Rental Real Estate Wealth Advantages

 Let me first state I am not a financial advisor, realtor, or accountant.  What I am posting here is my opinion.

The Benefits of Rental Real Estate Investing

Leverage, Loan Pay Down, Cash Flow, Appreciation, Tax Benefits and Longevity.

Leverage

Leverage is the ability to borrow money.  If I went to a bank or credit union and wanted to borrow money to purchase or start a small business they would grin and suggest I find a rich uncle to finance it.

Borrowing to buy rental or personal residential real estate is different.  There are many programs that will help you buy your first house, duplex, triplex or fourplex.  Sometimes if you plan to live in the property for twelve months you will be able to borrow as much as 95% of the value of the property.  It is usually fairly simple to purchase Rental real estate if you have 25% to put down.

Loan Pay down

From the very first payment part of the payment will start paying back the loan on the property. 

Renter makes the payments after the Down Payment
I would only purchase a rental property where the tenants payments easily make the loan payment, expemses and a little cash flow.

Cash Flow

Cash flow is the money above expenses and loan payments that ends up in your pocket.  This may not be very much to begin with but as inflation seems to bring the price of everything up after a few years it will become significant. 

Appreciation

Historically real estate has appreciated at two to four percent annually.  This can vary significantly over time and depending on where your rental real estate is located.  Appreciation is never guaranteed.  National statistics claim that the United States has not been building anywhere near enough housing units for the population growth we have been experiencing.  Since the 2007 construction bust the building industry has not been keeping up.  Shortages will increase the appreciation of your rental properties.

Tax Benefit Depreciation

Most capital items have a useful life for a business.  For instance a laptop computer may have an expected life of three years to a business.  So the business can deduct the value of the laptop over three years.  Let’s say the computer was $150.  The business can deduct $500 per year against their income for three years.

Real Estate Depreciation, you can deduct the value of the improvements to the land over 27.5 years (this may change get a good accountant). With a $450,000 rental property, let's say you value the land at $50,000. You would have $400,000 in value to depreciate over 27.5 years. So for 27.5 years you would be able to take off your income $14,545. Yes even thoug the property is probably increasing in value you can depreciate it.

Tax Benefit 1031 Exchange If you want to sell your investment property and invest in another property you can do a 1031 exchange. There are specific rules you must follow. With most other investments like stocks when you sell your stock you must pay the tax on your income. This is a huge benefit to Real Estate investing.

Tax Benefit Inheritance

Most investments transfer to your children at the basis you have in the investment. Real Estate gets a new valuation to the current value. For properties that have appreciated significantly this can be a huge benefit to those that inherit.

Longevity

Rental property may last for fifty to two hundred and fifty years.  I have a rental house that was built in the 1890s. It is one of the oldest houses in the town I live in, however with a little modernization through the years it is still an in demand rental.

You don't have to sell

I have a rental that I purchased for $90,000 many years ago. I put $10,000 down and rented it for many years. The rent from the renters paid it off a long time ago. It is now worth $400,000 according to Zillow.

Anyway for another project I borrowed $120,000 against this property recently and the renters will pay that off also.