Even the chief executive officers at successful startups need side hustles. Deep-pocketed movers and shakers in society typically have multiple streams of income. Putting all their eggs in one basket is a no-no. Even if your day job pays well, you need several income streams so you’re not left scrambling if you encounter choppy waters. There are tons of ways to add new sources of income. You might want to invest in dividend-paying stocks, index funds, or real estate investment trusts. Another way to make more money — though it requires a tangible upfront payment — is to purchase a rental property.
In addition to owning a family home, you can build a stronger financial foundation by strategically investing in rental properties that bring in monthly income, grow in value over time, and help you save on taxes.
Here are eight reasons to consider buying a rental property to make more money.
Steady Income Stream
One of the primary benefits of buying rental properties is the steady income stream. It can be a great source of passive income. The operative word in that last sentence is “can” because the stream of rental income will run dry if tenants don’t pay up on time or at all.
That’s one reason many investment property owners hire property management firms close to their rental properties.
An experienced property manager can help you screen tenants, prepare rental units, advertise vacant units, collect rent, find contractors for maintenance and repairs, source quality materials for upkeep, provide customer service to tenants, and more. Doing those things independently could force you to stretch yourself too thin and wear yourself out.
If you decide to lighten your load by hiring a property manager, ensure the service provider is located close to your investment property. It’s important to keep an eye on things. So, a service provider located too far away isn’t the best idea. You’ll want a property manager in Fresno, Texas, if your investment property is situated there.
Tax Advantages
Another benefit of owning rental properties is that you can enjoy tax benefits. And who doesn’t want to slash the amount they pay in tax?
According to the IRS, you can deduct some rental expenses when filing for taxes if you receive rental income. Such things include mortgage interest, repairs, operating costs, and depreciation.
Working with a certified public accountant to maximize your tax advantages is a good idea. Going that route can also help you avoid mistakes that get you in trouble with the government. If you have a certified public accountant, that would be great. But if you don’t, finding out is a good idea. It’s one of the costs of doing business that can deliver a clear return on investment.
Long-Term Asset Appreciation
Yet another good reason to purchase rental properties is the potential for long-term asset appreciation. Realtor.com says that since 1975, the average decade-long return on home prices in the U.S. has been 57%. Looking at the May 2024 median home value of $442,500, Realtor.com says that such a home could, after 10 years, be worth $694,725.
Many factors come into play when looking at real estate values. But if you buy a good property in a good area, find good tenants with the help of a property management firm that can screen applicants, and maintain your property, your odds of getting a good ROI will skyrocket.
Diversification of Investments
When investing in a rental property, you’ll essentially diversify your investments. Saving money in a high-interest account is great. But that’s not enough for substantial wealth generation.
In addition to investing in stocks, ETFs, real estate investment trusts, bonds, and mutual funds, consider getting into real estate. Owning a family home is a good thing for you and yours, but you can get even further ahead by investing in one or more rental properties.
Strong Resale Market
Some people buy properties, planning to rent them out for a few years or decades, and then monetize that investment by selling them. You’ll have the ability to plan a monetization strategy to take advantage of strong retail markets. High-quality properties in desirable areas will always be in demand. So, you’ll get a strong return on investment.
Flexibility
Yet another benefit of owning rental properties is that it affords flexibility. While you might buy an investment property to get rental income each month, circumstances down the road might require you to change course.
For instance, if you’re on the verge of retiring and want to downsize or want a vacation home, you can use your rental property for that purpose.
As long as you honor the tenant-landlord agreements in place, you’ll have the flexibility of changing how you use the property.
Generational Wealth
If your goal is to create generational wealth, you can hand down to your offspring, owning rental properties is one way to help you get there. The properties will potentially expand exponentially in value over years or decades. You’ll want to sit down with a lawyer or estate planning expert to put in place your strategy to pass on generational wealth in a tax-effective way when the time comes.
Opportunity to Add Value
After buying a rental property, you can create wealth by renovating and remodeling the asset. That can involve redoing popular rooms like the kitchen, living room, or master bedroom or upgrading the fixtures, flooring, or other things.
If you are looking for another way to make money, you’ll want to consider buying rental properties. Being a rental property owner isn’t for the faint of heart since there are possible risks. But you can substantially reduce those risks by working with a property management firm. It can do some of the heavy lifting so you don’t feel tethered to your investment.
You’ll also have a third-party service provider to talk to if you have questions about how to make your rental property more attractive to tenants, how much you should charge for rent or other things.
Photo by Blake Wheeler on Unsplash
