However, apply caution. Forget assumptions about the investment returns on owning single-family rentals. Houses that are rentals for a relatively short period when they go on the market typically sell for 8% less than similar houses. However, properties that have been rented for years don’t suffer the same discount. The difference might be explained by landlords’ reluctance to polish or spend on properties they know they’ll be selling.
Work With a Tax Advisor
Work with a tax advisor to ensure you have the correct information to offset income and appreciate the various tax benefits that are available to help you as your wealth grows. These benefits may include various deductions for interest, depreciation, repairs, and local travel. As a landlord, the IRS even allows you to deduct costs for legal and professional services related to the property management or maintenance, loss due to casualty or theft, and insurance premiums related to the rental property.
Don’t Sell
Selling a rental property is the number-one way of killing the passive income that comes from this type of investment. If a property cannot be rented or is otherwise costing more than it’s worth, the decision to sell may be warranted. Otherwise, to build wealth, keep rental properties as long as you can. Once the mortgage is paid off, nearly 100% of the income will be yours to keep. Reinvesting this income can further help to build additional wealth.
Building Wealth Doesn’t Happen Overnight
Patience is important when investing in rental property to build wealth. Be careful not to over-invest or attempt get-rich-quick scenarios that may put you at risk of losing everything you’ve invested. Keep in mind that your rental property may not rent immediately, and until you find a tenant, you’ll have to fork out the monthly mortgage payments, which is counterproductive and a potential drain on your income. Also, be mindful of overspending on property taxes or repairs and wiping out your savings or investment funds.
Remember that building equity is not the same as gaining through investing. Yes, you might sell at the ideal time for a profit, but it’s not a sure thing. Your motivation for buying a home should not be that it’s an investment, but because you want the security of having a home and building equity.
To find out more on building wealth through renting, visit www.rentalhomecouncil.org.