Investing in a rental property is a significant undertaking, but it does offer a rewarding payoff. Once you’ve assessed your goals and measured your risk appetite, there are several reasons why investing in rental property is a great way to generate income in the long run. Metro Vancouver’s housing market has seen tremendous growth in home sales, with 2021 poised to continue as a seller’s market.
Greater Return on Investment
High leverage and a high return on investment go hand in hand. Real estate is considered a high-performing asset as it offers a greater payout in the long run. Over time, as your property value appreciates, so does your return on investment. Simply put, as your profits surpass the interest you owe, this leads to an increase in your ROI.
Owning real estate allows for many different kinds of tax deductions, which allows you to keep more of your taxable income in your pocket!
- Depreciation: Landlords can deduct the cost of the property over several years by way of depreciation.
- Repairs: Repairs, such as repainting, fixing the floors, or replacing broken appliances, are often tax-deductible.
- Home office: Landlords who work from home can likely deduct home office expenses from taxable income, provided you meet certain requirements.
Passive income is money earned without any material participation on your end. Investment in real estate (as well as stocks and bonds) is a classic example of a passive income stream that continues to bring in rental income each month.
Your work isn’t over once you find tenants, though. Landlords still have to stay on top of routine tasks like collecting rent and taking care of maintenance, though employing a management company can help you take care of the day-to-day.
Alternative To Stocks
Investing in a tangible asset like real estate comes with more stability than stocks or other financial products that you cannot see or touch. While real estate is not as liquid as stocks, there is substantial room for appreciation and also makes for a passive income stream. Stocks can be easily bought and sold, but they’re much more subject to market, economic, and inflationary risks.
Keeping in mind the initial investment and maintenance costs, real estate is a relatively stable option that provides greater diversification and yields better returns at lower risks. As real estate values increase, your investment also rises in value. Over time, as your income becomes passive, earnings from the rental property can be directed to a retirement fund or saved for a rainy day.