The Wall Street Journal reported recently that investors have rarely been this flush with cash. According to Refinitv Lipper, the economic uncertainty due to the pandemic and the volatility of the stock market has caused assets in money-market funds to increase to approximately $4.6 trillion, the highest level on record.
If you are one of these investors you may be asking should I be “out of the market” until it settles down or should I seek an alternative investment that will produce as good results. Even with all this uncertainty, residential rental property has been a stable investment.
Rents along with home values are continuing to increase. Investors can get a mortgage at 80 percent loan-to-value for a 30-year term at a fixed rate. Most other investments must be purchased with cash to using limited to low loan-to-value loans, with floating interest rates and short time frames.
With today’s low interest rates, the use of borrowed funds, contribute to the rate of return and in some instances increase it. This is known as leverage.
Rental properties have specific tax advantages like long-term capital gains rates lower than ordinary rates, standard depreciation, a non-cash deduction, and being able to expense many big-ticket items in the year purchased.
Tax deferred exchange (1031 exchange) is available for investors who want to avoid tax on a sale and defer that profit into a replacement property.
One of the most cited reasons people invest in rental homes is that they feel they are more in control. They understand a rental home because it is the same type of property and requires the same maintenance as the home they live in. They can make the decisions to improve it, repair it, what rent to charge and when to sell it. For most owners, a home represents their largest financial asset. That familiarity becomes a natural bridge to decide to invest in rental property rather than something they are less familiar.
If you’d like to know more about the benefits, download the Rental Income Properties guide and call me at (703) 303-4010w to discuss what kind of opportunities are available.
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