Why Rental Properties?
Here's a few reasons:
Tangible –Rental properties are often referred to as “Brick and Mortar”. The meaning behind this is that they won’t simply disappear. Stocks, bonds, notes and etc… can simply disappear without you having any ability to save it. With a rental property you can directly impact its success. By making improvements to the property your forcing equity whether you’re in an up or down market. Being the owner you have some control on overhead and expenses. With stocks, your investing in someone else’s business and have zero control on overhead and expense for that business. All you can do is hope they run the company well and make a profit.
In Style – Rental properties aren’t a fad or a trend… they are a necessity! There is always a need for rental properties, unlike a new widget. People need a place to live and even in tough times you can have a competitive investment as long as you run it correctly.
Cash Flow – Cash flow is King! If it cash flow’s today there’s an extremely good chance it will cash flow in the future. Historically, rental prices have continued to increase. During the crash in 2008, rents went up in almost every area in the U.S. I’m sure you’ve seen a major increase in rental prices over the last 10 years. As long as the investment is giving a good return, then the value of it going up or down is secondary, especially if you position yourself to be able to decide when you sell.
Appreciation – Let me state right from the start that this should be Secondary. If you’re hoping for appreciation, you’re gambling. Really, we’re all gambling in one way or another and being educated in your particular investment definitely reduces the risks. I have to go back to Cash Flow. If it cash flows today there’s an extremely good chance it will cash flow in the future. Appreciation is challenging to predict as the real estate market goes in cycles and that is another reason to position yourself to sell when you decide. So treat Appreciation as a Huge Bonus!
Depreciation – You’re tax accountant will do a much better job at explaining this. Actually, next time you are meeting with your accountant pull out your list of questions and get them answered. Pick their brain. It’s okay to take 5 or 10 minutes of their time to strategize. If they won’t or can’t help you strategize for the coming year, find someone else. There are too many good accountants out there for you to settle. Okay back to Depreciation – There is a tax code that addresses depreciation. In a nut shell, your allowed to show depreciation against your rental properties and then (that amount whether it’s one, two or three percent of the value of the property) that has been depreciated can help offset any income gained by that property.
There’s tons of other reasons out there to own rentals. Tons of books on the topic, podcasts, etc…
I hope this created some thought on your end. Rental properties helped save me financially in 2008. They aren’t for everyone. You need to be disciplined in running them and treat it like a business. Be willing to overcome and work through problems that come at you from left field. I always say tenants are “wild cards” and that’s because their human, unpredictable. They are the variable in the whole rental business, but without them, there is no rental business.
I believe with hard work, discipline, honesty and compassion you can have a successful rental business. I hope you succeed!