Benefits Of Owning Rental Property
Some real estate investors prefer the quick buck that comes from fix and flips, or the sizable one-time profit of selling a new construction project. Other investors prefer the buy-and-hold nature of rental property, collecting their returns over time instead of a lump sum. Whether its traditional rentals like apartments and rental homes or short-term rental property found on Airbnb or Vrbo, there are many different options for investing in rental property.
While the financial reward is typically the best reason to own rental property, rental investments come with with unique financial benefits that other real estate investments don’t offer. Whether its tax benefits or shielding against inflation, rental investments are a highly flexible asset class that every real estate connoisseur should consider.
Protection Against Inflation
Inflation is on everyone’s mind. With the Federal Reserve raising rates at a historic pace to curb inflation, real estate investors are looking for places to park their cash that will continue to produce a strong return while ensuring their buying power isn’t negatively impacted. Thankfully, rental property is a real estate investment that benefits from current market conditions and provides a shield against inflation.
Owning a rental property means your cash is locked into the value of the property rather than having your money sit in an account and lose value. While other investment opportunities give that quick burst of cash, the cash may ultimately be worth less than expected once the final sale goes through simply because the currency has not kept up with the general costs of living. Meanwhile, rental property owners have their money already sitting in an asset that’s both generating income and appreciating in value, making it an excellent investment for hedging against inflation.
Speaking of generating income, that’s another major benefit of owning rental property. Unlike the one-time cash infusions that come from fix and flips or new construction, rental property is the gift that keeps on giving. Knowing you have a set level of money coming in every month can help for planning future investment opportunities and general lifestyle budgeting, providing an additional reliable revenue stream. Using these consistent returns to pay off the interest payments on your rental loan or to save for a down payment on your next rental property are ways that you can leverage your rental property’s income to work for you.
Returns are certainly at a high-point as well, with average rent across the country increasing nearly 20% year over year and the median monthly rent crossing the $2,000 for the first time ever. With housing inventory at an all-time low, people are renting property for longer periods of time than before and are willing to pay the higher prices that comes with market demand. Between longer periods of renting and a rising average monthly rent, investing in rental property right now poses an excellent and lucrative opportunity.
There are a number of unique tax benefits that rental property owners have access to that other real estate investors do not. For example, many of the associated maintenance costs and operating expenses can be deducted from your taxes every year. Landscaping costs, repair costs, insurance costs, property taxes, and other fees that go into maintaining the property can all be deducted from your taxes. The IRS also allows deductions for up to 27.5 years of depreciation to allow the property owner to recover costs associated with general wear and tear. Real estate investors that hold even a single rental property can write off these costs- no minimum property count or portfolio required.
Eventually selling the rental property for a profit could subject the owner to capital gains tax, but investors can defer these costs using a 1031 exchange. Asset Based Lending hosted a webinar to help real estate investors understand the various tax benefits that come from holding rental property including 1031 exchanges, tax deductions for depreciation, and other useful information for investors across different real estate assets.
Once you own the property, you own it. You can hold it as long as you’d like or sell it just as easily. The flexibility that rental property allows for real estate investors makes it a great investment opportunity for those who want to keep their options open. This means you can follow market trends and determine the best course of action for your property at any given time, which is a huge advantage over other real estate investments. For example, if an investor finished the rehab of their fix and flip and are ready to sell but the market has cooled down so average sale prices have dropped, they can’t continue holding the asset because their cash is locked into the property and isn’t generating any money, so they have to sell and take the lower potential profit.
There’s also flexibility over the type of rental property you’d like to operate. If you decide that the asset could be better served as a short-term rental spot, listing your property on services such as Airbnb and Vrbo for temporary tenants to use, then you can do that. Holding rental property allows you to have a flexible, money-making asset that can be malleable through different real estate markets, allowing investors the ability to lean into different market conditions and maximize their overall returns.
If you’re a real estate investor considering rental property, now is the time to move. With interest rates continuing to rise and average rent rising alongside it, there’s no better time to get started with your first rental property or to finally expand your portfolio to take advantage of market conditions before the next Federal Reserve meeting.
Asset Based Lending proudly offers rental loans for real estate investors, assisting with the long-term financing needed to purchase rental property. Whether you’re a new real estate investor looking to acquire their first rental property or a seasoned professional looking to expand their portfolio, ABL rental loans are here to help. These loans are designed for 1-8 unit properties, require no income verification, and can be rate locked for a limited time to help prevent rate increases from affecting your loan. Contact us today if you’re ready to get started with our term rental loans.