The prospect of real estate investing is versatile, therefore affording almost anyone the ability to strategize accordingly regardless of budget or experience. While cash flow, debt paydown, depreciation and appreciation are the pillars of real estate investing, their functions vary in individual real estate investment transactions. "Buy-and-hold" strategies, however, offer the benefits of all four pillars and remain a preferred method for most rental property owners, resulting in six strong arguments for investing in rental properties.
Cash flow is coveted by all investors, regardless of their preferred investment sources and strategies. This is the beautiful thing about owning rental property. Monthly income ("cash flow") is the gift that keeps on giving. It can be saved for future investments and portfolio additions, acting much like a dividend. In the event of another recession, that monthly income will still pay the mortgage and owners need not be concerned with forcibly selling properties in order to make payments. This same monthly income can be multiplied via a plethora of avenues and can only add to your bank account. Again, in the event of a recession, rental property owners might very well be the only professionals who can still profit in an otherwise "compromised" economy.
While some investors prefer to pay cash for properties, others elect to pay a monthly mortgage. If this is you, then you already know that monthly mortgage dollars don't really come from you, they come from a bank, financial institution, or a mortgage lender. You are building equity in your rental, which can be used at any time, and you are likely to get every dollar back that you have put into the property. Your tenants can be thanked for paying the mortgage and you are sitting pretty as long as your property retains value. On top of that, your mortgage interest is tax deductible... paid by your tenants!
Depreciation really a beautiful word. As your property ages, it depreciates and the IRS is willing to compensate owners by authorizing write-offs for a percentage of the income gained from the property. If you own residential rental real estate, you may count depreciation for 27.5 consecutive years unless you sell the property sooner. It gets even better if you own commercial rental property as you may enjoy 39 years of depreciation. Consult your CPA to learn the rules and benefits. You might be in a position to keep additional portions of your rental income!!!
Appreciation is also an added benefit as rental properties have the ability to increase in value. As you make improvements to your property, work on curb appeal or perhaps build an addition onto your rental, you will enjoy the benefits of appreciation. Real estate market cycles can help to improve value as well.
Rental property owners stand to benefit long-term through inflation hedge as they enjoy a less time-intensive method of investment.
Real estate investing is a great means of protection against inflation. The U.S. dollar loses value with each passing year, adversely affecting all that you have in the bank. Real estate, however, remains unaffected as inflation causes the cost of land to rise.
Rental property owners remain the commodity of time and passive income. Rental property ownership doesn't require the financial means coveted by house flippers. In fact, owners who retain a professional property management company can sometimes spend as little as one hour per week dealing with their rentals. In addition, the cash continues to flow into your account during your retirement years.