Why you should invest in a rental property

Investing in real estate can provide multisource income.

“Every person who invests in well-selected real estate in a growing section of a prosperous community adopts the surest and safest method of becoming independent, for real estate is the basis of wealth.” – Theodore Roosevelt

Thinking about purchasing a rental property? Wondering if it’s a sound investment? The benefits of investing in an Orange County rental property are many. In a nutshell: a good rental property strategy will not only build immediate cash flow, it’ll provide a long-term retirement strategy.
There are several important factors to consider before choosing to invest in a rental property — location, strength of the economy, population growth, and quality of education. Let’s take a closer look at the benefits of owning an Orange County rental property

THE POWER OF PROPERTY APPRECIATION

“Don’t wait to buy real estate. Buy real estate and wait.” – Will Rogers

Appreciation is one of the main benefits of investing in a rental property. Real estate appreciation is the increase of the investment property’s value over time. Statistics show that on average, OC real estate appreciated 53.85 percent since 2011, which is an average annual home appreciation rate of 5.38 percent, putting OC above the national average of 3.8% appreciation.The amount of appreciation is going to vary by market, and you should plan on keeping your rental property for at least seven to 10 years. The value may fall or rise, but in the long run, it’s a safer and a lower-risk venture.

PASSIVE INCOME

“Landlords grow rich in their sleep without working, risking or economizing.” – John Stuart Mill, a renowned political economist

While owning rental property is definitely not a 100 percent hands-off job, compared to other jobs, less work is needed (in terms of day-to-day operations) to generate income. Aside from occasional maintenance and repair costs (and assuming your rental property is occupied with tenants), you’ll be able to receive a steady stream of income each month. As you put most of your time and effort into your regular job, this money can then be applied toward paying off the mortgage, or it can go into your bank account if the property is already paid off.

Your cash flow will also increase over time because rents will go up with inflation while your mortgage payments will stay the same. Eventually, you will pay off your loan and you’ll see that your cash flow will increase significantly.

TAX ADVANTAGES

Your Orange County rental home is both an investment and a business. Much like owning any other type of business, you can typically receive generous write-offs and tax advantages. Some of these advantages include: deducting expenses such as property taxes, mortgage interest costs, operating expenses and any repairs.

Don’t forget depreciation costs. Many business assets depreciate — meaning they become worth less and less every year (think construction equipment such as excavators or office equipment such as computers). According to the IRS, a building’s “useful life” is 27.5 years. If you own a rental property, you can probably deduct that depreciation every year on your tax return. Did you know that you can even deduct transportation expenses associated with collecting rent, managing your rental or maintaining it? Be sure to carefully track your mileage and expenses associated with each trip. Additionally, lease commissions paid to an agent to find you a qualified tenant are also deductible. There are many property tax exemptions in Orange County for rental property owners; you just have to familiarize yourself with them (with the help of a tax advisor) and understand how the process works.

BOOST YOUR RETIREMENT INCOME

When it comes to investing, the experts always agree on the power of diversification. In order to see real benefits without too much risk, it’s smart to put your investment eggs in more than one basket. Consider including property rentals when putting together your investment portfolio.
Having a steady stream of incoming rent checks adds a valuable source of income for your retirement savings in addition to your IRA or 401k.

TAKING ADVANTAGE OF CURRENT LOW MORTGAGE INTEREST RATES

If you’ve been thinking about investing in rental property in the OC area, now is the time to seriously consider taking the leap. Why? Orange County ticks off all the boxes of must-haves for investing in an area.Experts agree that the best real estate markets for owning rental property are those in which the demand for real estate investing is increasing and supply is low. Add to that interest rates that are currently at an all-time low, and you have the perfect recipe for buying at the right time.

There’s no question that for the right buyer, owning a rental property can be financially rewarding. If you’re exploring this type of real estate as an investment, reach out so we can help you find a rental that will generate positive cash flow. We will also run sales and rental analyses so you can make an educated decision.

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