The Advantages of Buying a Rental Investment

by Colleen Reinhart

Although the responsibility of repairing leaky ceilings and fixing blocked pipes might sound annoying, being a landlord has many financial benefits. Real estate can make a wise addition to your investment portfolio, as long as you do your research first. When buying a rental property, look for a broker with experience purchasing rental properties who can offer guidance along the way.

Someone Else Pays

Becoming a landlord allows you to use other people's money to make a profit for yourself, more than any other type of investment. A bank will grant you a mortgage as long as you're not a credit risk and you have a down payment ready. Once you have tenants, their rent payments will make the mortgage payments for you. As the value of your home appreciates, your tenants build your equity for you, leaving you with a large nest egg worth much more than your original cash outlay.

A Stable Investment

Although home prices fluctuate, they tend to appreciate over the long term. If you hang onto a home long enough, you're likely to realize a gain eventually, as long as you can weather short-term valuation drops. These blips on the radar don't matter much, as long as short-term gains aren't your goal. Although stocks and mutual funds tend to have higher growth rates, real estate is a less risky investment that you can use to diversify your retirement portfolio.

Low Interest Rates, Low Prices

Home prices are down right now, which means you stand to make more as the housing market rebounds from its slump. If you buy while prices are low, you'll make more when homes regain their value. Low interest rates make the cost of borrowing low, too. At a lower rate, your tenants can pay off your mortgage sooner so you can own your home faster. If you need to cover the mortgage in between tenants, a lower rate makes the monthly payments less of a financial burden.

Tax Benefits

Being a landlord has a number of tax benefits, as long as you take the time to claim them. Depreciation rules let you claim some cash flow from your property tax free. Property improvements and repairs are also depreciable. Many operational expenses that come from maintaining your property are tax deductible. Examples of operational expenses include interest on home repair loans, insurance, municipal property taxes, property management fees and more.

About the Author

A professional writer since 2006, Colleen Reinhart has held positions in technical writing and marketing. She also writes lifestyle, health and business articles. She holds a Bachelor of Arts and Business degree from the University of Waterloo, and a Master's degree in speech-language pathology from the University of Toronto.

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