that appreciates, you’re not just building wealth today—you’re also building wealth for the future.
Acquire Tax Benefits
Real estate investors in the United States can claim tax benefits on their rental properties—if you itemize deductions on your tax return, that is. If you buy a rental property and make enough money from it to make itemizing deductions worthwhile, you could save thousands of dollars on your taxes each year.
You could also deduct some of the expenses you incur as a landlord, like repairs and maintenance, mortgage interest, property taxes, insurance, and more. You could also qualify for a mortgage interest deduction if you make a significant down payment on your rental property. Keep in mind that these benefits come with restrictions and conditions.
For example, you can only claim deductions on rental properties that you own for at least a year.
Help Out Family and Friends
If you have a family member or friend who’s struggling to find a place to live, you could offer to let them rent a room in your rental property. This can be a win-win situation for both parties. If your rental property is large enough, you can also rent out a room to multiple people.
If your rental property has two bedrooms, for example, you could charge one person $500 a month and another $400. You can also offer to sublet a room to someone temporarily if they’re in a bind and need a place to live. This could be a great way to help out a family member or friend.
Provide an Income Stream
If you own a multi-unit rental property, you could sign a long-term lease with one of your tenants and provide them with an income stream. You could rent out a spare room in your rental property to a college student, for example.
You could rent out a room in a multi-unit building to a couple. You could also rent a spare room to someone on Airbnb. The exact type of rental arrangement you choose to enter into will depend on your specific property and situation.
Conclusion
There are plenty of reasons why you should buy a rental property. One of the most important reasons is to diversify your investments. Owning rental properties will help you diversify your investment portfolio and reduce your risk of loss.
Another good reason to buy a rental property is to build wealth. When you make an investment that appreciates, you’re building not just for today, but also for the future.