All property is an investment, but little property shows its value as an investment as quickly as a rental property. If real estate investments interest you, but you don’t feel any need to change your own living situation, buying a property to rent to tenants doesn’t just build you equity, it can build you wealth as well.
Tenants Cover Mortgage and Other Costs
There are costs associated with a rental property just as there are costs associated with a property you live in, but there is one big difference: with a rental property, those costs can be completely covered by the rent your tenants pay. If you’ve done your math right, there shouldn’t be a single out-of-pocket expense involved in maintaining your rental property. The income you get from your tenants should cover expenses like insurance, utilities, and maintenance.
Even better, if you have a well-maintained property and you set your rent appropriately high enough, rent payments from your tenants can go right towards your mortgage payments as well. At the very least, you can ease the burden on your own budget with the rent from your tenants. At best, you can pay off the mortgage loan entirely with your tenants’ money. This enables you to save your own money and turn the property into a source of income as soon as the mortgage has been paid off.
Property Value and Rent Can Increase
As a landlord, you not only have the ability to set your own rent, but you can also increase it any time a lease expires. Even for long-term tenants, it’s common for rent to rise a little every time the lease renews to keep up with inflation. In between tenants, you can raise the value of your property by making improvements like renovating the kitchen, replacing the carpet, and making sure that the fixtures are shiny and new. Every new or renewed lease is an opportunity to find more value in your property, and to raise the rent accordingly. The best part will be that your mortgage payments will stay the same. The longer you rent out the property, the more rental income can go towards that monthly mortgage payment.
Becoming a landlord gives you more income to declare, but it also gives you more ways to claim deductions when you file your taxes. Aside from the mortgage interest tax deduction, there are tax deductions for improving and repairing your rental property, travel costs associated with checking on your property, depreciation in the value of the home, and even for a home office if that’s where you manage your duties as a landlord. In fact, almost any expense that is connected with the business of being a landlord is at least partially deductible come tax season. Add it all up, and you can find yourself with real tax benefits at the end of the year.
Renting out a house is not a way to get rich quick. What it is, if you manage your property and your finances well, is a way to earn stable income from rent, and to build equity with minimal money coming out of your own pocket. Once a rental property’s mortgage is paid off, ideally through your tenants’ rent money, it does nothing but build value for you. Whether you rent it out forever, eventually decide to sell, or eventually move in yourself, it’s that long-term value that makes being a landlord worthwhile.
If you have questions about the purchasing an investment property or the mortgage loan process, or feel ready to get pre-approved or apply for a loan, please call 866-236-4779. A Herring Bank mortgage representative would be more than happy to assist you!