Benefits of Rental Property Ownership 101
Posted on: May 24, 2007
Real estate offers many ways to shelter your income and help it grow. My parents purchased rental property while my brother and I were growing up. I remember spending a few weekends cleaning apartments and houses; my father spending some evening and weekends maintaining the properties. And, they did experience some rent collecting frustrations. But, they have sold off those investments, and they are now enjoying a relaxing retirement filled with golf and travel. How can you look forward to a comfortable future? Well, purchasing rental real estate allows you to leverage your down payment in four ways:
- Cash Flow. After paying the mortgage, taxes, and operating expenses, you could write yourself a check for the balance of the rental income received. The amount depends on the down payment, interest rate, and rents received.
- Principal and Interest Reduction. The rents collected pay down the loan principal, interest, and taxes. In other words, someone else is contributing to your nest egg.
- Taxes Saved Through Mortgage Interest Deduction and Depreciation. The IRS allows landlords to depreciate the property for 27.5 years, which means a portion of the property’s value each year will offset your income for tax purposes. And, yes, you are allowed to deduct the mortgage interest from your rental property. Just this aspect will save you thousands of dollars each year.
- Appreciation. Each Year Your Investment Gains in Value Based on Market Conditions. Historically, with an average (7%) rate of appreciation, your investment will double in value every ten years! Currently, the average appreciation rate in the Portland Metropolitan Area is 11.1%. If this rate remains constant, your investment would double in less than seven years; and, would triple in less than eleven years. That is a terrific rate of return.
If purchasing rental property interests you, give me a call. We can discuss which purchase strategy works best for you. I also encourage you to speak with a Certified Public Accountant, and see if this is a viable option for your investment portfolio.
Article written by Heidi Aspinwall, Broker for portlandrealestate.com