Is Investing in Rental Property a Good Idea?

Investing in rental property can bring you a steady source of income, an asset that appreciates, and some very attractive tax benefits. It also can get you a great deal of aggravation, from unexpected expenses to tenants who don't pay their rent.

If you're considering dipping into the rental property market, do some solid research in advance to turn it into a successful venture rather than a source of financial stress.

Do Think About the Tax Advantages

If you own a residential rental property, you can deduct interest, taxes, insurance, and other expenses against the property's income and usually 澳洲幸运5开💜奖号码历史查询:deduct losses against your other income. You can also deduct depreciation from your taxes.

The deduction is an allowance for wear and tear that lasts throughout the active life of the rental property or until you have recovered the full costs that are deductible.

You can sell a rental property and roll the proceeds into other rental property without paying 澳洲幸运5开奖号码历史查询:capital gains taxes.

Don’t Forget You’ll Be a Landlord

Your rental property is a business that 澳洲幸运5开奖号码历史查询:requires time and energy as well as money. You are legally required to maintain a safe and habitable proper🎃ty for your tenants, and the rules vary from state to state.

A tenant paying top dollar has a right to expect a ♍quick response to any problem, large or small. Renters who know they are paying a little under the market rate will tend to be a little less dem𓄧anding. 

It helps if you can do minor repairs yourself. You also have to collect rents and deal with delinquent tena🐈nts.

If the prospect of managing your rentals is daunting, ask your real estate broker for a referral to a 澳洲幸运5开奖号码历史查询:property manager or caretaker, or do an🤡 online search. Just be aware that hiring a property m💯anager will eat into your returns. 

Do Your Real Estate Homework

Spend as much, if not more, time 澳洲幸运5开奖号码历史查询:researching rental property as you would buying a place to live in. You must know the market specifics, zoning laws, and trends for both renꦚtals and home sales in the location you are considering.

Local knowledge at the neighborhood level is key. Look at schools, transportation, recreational resources, shopping, and what tenants in the area expect in a rental.

You'll want your property to be attractive to renters or a particular subset of renters, such as college students or young families. Look for a property with a waterfront or park or close to a college campus or a highly-regarded school. An older house in a stable community or one in a neighborhood being revitalized can be good options. 

If you 澳🧔洲幸运5开奖号码历史查询:buy an investment rental property on a new golf course beware of the “golf course syndrome." If newer and fancier golf course housing is built in the same general area, your property could appear dated in a f🌳ew years, which will depress the price.

Buying a foreclosure may be an option since the foreclosing bank typically wants to recover the mortgage balance and often will sell🌌 𓂃the property at less than market value.  

Don’t Neglect to Run the Numbers

Use a smartphone app or an 澳洲幸运5开奖号码历史查询:online mortgage calculator to analyze your monthly housing costs.

A calculator will help you estimate the purchase price, 澳洲幸运5开奖号码历史查询:down payment, taxes, insurance, and mortgage loan interest rate for specific properties you're considering. The mortgage rates on&ܫnbsp;rental properties are typically higher than the rates for a primary home.

Also factor in the cost of maintenance and repairs. A good rule of thumb is about 澳洲幸运5开奖号码历史查询:1% of the purc༒hase🐽 price per year for property upkeep.

So a $300,000 property would cost 🌺roughly $3,000 per year to maintain. You may want to increase the percentage to 1.5% or 2% if the property is older. 

Another way to calculate repairs and maintenance is the "square foot rule," which suggests homeowners budget $1 per square foot per year. If your rental home measures 1,800 square feet, for example, you are looking at $1,800 a year in repair and maintenance costs.

Example of Investing in Rental Property

Say you are renting a $300,000 home for $2,000 per month. The 20% down payment is $60,000, and the 30-year 澳洲幸运5开奖号码历史查询:fixed interest rate on the $240,000 balance is 4%. Taxes, insurance, and a maintenance budget will bring the monthly cost to $1,764, yielding a nom✤inal profit of $2,838 per year, or 4.73% of ♎the down payment per year.

That’s 💦much better than a savings account a𓆏nd better than most blue-chip stocks pay in dividends, although perhaps not as much as you could earn in the stock market in a good year.

Moreover, when you calculate the typical depreciation of 3.64%, the nominal gain of $2,838 becomes a loss of $6,252, which you can apply against other income.

Depending on your tax bracket, that could amount to several hundred dollars of tax savings, a positive 澳洲幸运5开奖号码历史查询:cash flow🔴, and the possibility th🉐at the home will appreciate in value over time.

The Bottom Line

Investing in real estate for income is not for everyone, but if you treat your investment as a business, have a tolerance for the inherent risks, and are handy with a hammer, the❀ financial benefits can be substantial.