If you can find a property where the rental income covers the monthly costs, then you have a winning scenario.
More and more people are jumping into the rental property marketplace. In fact, according to the National Association of Realtors, 20% of home sales in 2013 were investment properties. Yes, rental properties do have pesky monthly costs associated with them, and on top of that, there is the dreaded task of being a landlord. But, if you can find a rental property where the rental income covers the monthly costs, then you have a winning scenario. Here are 7 key ways that a property can exponentially boost its value — and your net worth!
1. Rental Properties Create Cash Flow
Cash flow is one of the cornerstone principles of all real-estate wealth building, and rental properties create that opportunity for cash flow. A house or a building with multiple units can generate money each month that pays more than your carrying costs, mortgage, and expenses.
2. Positive Cash Flow Pays Off Your Mortgage Early
Positive cash flow is created when the rents coming in from your property exceed your property’s expenses. It’s basically the money left over each month after all your property bills are paid. Having positive cash flow allows you to pay off mortgages early. How? Because I recommend that you reinvest any positive cash flow to pay down your mortgage balance. The sooner you can pay off your mortgage and eliminate all those nasty interest payment, the sooner you have checks coming to you, not the bank.
3. Other People’s Money Pays Off Your Mortgage
Someone else — sometimes a total stranger — pays off your entire mortgage for you. As you use the rent money from your tenants’ payments toward your mortgage, you are actually paying down your loan amount. Keep that property rented for at least 15-20 years and you can own that house free and clear without another penny more out of your pocket. It’s a simple, but brilliant concept.
4. Improving the Property Increases Its Value
As with any property, making the right improvements can increase its value and protect yourself against downward swings in the market. I always suggest looking for properties to which you can add equity and value by making improvements. Doing so will give you huge potential for appreciation.
5. Market Appreciation Boosts Your Equity
When home prices go up — regardless of improvements — this is called appreciation. Market inflation drives up the prices, as do simple supply-and-demand economics. The combination of appreciation from improvements and long-term market appreciation is a huge bonus for rental properties. It’s a profit, equity, and wealth builder.
6. Tax Advantages Keep More Money in Your Pocket
Another aspect of wealth building, from an accounting standpoint: it’s “on paper.” These are the tax benefits of rental properties, including deprecation, rental expenses, and mortgage interest deductions you can take each year.
7. Increasing Rents Increases the Value of Your Property
When you improve your property, you can increase your rents, which in turn increases the value of the property again. It’s a wonderful cycle. If you buy a rundown property that was poorly managed in the past, and you improve it, you not only stand to significantly boost its value and your equity, but you’ll also boost its rent-ability. You will be turning an underperforming rental property into a gem that attracts quality tenants and higher rents!
– Source| July 24, 2014 http://www.trulia.com/blog/7-ways-rental-properties-can-build-wealth/#sthash.shVOMcA3.dpuf