Rental properties provide a great deal of financial benefits to those who own them, there is little question about that.
On the other hand, they can also be the reason for a fair deal of grief in the owner's life as well.
But when you strip away all of the little perks and headaches about owning a rental property, there are really just two basic financial reasons why people want to own these types of properties.
They are: Improve Net Worth Despite what has happened to the real estate market in the last couple of years, real estate is a relatively stable asset class.
With time, the value of real properties increases and history has shown that aside from the latest (and large) market correction, real estate provides more stable real rates of return than a lot of other asset classes.
For this reason, the investment value of real estate is quite high because when tenants make their rent payments (and you make your mortgage payments) you are easily building something that just about everyone craves when it comes to investing: equity.
Building equity is not normally an easy thing because it involves taking your hard-earned, after-tax dollars and putting that money away, usually in a retirement or other investment plan, against your own mortgage, or practically anywhere else.
And since most people realize that this physical of moving money from one account to another act is difficult when unexpected expenses arise (and they always seem to), then having someone else build that equity for you (i.
e.
renters) makes for an easy decision to own a rental property.
Income Generating Properties Owning a rental property has income generating properties.
This means tat real estate, like some stocks or bonds, will pay a certain amount of income to you in the form of rents (versus interest in the case of bonds or dividends in the case of stocks).
While the income could be less guaranteed that income that comes from stocks or bonds, it is generally a little higher, even after you deduct any mortgage payment you need to make.
This is because there is a marginally higher "default" risk with owning a rental property than a bond, and for this you are compensated with higher income.
If you are able to find a rental property that has a great list of tenants already occupying the unit(s), then are far better off than finding your own tenants as the stability is already there.
Summary Indeed, owning a rental property has a great number of perks (taxation, "tangible" asset, etc.
), but the two biggest ones are Building Equity and Generating Income.
Determine which is your reason for owning a rental property before going to the trouble of making your first purchase...
knowing which one is your reasons will make a whole lot of matters easier.
On the other hand, they can also be the reason for a fair deal of grief in the owner's life as well.
But when you strip away all of the little perks and headaches about owning a rental property, there are really just two basic financial reasons why people want to own these types of properties.
They are: Improve Net Worth Despite what has happened to the real estate market in the last couple of years, real estate is a relatively stable asset class.
With time, the value of real properties increases and history has shown that aside from the latest (and large) market correction, real estate provides more stable real rates of return than a lot of other asset classes.
For this reason, the investment value of real estate is quite high because when tenants make their rent payments (and you make your mortgage payments) you are easily building something that just about everyone craves when it comes to investing: equity.
Building equity is not normally an easy thing because it involves taking your hard-earned, after-tax dollars and putting that money away, usually in a retirement or other investment plan, against your own mortgage, or practically anywhere else.
And since most people realize that this physical of moving money from one account to another act is difficult when unexpected expenses arise (and they always seem to), then having someone else build that equity for you (i.
e.
renters) makes for an easy decision to own a rental property.
Income Generating Properties Owning a rental property has income generating properties.
This means tat real estate, like some stocks or bonds, will pay a certain amount of income to you in the form of rents (versus interest in the case of bonds or dividends in the case of stocks).
While the income could be less guaranteed that income that comes from stocks or bonds, it is generally a little higher, even after you deduct any mortgage payment you need to make.
This is because there is a marginally higher "default" risk with owning a rental property than a bond, and for this you are compensated with higher income.
If you are able to find a rental property that has a great list of tenants already occupying the unit(s), then are far better off than finding your own tenants as the stability is already there.
Summary Indeed, owning a rental property has a great number of perks (taxation, "tangible" asset, etc.
), but the two biggest ones are Building Equity and Generating Income.
Determine which is your reason for owning a rental property before going to the trouble of making your first purchase...
knowing which one is your reasons will make a whole lot of matters easier.