So you’re faced with the tough decision of whether to sell or rent your home or apartment. The giant pile of cash that comes after selling can be tempting, especially if you have no idea where or how to start being a landlord. Becoming a landlord can seem daunting at a glance, but when broken down into a checklist, the responsibilities become manageable. But that is a discussion for another day. For now, let’s look at the benefits that come with renting out your property.
Passive Income, Great Returns
People will always need a place to live, which is why millions of property owners across the United States rent out their homes to the 34.4% of the population that isn’t ready to own yet. Not only is it one of the more reliable investments to make, but it is almost completely passive income. These individuals often see their property as a path to a comfortable retirement.
The turnover process is the most time-consuming part of the lease cycle because it requires advertising, coordinating showings, completing maintenance, and preparing the lease.
However, if a landlord has the right tools to do it themselves or brings on the right partner to efficiently manage the property, an owner can save hours each month and turn their tangible asset into a reliable, automated, passive source of income.
Mortgage Payments Are A Thing Of The Past
Face it, no one likes to pay bills. Mortgage payments are usually the most costly bill that homeowners pay every month.
Owning a rental can eliminate that payment by using your rental income to pay for your monthly mortgage. This helps alleviate all of that house payment stress.
Once your home is paid off from all of that extra monthly income, you can start to save and invest it in other ways. Reinvesting rental income is an easy method for real estate investors to expand their property portfolio, which can lead to significantly more cash flow down the line.
Some people choose to put it into their 401k’s while others simply let it pile up into a bank account. Regardless of what you choose to do with the excess cash afterward, owning a rental property is an efficient way to pay off a new mortgage.
Rental Demand Is Increasing
After the housing bubble started to burst, the United States has been transforming into a nation of renters. A recent research shows 20% of renters who are living in small spaces consider moving to bigger spaces, and 48% are planning to relocate to better housing conditions. With low supply and high demand, landlords have more of an upper hand, allowing them to choose the lease terms and collect prime rent payments.
Long Term Tax Advantages
Even as a landlord with one property you are entitled to several tax benefits if you keep proper documentation on them. The IRS tends to be pickier on certain (smaller) expenses like travel, so it is important to keep a sound record of receipts.
It’s your preference regarding how you keep track of these expenses (physical, digital, etc.), but remember that you have to be able to show proof in order to ensure that you get the write-offs approved.
First, you are allowed to write off mortgage interest and real estate taxes on your property. Any operational activities such as maintenance, Homeowners Association fees, travel, insurance, and utilities can be deducted as business expenses as well.
According to the Modified Accelerated Cost Recovery System, you are allowed to deduct your property structure’s depreciation over a period of 27.5 years. What this means is that if your property was worth $500,000 when it was built, then you would be able to deduct (500,000/27.5) about $18,382.00 each year as a depreciation expense for your business. It is important to note that the value of land should not be included in the property value, only the structure.
Keep your options open
Moving to a new city can be a great opportunity to become a landlord. Not only can renting out your place cover the mortgage for your new home, but it also lets you keep the option of moving back if necessary.
Absentee owners make up a significant portion of landlords in the United States, many of whom do not plan on expanding their portfolio and just want to have a second home as an option.
Even if you think you can only give this whole landlord thing as much effort as a part-time gig, understand that it is still a possible endeavor. At the very worst you are left with the option to move back, making your mortgage payment without the help of your day job. Keep your options open by trying at first to rent out your property, and see for yourself if you don’t like being a landlord. I mean, you can always sell later right?
At the end of the day, no one can tell you for sure if renting or selling is the best choice for you. It is a personal decision that goes way beyond number crunching, industry expertise, and daily schedule. I hope that the information here provided you some insight into the benefits of renting. If this post brought up any new questions for you then don’t hesitate to leave a comment!