Diversifying your investment portfolio beyond your savings account is a smart way to score an earning. Have you ever thought about the major incentives to buy and rent residential real estate properties as part of your portfolio diversification? Buying and renting residential properties is a low-risk and manageable investment as compared to other traditional investment vehicles. The returns and risks associated with other asset classes such as bonds or shares tend to be more erratic. Moreover, the low volatility of trading residential real estate properties offers various advantages that you could fully utilize to generate yourself a sustainable income. The following 8 incentives to buy and rent residential real estate properties will get you investing in real estate today:
1. Subdivide Residential Real Estate Properties
Because real estate is a tangible asset, you can do so much to improve the yield of your residential real estate properties rentals. Subdividing an income property and renting it out in units can be a strategic way to increase your rental income. It means that a landlord will not just rely on one source of income, but instead on two or more. It is recommended that you search zoning regulations and contact your local area council or municipality to get its approval. Please note that a council approval may take several months, so make sure that you plan accordingly.
2. A Hedge against Inflation
As opposed to shares and bonds, real estate investments can be adjustable to inflation. Buying and renting residential real estate properties is an investment that enjoys an intrinsic value given that it protects against inflation. During inflation, rising general prices will increase the resale value of a real estate property overtime. As the value of a rental property rises, landlords increase rent to accommodate to the rise in prices across the economy. In some cases, furthermore, rent in residential real estate properties’ contracts is subject to increase due to inflation. This allows you to control and offset any shortcomings.
Related: All You Need to Know About a Mortgage for Rental Property
3. More Control and Power over Management of Property
The fact that real estate is not entirely reliant on market conditions has comforted people into using this method to maximize their wealth. In particular, renting residential real estate properties remains to be of the less risky investments given the landlords’ strong power in influencing gains. You are in complete control. When you are buying and renting residential real estate properties, you can influence both the property worth and your cash flow. You can do so by either increasing rent or adding to the property’s value through renovation and/or subdivision.
4. Appreciation of Land over the Years
With population steadily growing, people’s demand for land is also increasing. Unfortunately, the supply is limited, thus driving up the value of land over the years. If you aim to buy and rent residential real estate properties, it could be a good idea to spend more on the land as opposed to the actual property construction. As physical exterior wears off over the years, more renovations costs will incur. However, if you spend more on the land, your real estate investment will be of more value in the future. This poses an incentive because as you grow with years, your land will appreciate and be far more worth in the future than it is today.
Related: Top 5 Sources for Your Rental Property Search
5. Easy Financing
Since home loans make up a big percentage of banks’ business models, borrowing money to finance the purchase of residential real estate properties poses a predilection. Financing options to buy a real estate property, a residential one in particular, enjoy more benefits than those for buying commercial properties or other assets. In residential real estate properties, lenders have proved to lend a higher proportion of the value at lower interest rates. Compared to a share, investing in a real estate property offers the borrower more leverage. In fact, money borrowed to finance residential properties could amount to 95% of the value of the property, while that of a share amounts up to 60% of its value. Preferable than other asset vehicles, the low risks associated with borrowing to finance residential real estate properties have urged people to further invest in real estate.
6. Negotiating Both Purchase and Rent Prices
What makes investments in residential real estate properties favorable by many is the fact that you can settle on a price that suits your budget. Whether by negotiating a price or finding undervalued properties, owning the right skills set will land you a property to suit your needs as a real estate investor. Accumulating knowledge, and enjoying a wide network of other real estate professionals and experts accompanied by good negotiation skills will land you a property with a competitive value. This will allow you to gain more profit as you set the rent price. Of course, the price that you set for renters is also under your control.
7. Tax Breaks
Another incentive that has given real estate investors more benefits is tax advantages or breaks. Real estate investing offers big tax incentives on various types of properties, whether rental residential real estate properties, apartments, or commercial buildings. The top real estate tax benefits are deductions, capital gains, and depreciation. Deductions, in particular, remain to be one of the biggest real estate tax benefits offered to real estate investors. They apply to mortgage interest, property tax, operating expenses, depreciation, and repairs. Make sure to itemize the deductions carefully to ensure compliance.
Related: How to Invest in Rental Properties Away from Home?
8. Last but not Least, You Own the Property
Buying and renting residential properties offers several benefits that make such investment less risky. In renting residential real estate properties, if things go wrong, you can always hold onto the asset or use it yourself. May you need to temporarily live in your rental residential real estate properties, you can choose to do so. Once you move out, you will be able to get your investment property rented out back intact.
Because investing in real estate is more malleable as compared to trading in shares or bonds, it is more attractive for investors to opt for it. Whether it’s tax incentives or the ability to adjust to inflation, buying and renting residential real estate properties proves to be a profit yielding investment. Make sure to organize and manage your property correctly and with care to avoid failure and/or incurring more costs. Start finding residential real estate properties today with Mashvisor!