UPDATED: Why is ownership of Rental properties a good investment???
1) Fixed asset with real value. You own a property, that can change in value but has intrinsic worth (provides a place to live). As such it tends to be more stable over time. It returns income and has a value that appreciates (on average).
2) Leverage: If you borrow money and can make the payments, your appreciation is multiplied by the leverage. A 100K home bought with cash appreciates 10K. 10% return. If purchased with a 80% Loan to Value, it is a 50% return. Governments love to loan people money for houses at low rates.
3) Tax advantages: Goverments allow you to write off all expenses, loan interest, and depreciate the property (even thought it usually goes up in value). End result is that profits are usually tax protected (see CPA for actual data)
4) Inflation protected: rents and values go up but the loan payment stays the same. cash flow increases over time.
5) End result: Long term after tax returns can be very high
On the other hand, When is rental property ownership a risky investment?:
1) Real estate bubble: prices drop and the effect of leverage is negative. This happened in 2007-2011. If you dont need to sell, you can recover over time…. but it takes a lot of time. If you bought at a high price and are stuck, renting the property is often the only way to recover.
2) Planning to Flip: short term ownership, flipping, short term loans put you at high risk of price swings and of paying closing costs which can be high (8-10% of value of home). Real estate is a long term investment to get the results discussed.
3) Trying manage property on your own. If you are not up to the task, you risk liability issues, lost rent, damage to property, and lost value for the property. Use Real Property Management Rio Grande to eliminate this risk and increase the return.
Mark
www.rpmriogrande.com
We are pledged to the letter and spirit of U.S. policy for the achievement of equal housing opportunity throughout the Nation. See Equal Housing Opportunity Statement for more information.
