It’s plain and simple, the return on your investment cannot compete with the stock market. The amount of passive income you will earn is enough to allow you to quit your job entirely and help you to retire. But, doing this doesn’t just happen overnight. In order to be able to quit that job that you so desperately want to quit, you need monthly cash flow. Here are some of the best reasons why you should invest in rental properties.
- Owning real estate is recognized as owning a business.
Because the IRS views you as a legitimate business, you are able to make certain tax deductions that are only unique to businesses. If you own a property that is 27.5 years or older, you can deduct the value of the property from your tax forms. This is advantageous because in the business world depreciation is viewed as an expense, however, no money was spent to cause the depreciation.
As the operator of the business, you also have certain operating expenses that come with day to day operations of the business.
- mortgage interest
- insurance
- repairs, advertising
- property manager
- utilities
- yard maintenance
- losses
2. Tenants pay your mortgage for you
When renting out a rental property, rent will be coming back to you every month. Part of the rent money will typically go to paying back the mortgage of the property you purchased.
A $200,000 home, which can be rented for $2,500 per month, with a 4%, 30 year mortgage is only $955 per month.
Based on those numbers, you will have some passive income after paying off the mortgage that you will be able to pocket and keep for yourself.
3. Tax Deductions
The IRS has a 1030 exchange which allows you to exchange the property for a like-kind investment. When selling your property, you are able to defer the taxes you incur almost indefinitely.
A like-kind exchange is the exchange of real estate property for a more valuable piece of real estate. This is all available to do without paying any taxes.
4. All control, no liability
Typically, when purchasing a rental property, the best option would be to own the property with a LLC company. It would be in your best interest for you to control the property, not own it.
A LLC is a Limited Liability Company. You own and control the company and the LLC owns the property. This is beneficial because if anything happens to the property, or a lawsuit is filed, you will not be personally liable. All your assets will remain in tact.
5. You are selling a product that will never lose demand
Wherever you find yourself living, there will always be a need for housing. Your product is living space, something almost no one can go without. This is a market that is extremely solid and will exist for many years to come. Luckily for you, you are the one selling this remarkable product.