Why Owning a Rental Property is a Good Idea
Investing in real estate is one of the best decisions that you can make. When you own a rental property in College Station, TX, you’ll build wealth through equity, earn passive income, apply the income to mortgage payments or other expenses, and build your real estate portfolio.
Earn passive income
One of the best ways to generate passive income is through a rental property. Passive income, which is the money you get without being actively involved in the business, offers promising financial rewards. With the strong rental market today, buying the right property will yield a positive cash flow in no time.
The income you receive from your rental can be used to cover the cost of purchasing and managing the property. If you took out a mortgage to purchase the rental property, the income can help pay off your mortgage early. Some investors use the income from their rental properties to fund their retirement.
Earning passive income is also easier with a property management team. When you have a good property management team taking care of your College Station rental, it will help you earn more passive income in the long run.
The tax benefits are great
When you own a rental property, you can claim deductions for expenses related to operating, maintaining, and owning it. These are major tax write-offs from owning a rental property:
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Interest
One of the biggest and most common expenses that rental property owners can deduct is interest. Whether it’s the interest on mortgage payments or your credit card for rental property expenses, these – deductions can give you a higher profit margin.
Just like buying your own home, many real estate investors use mortgages to purchase rental properties. The mortgage interest, which is considered as a business expense, can be deducted to lower your taxable income. Keep in mind that you cannot deduct from your principal payment – only from the interest paid on the loan.
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Operating expenses
Maintaining and managing rental property does not come cheap. Some of the most common costs associated with keeping the rental property in good condition are repairs, supplies, landscaping, and property taxes.
However, home improvements are not tax deductible. But some home improvements like appliances or adding fences can be considered as depreciation.
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Depreciation expense
Another benefit of owning a rental property is depreciation. As defined by the IRS (Internal Revenue Service), a residential rental property has a useful life of 27.5 years. With this expense, you can take advantage of the yearly tax loss by depreciating a property over a period of time.
To be able to claim the depreciation expense, you must own the property. The property should also be used to produce income and it must have been in use for over a year.
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Owner expenses
To reduce your taxable income, you can deduct other expenses associated with running your rental property. A home office deduction, for example, can be claimed as long the home office is regularly used for business purposes.
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Pass-through deduction
The pass-through deduction is a tax benefit given to real estate investors with their own partnership, sole proprietorship, or limited liability company. If you qualify for the pass-through deduction, you can write off up to 20% of your qualified business income (QBI) from your personal taxes.
You diversify your portfolio
Diversifying your portfolio reduces risk because it spreads your investments through different asset classes. Investing in real estate is one of the most effective and reliable ways to do so because it gives you a steady income. When you invest in a rental property, you avoid “putting all your eggs in one basket.”
Real estate appreciates over time
It’s common knowledge that home values tend to increase as time goes by. As long as your rental property is in a good location and the timing is right, you can make a considerable profit if you decide to sell it in the future.
That’s why it’s important to research well and make an informed decision before diving into a rental property. To choose the right rental property, you have to consider its location, the current market trends, and by running the numbers.
The best time to invest in a College Station property is now. Let us at Berkshire Hathaway HomeServices Caliber Realty handle the property management for you.
With over 60 years of combined management experience, our property management staff knows what it takes to keep your rental property in top condition, providing you with reliable income. Visit our Property Management page for our complete list of services
Get in touch with an agent by calling 979.694.8844 or through email.
