1) Appreciation - The market has returned to a healthy, stable, and predictable 4-5% appreciation. Rental properties go up in value as rental prices rise. With high demand and low vacancy rents have been rising steadily for several years. In addition the job market and the maturing millennial generation are creating thousands of new households each month.
2) Depreciation - The IRS allow rental owners to "write down" a portion of the value of their rental investment over a period of time. This allow rental owners to offset some of their annual gains which can increase their ability to shelter income. Always refer your clients to a qualified CPA for guidance.
3) Sweat Equity - When rental owners make improvements to their properties over time they can add value to their investment. From everything from new bathrooms, flooring, cabinets, or even fencing anything that will help the property receive higher rents will increase the value of the property.
4) Principal Reduction - Every time a renter makes their rental payment, and in turn the owner makes their mortgage payment the principal balance left owing on the property is reduced. Why? Because the renter is paying the rental owners mortgage!
5) 1031 Tax Deferred Exchange - Rental owners can roll their gains (and their tax liability) into their next real estate investment using a 1031 Tax Deferred Exchange. This powerful tool allows real estate investors to build equity and compound their gains over time.
6) Leverage - When investing in real estate investment owners are able to take advantage of leverage - meaning they can secure a mortgage to purchase a property. This provides them with a way to compound their gains, also today rental owners can lock in low interest 25-30 year mortgages that will provide them with even better returns over time.
7) Control - One the biggest advantages of owning residential rental real estate is that your client is in control of their investment. Unlike the stock market where decisions are often made behind closed doors with rental real estate your clients decide when to buy, rent, sell, or hold the property.
Posted by PollyAnna Snyder on
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