Nine Reasons Residential Income Properties are a Great Investment

  1. Cash Flow: Purchasing rental properties is an excellent way to create monthly cash flow. Savvy investors can actually generate enough monthly cash flow where they are no longer dependent on having a job. Others merely want the benefit of having additional monthly income to augment their salary.
  1. Retirement: Many investors are happy to keep their regular jobs but are looking for ways to build a more secure and comfortable retirement. Rental properties are a great source to this end. Investors can even switch their 401k to a self-directed IRA in order to purchase rental properties.
  1. Tenants Pay for the Mortgage: In addition to the cash flow or retirement money you receive it is important to note that your tenant is paying down your mortgage. Part of your monthly mortgage payment goes toward interest and part goes toward principal. But who is making that payment? The tenant! And while your tenant is paying down your principal the government is allowing you to deduct the interest from your taxes.
  2. Tax Benefits: There are excellent tax benefits unique to owning residential income properties. The interest on the mortgage is tax deductible, as are operating expenses, property taxes, insurance and depreciation.
  1. Stability: Real estate prices are far less volatile than stocks. It would be hard to imagine a property losing 20-30% of its value in a day or a week. Not so with stocks. And what happens when times get bad? More people rent and rent rates increase in hard times. As long as people need a place to live and as long as the property is occupied by paying tenants, there will be cash flow.
  1. Leveraging: Rental properties are usually purchased with borrowed money. Using borrowed money is a form of leverage that can increase the investor’s return. If an investor buys a $100,000 rental property with $20,000 as a down payment and collects $8,000 in rent the first year he has made a 40 percent return on his $20,000 investment.
  1. Hedging Inflation: Real estate can be a potential hedge against inflation because rental rates and home prices tend to rise with inflation. And while your rent rates increase your mortgage payments do not.
  1. Control: The owner of a dividend stock has no say in how the company is run. Rental property owners, however, have much more control over their investments. You make the decisions concerning your property.
  1. Appreciation: Historically, properties increase in value over time. If you purchase a $100,000 property and put $25,000 down, you would have a $75,000 mortgage. Let’s say that after five years, the home is worth $150,000. You now have a $50,000 profit for your $10,000 investment. That is a 500% return on your investment over a five-year period and it does not even include the cash flow received during those five years. Although this isn’t the primary reason for purchasing rental properties, it’s a nice bonus.

Note: We are not counseling against investing in the stock market. There are advantages to both the stock market and residential property rentals.

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