Should I Buy a Rental Property? What You Need to Know About Investing

Should I buy a rental property? That’s a question that many people are asking themselves these days. Real estate can build wealth, as long as you know what you’re doing.

You can spend hours watching TV shows that have couples buying up homes, fixing them up, and flipping them.

You could rent those homes out and make a profit, too. If the thought of buying a rental property appeals to you, keep reading to find out is buying a rental property is a good move for you.

Supply and Demand

One of the most basic economic laws is the law of supply and demand. When demand is high and demand is low, the price will increase. It also works in the opposite fashion. When demand is low and supply is high, the price is low.

This law applies to the rental market. The good news for you is that more individuals and families are opting to rent rather than buy real estate.

In many rental markets across the country, the demand for rentals has increased. Now would be a great time to start to invest in rental properties.

Passive Income

How would you like to earn an income and not have to go into an office every day? That’s what a rental property can do for you.

You need to price your rental so it’s profitable. It’s easy to do thanks to the higher rental demand. You just have rent checks rolling in each month.

You Can Leverage Other People’s Money

One great reason why so many investors get into real estate rentals is that it doesn’t take much to get started. You need to have a good financial history to get financing.

Most banks require that you have 20% down for an investment property. The average person doesn’t have that much money lying around.

There are a couple of ways around that. For example, if you’re a first-time homebuyer, you can buy a multi-unit building and live in one of the units. You may be able to only have 5% down and use the FHA loan for the rest of the purchase.

The other possible way to finance the purchase is to borrow money for the down payment. In this case, you’re going to have a loan and a mortgage to pay back. That means you better make sure you can make money on the property.

Real Estate is Predictable

Real estate investing is very predictable. If you have $10,000 to invest, you can lose it in the volatility of the stock market in a week or less.

You do want to pay attention to economic reports like the job market, interest rate hikes, and housing market updates. These will impact your ability to rent out your property.

The stock market usually reacts to these reports immediately. A bad unemployment report will result in a drop in stock prices in minutes.

The real estate market may feel the aftershocks weeks or months later. That kind of lead time can give you more time to prepare accordingly.

You Can Be a Hands-Off Landlord

A big deterrent that prevents people from buying a rental property is the part where they have to rent it out. There are a lot of responsibilities that fall on you as a landlord.

You have to be up to speed on landlord-tenant laws, advertise your properties, get the right tenants in the building, and maintain your properties.

Plus, if there’s an issue with the property, you have to fix it within a reasonable timeframe. That’s enough to keep anyone away from rentals.

It is possible to be a hands-off investor by using a flat rate property management company.

Think of the Tax Advantages

You probably think that you pay too much in taxes. The best way to lower your tax burden is to find ways to lower your adjusted gross income.

How to do you do that? Find things to deduct from your taxes. With rental properties, you have a lot more deductions available to you.

Property taxes, loan interest, repair and maintenance costs, utility costs, are some of the tax deductions that are available when you own a rental property.

Upgrade Properties without Capital Gains

Investing in a real estate rental property is a smart move for many people. They may find that they love it so much, that they want to sell their first unit and get a larger rental property.

You can sell your property and defer the taxes on capital gains by using a 1031 exchange. That allows you to sell your property, buy a new one, and defer taxes on the sale of the property.

There are a lot of timelines and potential complications with this process. You want to make sure you work with someone that is an expert on 1031 exchanges to see it through.

Understand Inflation

Should you buy a rental property? Novice investors look at two things – what they bought the property for and what they can sell it for.

That is a big mistake. You have to consider inflation. Sure, the value of your real estate property is going up, but so is the cost of everything else. You need to understand the true value of the profitability of your rental.

Should I Buy a Rental Property?

There are countless ways to invest your money. One of the ways is to buy a rental property.

Should I buy a rental property? If you find yourself asking this question, you have to weigh the pros and cons. In most cases, the pros heavily outweigh the cons.

There are enormous tax advantages to having a rental property. You can write off money more deductions as an investor than as an individual employee. You can also leverage the bank’s money to get started.

Finally, you don’t need to be a hands-on landlord, fixing emergency plumbing situations at 2 am. You can hire a property manager to handle those calls for you.

Are you ready for more real estate articles? Head over to the home improvement section of this site for more helpful content.

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