Investing in Rental Property
The main reason people start investing in rental property is to make money.
I say this because I’m yet to meet anyone who does it just to collect ‘pretty houses’, or because they love being a land lord!
Investing in Rental Property vs Other Investments – which is better?
The popularity of investing in rental property is largely due to the benefits you receive from real estate other any other investment – including shares, businesses, or multi-level-marketing.
The four key benefits which people investing in rental property receive are:
Investing in Rental Property Benefit #1 –
Banks Willingly Lend Money
to Property Investors
It’s very rare for someone to go to a real estate agent with a suitcase full of savings and ask to buy an investment property.
Generally, you’ll go visit a bank and get finance for your property purchase.
And that’s because using finance allows you to buy more real estate with less of your own cash.
Investing in rental property, compared to other investments, it’s relatively easy to get bank finance. And by needing to invest less of your own money into each deal, you’re able to receive a greater Cash on Cash Return.
(A Cash on Cash Return refers to the dollar return you personally receive for every dollar you personally invest)
Banks love to lend money to people Investing In Rental Property because they feel it is safer than other types of lending (such as margin loans for stock market investing, or business lending).
This is because the banks usually take the ‘underlying asset’ (the shares or the property) as security for a loan – so just in case you don’t make your loan payments, they have the ability to take back the underlying asset and sell it for you to recoup the money you owe them.
Banks like real estate as security because real estate is very stable as an asset.
So unlike shares, which fluctuate in value very quickly, historic trends show property grows at a slower, more steady rate – which means if you were to default on a loan, the asset the bank uses as security is unlikely to be worth significantly less later than what it is now.
Investing in Rental Property Benefit #2 –
Someone Else Helps To Pay Your
Expenses
If you’re investing in rental property already, then you know the value of attracting a good quality tenant who will pay the rent on-time every week.
(You might have learned this the hard way… By having a bad quality tenant who paid late (or not at all) – and as a result you struggled to pay your property investing bills until you fixed the problem.)
The reason for having a tenant in the first place is because for most property investors, having a tenant gives them the extra income they need to make payments on their biggest investment expense – paying the mortgage!
The rents that tenants pay their landlords generally end up being paid against the underlying loan on the property.
And each week, as your tenant helps you to pay off more and more of the loan, you reduce your debts and increase the value of the real estate which is in your name.
Investing in Rental Property Benefit #3 – Tax Benefits
Because I have a degree in economics and accounting, and worked as a fully qualified Chartered Accountant, there’s a part of me which loves talking about tax when it comes to investing in property!
Most people see it as a dull, dry, boring subject – but a savvy investor who is able to fully utilize the tax benefits they are entitled to can access additional advantages from investing in property.
These tax benefits for real estate investors are made available by governments to encourage you to invest now so that you don’t become a burden to them when you retire.
Of course, tax laws are different from country to country (and even from person to person!) so what you’ll be able to claim will really depend on your personal circumstances.
But a common tax benefit around the world is the ability to take the ownership costs on your rental property (such as the interest component of your mortgage) and claim this amount against your taxable income to reduce your tax bill.
This means you stand to pay less tax as a result of investing in rental property.
Investing in Rental Property Benefit #4 –
You Can Earn Money Without
Having To Work
When it comes to investing in rental property, there are two ways to make money.
- The first is through capital growth – when the value of your property increases;
- The second is through cashflow – a regular income you receive from a property (usually from rents collected).
Unlike in your job, where you get paid by the number of hours you work, you can still make money from property without needing to lift a finger.
And for a lot of property investors, this is one of the most attractive benefits of investing in rental property. That through investing in rental properties, they will eventually get to a point where they don’t need to listen to their boss anymore, and they can retire early.
Would You Like To Find Out More?
I hope this article has provided you with some eye-opening investing insights.
If you’d like to learn more about Investment Property, and making money from real estate, then I would encourage you to sign up to my 10-Part Mini-Course on making massive profits on real estate.
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