Reasons to buy into the rental market

reasons to buy into the rental marketSome characteristics to owning a single-family home are not available through standard investment types. Single-family homes give an investor the opportunity to borrow large loan-to-value amounts with fixed rates for long terms on assets that keep appreciating. They also offer tax advantages and a reasonable amount of control.

On most residential units up to four units you can get 75-80 percent loan-to-value mortgages. On the other hand, the stock market will allow you to borrow up to 50 percent on a stock but watch out if the price drops. They will want you to put up additional cash to keep the ratio at or below 50 percent. If you don’t have that cash, they can sell the stock to satisfy your loan.

Investors in real estate call getting a long-term mortgage “putting an investment to bed”. The fixed interest rate and the ability to pay over 20-30 years are exceptions to loans you would get from other investments, if any loans are even available.

Real estate appreciates in value over time even though there are a lot of variables affecting price like supply and demand, condition of the home, mortgage money that is available and the general economy.

There are tax advantages with rental real estate. Any profits you gain are taxed at lower, long-term capital gains rates for investors owning their rental property more than 12 months. Investors are given a non-cash deduction based on cost recovery of improvements while the property is being rented. If specific conditions are met, tax deferred exchanges can also be available which allow investors to postpone paying any tax on the gain.

If you can qualify for the mortgage on your own, it isn’t necessary to have a partner on your rental homes. As the controlling investor, it allows you to make all the decisions such as setting the rental price, making improvements on the rental home and control on when to sell your investment.

Rental real estate can earn you a much higher guaranteed rate of return than other investments and provide income during the holding period. With these types of returns, it is worth investigating your options with me, a real estate professional experienced in real estate investments. Call me today to get started!

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