Owning and renting out your property is increasingly a choice investment for some 22 million Americans. Despite the perceived risk of the housing market, the outlook is favorable to become, or continue being a landlord. Though selling is still a valid option, the benefits of renting oftentimes outweigh the advantages to selling your property. Here are the reasons why:
1. Long-Term Equity
What your house will be worth when you sell depends on the state of your mortgage and the housing market. However, trends show that the housing market continues to grow as the median sale price of existing single-family homes rose 81% over the last 10 years. And property owners turned landlords continue to see larger returns and extra cash as rental prices surge.
2. Long-Term Profit
If you can consistently rent your house out for more than your mortgage payment plus other expenses, you will grow a profit over time. However, that’s not always the case, so landlords turn to annualized tax benefits, real estate appreciation and refinancing opportunities to make up for any monthly or short term shortfalls. And if you eventually sell your property when the market is good, you can create great returns on your investment.
3. Tax Shelter
There are numerous tax benefits to owning a rental property. You can write off all of your expenses, like Renters Warehouse’s fees, utilities, repairs, mortgage interest, and property taxes, to name a few. *See our flyer, Do You Know These Tax Benefits of Renting Your Property for even more details on tax write-offs.
4. Avoid Loss in a Down Market
In the event the market in your area takes a turn for the worst and selling your home is not in your favor, you can hold on to the property and rent it out until you can actually make a good profit from selling.
5. Protection Against Inflation
Owning a rental property is a safe investment and an even better asset that can make money during periods of high inflation. It gains value when inflation is high and creates cash flow from renting during any economic period. It’s really a win-win.
6. Forced Retirement Plan
Sometimes we lack discipline to save or put monthly deposits into retirement accounts. Owning a rental property is a commitment that you are required to manage and maintain for the long-run, hopefully well into retirement. Unlike an IRA, SEP or 401k, a rental property can help you build larger returns in equity and cash flow.
7. Tax-Free Cash Flow
If you leverage your capital, because of depreciation and mortgage interest deductions, your cash flow should be tax-free. A certified tax professional can help you limit taxes on your cash flow and defer taxes on capital gains if you sell your property in the future using a 1031 Exchange.
8. Vacation Property
You can use your income property as a vacation destination and rent it out when you are not there. Free vacation home!
Rental Demand for Single-Family Homes is Increasing
There is a resurgence in renting. With growing demand and dwindling supply, landlords are able to increase rental rates (on par with regional increases). Here are some stats and reasons why:
- As of early 2013, over 43 million Americans were renting and the number of renter households is likely to increase by between 4.0 million and 4.7 million in 2014.
- Over 40 million single-family homes are expected to be rented across the U.S. by 2015 – a 185% increase from the approximate 14 million rented in 2013.
- Rent is reportedly increasing in today’s rental market, yet 40% of people say they rent and continue to rent because they enjoy it.
- There has been a dramatic increase in buy-to-rent purchases recently with home owners who own more than one property.
- Home prices will rise half as much in 2014 because more supply will come on to the market. Credit will remain tight as un/under employment is expected to continue to raise, therefore increasing the need for rental units and replenishing the demand.