Nowadays, it’s hard to see exactly why someone would want to invest in the rental property market. But having the peace of mind that comes from one of your tenants having signed your lease agreement can pay nice dividends (both financially and emotionally).
Listening to the media and the government telling us how hard it is even to stay alive, let alone thrive can turn into a real bummer! Remember before the ‘downturn’ when real estate was the best investment you could buy?! Of course, everything moves in cycles… it always has and always will… so suffice to say that things will turn around again. So, without further adieu, let me give you 6 reasons why you should invest now and to be ready for the big bounce back when it does occur!
1) Residual Monthly Income – When you invest now and do it intelligently by performing some simple math, you will be able to make sure you have more money left over at the end of the month than the amount you spend. If the rental income from your lease agreement is greater than your expenses, that is a beautiful thing.
Positive cash flow is a gift that keeps on giving whether you are ‘working’ for it or not. A few hundred dollars per month may not seem like a lot of dough, but when you have several checks that size coming in that you have earned simply by being a landlord, what feels like a little bit of money, can over time, really add up nicely.
2) Security – Much as children rely on a special blanket or toy for a sense of peace and security – recent events have demonstrated that adults are no different. Adults like to feel strong and that there are options when financial times get tough. Owning a rental property and having a signed lease agreement gives you the same feeling because one knows that regardless of the circumstances around you, there are still some financial options to offer you some financial security.
3) Depreciation – As much as people from both political parties complain about the government, with real estate they allow us to take an annual tax deduction for the value you lost on your real estate. At the same time, while you are able to take a loss on the value of your rental property, the actual worth of your building is increasing. Even though real estate has been hit hard when the value of your property goes down, you get that depreciation whether the value is going up or down.
4) Capital Gains – when you buy a property (in this case) and its value rises during your ownership, the governmental tax codes require you to fork over a special tax on that property after you sell it.
The good news is, there is no tax due until after you sell it. And even better, you can usually extend the amount of time you are required to pay that tax even after you sell it if you know how to work it.
5) Appreciation – In the long haul, the value of real estate will always increase more than it decreases. This is simply a function of supply and demand. As the property increases, so does your net worth.
And remember, if you have done your calculations correctly, you are collecting a positive cash flow at the same time your net worth is increasing. It’s a beautiful win-win. And thirdly, if you bought your rental property at a great price, it’s going to increase at an even greater rate all things equal.
I choose to view the stream of monthly positive cash flow as a down payment on the waterfall of money that will come my way via appreciation. You can take this increased value and pull out a Home Equity Line of Credit to buy another fantastic rental property or anything else you choose.
6) Pride in Ownership – Remember the day you purchased your first set of wheels? It could have been the biggest pile of junk on the block, but it was YOURS. Imagine how incredible it would feel to own your first rental property? Your second? Your third? Imagine having those lease agreements signed and generating lots of positive cash flow. It’s hard to beat the feeling of accomplishment so many other people can only dream about.
So, regardless of the economy, if you do your homework, you can find a great property, have someone sign your lease agreement, create positive cash flow for yourself and ride out the wave. Peace of mind comes from the confidence that you KNOW it’s all cyclical and you will be positioned correctly when the tides turn.
And with a lease agreement in place, your tenant will feel peace of mind too!