Benefits of investing in Rental Property
For investors willing to take a more active role in their investments, purchasing and owning rental property presents a lucrative opportunity. Direct ownership of rental property provides an array of benefits including immediate and regular cash flow, longer-term appreciation, tax advantages, as well as the potential to substantially increase personal net worth. However, along with these benefits come a myriad of landlord responsibilities that require ongoing time commitment and hands-on attention.
Benefits:
Owning rental property directly offers many benefits for investors who are willing to make the commitment to hands-on management. When a residential or commercial rental property is managed efficiently, it can offer the owner the following benefits:
- Regular and consistent cash flow
Direct ownership of rental property yields a steady and reliable stream of monthly cash flow in the form of rental income. Unlike public REIT investments, which are constantly fluctuating, a lease agreement dictates exactly what tenants are expected pay each month in rent and when a landlord owns multiple properties, with multiple tenants, diversification reduces risk in income volatility.
- Hedging against stock market volatility
While real estate markets and the stock market both experience volatility, they do not typically move in lockstep. There is no direct correlation between volatility in the stock market and volatility in real estate markets.
- Ability to use leverage
One of the biggest reasons that serious real estate investors insist on owning rental property directly is the ability to use leverage. Ownership of rental property can provide the ability to use a higher level of debt financing than is available through a private or public REIT.
- Increased equity and asset appreciation
In addition to monthly rental income, rental property produces money through appreciation. Direct ownership of rental property provides investors benefit in the form of equity.
- Tax efficiency and deductions
Owning rental real estate in the form of an REIT, or through direct ownership, offers various advantages. However, the degree to which these tax advantages can be realized depends on the specifics of the investment vehicle.
- Control, freedom, and flexibility
For many investors, the major draw of owning and investing in real estate outright is the control it provides. Direct investing through ownership requires more hands-on involvement in property management, it provides more financial freedom and flexibility than owning shares in an REIT.
Topics: Real Estate Investment, Rental Property, Tax
Work cited: Becton Loveless
Comments