Is Rental Property Still a Good Investment?
In a word, yes! Here are a few reasons why:
Right now might be the best time in years to buy—in certain markets. But crunching the numbers becomes more important than ever—if real estate prices have dropped, has employment dropped, too? How far have rents fallen? Will you be able to rent a newly purchased property for enough to cover your P&I, insurance, repairs, taxes and other expenses? Even if real estate is 20% or 30% down from the heights of 2006-2007, you still need to make sure the numbers will work. A bargain is not a bargain if you can’t rent it. But in some markets, bargain real estate can work for the right buyer.
Real estate builds wealth—when purchased at the right time and for the right reasons. This means not buying with the expectation of great appreciation—one reason for the high rate of foreclosures we’re seeing now. Steady month-over-month profit that grows over the years you own the investment pays off with less risk than the expectation of making a big payout when you sell.
More people are moving from homeownership to renting. Americans are re-examining the idea that everyone “must” own a home. For plenty of folks, that dream turned out to be nothing short of a nightmare. Many former homeowners will be renters for a long time to come, both because of the bad experience they’ve had and because of foreclosure’s subsequent hit to their credit scores.
Depreciation expenses are valuable to landlords. Each year, rental property owners may deduct depreciation, or the annualized loss in property value from their income taxes (please see your tax professional for advice and legal limitations and regulations). Even if the value of your property increases, you still get this annualized deduction.
Real estate does appreciate over time—in most cases. Even in the hardest hit areas of the U.S., the long-term picture shows that real estate values do go up. If you are planning to get rich quickly, real estate may not be the right investment for you. But for the long term, it’s a great investment for many landlords.
Please consult your legal and financial professional advisors regarding investment and legal issues. This is not to be considered legal or investment advice.