There are many different ways you can invest in real estate, but owning rental property is still the most reliable path to building long-term wealth. Operating rental properties comes with many benefits that allow investors to consistently grow their wealth for years on end. Along with the cash flow provided by rental units, things like appreciation and tax benefits make investment properties very lucrative. Are you interested in building wealth with rental property investing? Continue reading to learn about all the benefits of owning rental property.
Cash Flow: The Foundation of Long-Term Wealth
The main goal of operating rental properties is to create positive cash flow. Cash flow can be defined as the amount of money a property brings in each month after all related expenses (like the mortgage, utilities, and maintenance) are paid. It can also be viewed as how much the investment contributes to your wealth every month. You can maximize the cash flow of a rental property by responsibly managing expenses and by renovating the property to increase monthly rent. One great tip is whenever a rental unit becomes vacant, you can take the time to make renovations & repairs while also searching for new tenants.
Build Equity Over Time with Appreciation
A hidden benefit of owning real estate comes in the form of appreciation. Appreciation means your property grows in value over time, giving you a better return aside from your gains with rental income. Real estate has historically appreciated in value over time and often matches or outpaces the rate of inflation. Rental property tends to appreciate in value because people will always be looking for places to live. You can even make use of this appreciation by refinancing a property to turn the gains into financeable equity.
The Power of Leverage
One of the best things about real estate investing is that you don’t have to fund entire purchases with your own money. By harnessing the power of leverage, investors can finance projects using a much smaller portion of their money (in the form of a down payment). Leverage allows investors to do more with the money they have and diversify their wealth by spreading it across multiple investments. This also leads to greater returns, as there is less of their own money at stake in each investment.
Another great benefit to owning rental properties is all the tax advantages that come with operating them. You can work with a tax professional to maximize your yearly deductions in order to get the most out of your investment. Many of the expenses associated with the property can be deducted, from maintenance and repair costs to your mortgage interest payments. You can also benefit greatly from depreciation by conducting a cost-segregation study. In a cost-segregation study, all of the assets on a property are depreciated over the usable lifespan of the assets. Along with the building, things like furniture, appliances, and external upgrades like fences may be included in the study which can lead to massive tax savings.
Diversification and Risk Mitigation
We already mentioned that rental properties make for a good hedge against inflation, but why is that? Real estate has a low correlation with the stock market and economy since it is always in demand. This consistent demand makes it a more stable investment which in turn makes it a good store of wealth.
You can also strengthen your real estate portfolio by making use of diversification. Spreading your wealth across different property types and locations helps prevent overexposure in a particular market or real estate category.
It will be important to maintain an effective long-term strategy if your goal is to build wealth through rental real estate. This means you will need to be on top of property and tenant management, as well as making strong additions to your portfolio over time. In the modern era, you can monitor the progress and profitability of your rental investments with analytical tools, and use the data to make better financial decisions.
Being a landlord can be a full-time job, so you should be prepared to dedicate a good amount of your schedule to it if you want to find success. If you aren’t able to dedicate an appropriate amount of time to managing your investments you can always hire a property management company, but you’ll need to factor these costs into the profitability of your investments.
The easiest way to save on a real estate investment is to find a trusted lender that can get you the best leverages and rates. RCN Capital lends to real estate professionals, commercial contractors, developers & small business owners across the nation. We provide short-term fix & flip financing, long-term rental financing, and new construction financing for real estate investors. RCN Capital also has flexible and competitive loan options available. Are you looking to purchase or refinance a long-term rental property? Connect with us today.