3 Reasons Why Savvy Entrepreneurs Invest in Rental Properties
Many a savvy investor will tell you that to become a savvy investor you should diversify your profits into more than merely a savings account.
It’s not always a glamorous scenario being involved in real estate investing, but it is one of the wisest ways to generate wealth over the long-haul. Perhaps arguably more so if you’re entrepreneurial-minded.
Here we consider three reasons to consider making an investment into rental properties.
- Cash flow
If you want cash flow, invest in rental property. Cash flow from renting is the amount of money that is left over once all the bills have been taken care of. This cash flow can provide you with ongoing, monthly income which is generally of a passive nature, and thus allowing you time to build your business, be that what it may.
Further, cash flow from rental property is very predictable — more so than most other forms of business, and it’s stable, too. Perfect for the entrepreneurial start-up who’s dealing with the ups and downs of the early months and years. This cash flow will keep you afloat during the leaner times, and allow you to live well during the better times.
2. Tax benefits
Here’s a question: You invest in your IT business and I, as your friend, choose to invest in rental property. Let’s say we both earn $100k for the year. But, who is it that gets to keep more of that $100k?
I do. Why?
Because the government have ‘rewarded’ me as a rental property owner.
The cash flow that’s received from my rentals is not subject to self-employment tax. And, the government are kind enough to offer tax benefits, which include depreciation as well as significantly reduced tax rates to help with long-term profits.
3. The loan pay down
If you invest in rental property through a mortgage, your tenant is in fact the one who pays the mortgage payment, rather than you. This works to increase your own net worth each and every month.
Given the loan pay down, the rental property is, in essence, a savings account which grows automatically, even though you’re not actually depositing money into it.
Today, you may owe $220,000 on a rental property. Next year, you may only owe $214,000 since your tenant is making the payment for you. Thus, you are now $6,000 richer.
Given a further 30 years, or however long your mortgage term is, it will be paid down to $0. You then own outright a significant asset that you can either continue to rent out or sell up, simply because your tenant has paid off the mortgage.