There’s a lot of information out there about investing in rental property. Some people are sold on the idea while others are determined to rain on everyone’s parade by talking about how it isn’t such a good idea after all.
There’s always two sides to every story, but the fact is, if you’re smart about buying and renting property, it can actually be a fantastic investment.
Here are three convincing reasons why you might want to invest in real estate after all.
You Don’t Have to Pay as Many Taxes as You Think
One thing investment property naysayers like to bring up is the capital gains tax. It’s true that it’s one of the highest in the world, but that doesn’t mean you will have to pay the full 28.6 percent.
You can save on your capital gains tax by:
- Reinvesting the earnings of a sale into a comparable property
- Using a charitable remainder annuity trust
- Creating an entity structure, like an LLC
In addition, keep in mind that the capital gains tax only rears its ugly head when you sell the property. While you own and rent the premises, you may experience a tax-free cash flow, thanks to depreciation and mortgage interest deductions. You will likely be able to take a few write-offs against your other income throughout the year, and the owners of rental property generally have more tax deduction strategy options than other business professionals.
If you work with a tax professional, they’ll make sure you pay the least amount of taxes possible, which means you likely won’t pay as many taxes as you think.
It Can Actually Be a Source of Income
No one gets into real estate to lose money, but it isn’t uncommon for new investors to purchase a property and end up selling it because it isn’t the lucrative nest egg they were hoping for.
That’s because they didn’t invest in the right property.
Pick a manageable property in a good location and treat the property like a business. Be stringent with the tenant application process, and don’t try and over-improve the property. You’ll be more likely to turn it into a source of passive income.
The Property Is Likely to Appreciate in Value
If you end up selling a rental property not long after it was purchased, you’re likely to take a hit. But, if you play the long game, your property is likely to appreciate in value, providing you with the opportunity to make some money down the road.
Don’t forget about rental increases! As property values and taxes increase in the area, you can raise your rent. That allows you to tap into the equity of the property immediately, unlike a house with equity that can’t be utilized without a home equity loan or a sale.
Real estate investing isn’t for everyone, but it could be the right choice for you. With dedication and determination, you can purchase a property that will provide you with passive income, making it a great choice for families and retirees of all ages.