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Advantages of Owning Rental Property
CASH FLOW - Because income property can be purchased with relatively low interest loans, many properties
can start cashflowing immediately after purchase. Many first time owners of fourplexes find that they have
not only stopped paying rent, but there is enough cashflow collected from the rents after paying the
mortgage to put in their pocket. This is even possible when the owner used ZERO down payment
financing.
TAX SAVINGS - Investment real estate owners have a huge tax advantage over many other forms of investment:
the opportunity to depreciate their property and then trade up their capital gains into other property.
Residential properties depreciate (for tax purposes) over 27.5 years and commercial properties over 39
years. Unlike stocks, if you use an IRS code 1031 exchange to trade your property for another, you can avoid
paying income tax on the capital gains. There are many other tax benefits to owning real estate.
EQUITY BUILD UP - Over time, the mortgage you borrowed to purchased the property gets paid down, and,
generally, the property value goes up. This creates equity, or net cash value to the owner over time. This
can be dramatic growth, as many landlords in Southern California can attest, or gradual, like a simple
savings plan.
APPRECIATION - Many real estate investors believe it is safe to assume a 4% appreciation level. Of course,
some years will be better than others depending on supply and demand. There are other important factors like
the escalation of costs and the increased costs of construction and land/infrastructures. As long as
governments keep up major increases in im pact fees for developers, your real estate investments will
continue to appreciate.
The average single family home sold for $23,400 in 1970; in 2000, a similar average home sold for $169,000.
That is an approximate 8% annual increase. Of course, appreciation will vary with the location and condition
of the property as well as the condition of the local economy.
Here are a couple of links for you to read as you consider becoming an income property investor.
Buying a Duplex
Double the Fun?
There's no place like rental property
For Non Home Owners
If you have never purchased real estate before, buying income property will be easier for you than someone who
already bought the home they live in.
QUALIFYING FOR A MORTGAGE - The standard rules of thumb apply with purchasing an income property as with
purchasing a house. You need to have a stable job/career history for 2+ years, a bank account with some
savings to show financial stability, a FICO credit score over 650, etc. However, you do have the
advantage of being able to use 75% of the rents for the other units as income to qualify you for the loan.
This process is key to the first time buyer.
LEARNING THE RENTAL BUSINESS - Rental real estate is a business, and should be conducted like one. While it is
simple and easy to learn, it is vitally important to make good decisions in operating your business. There are
many good books and even some courses which can help. Stonebridge agents will be happy to tutor you in some of
the critical activities which make being a landlord an rewarding experience.
For Home Owners
QUALIFYING FOR A MORTGAGE - If your intent is to live in your home after you purchase your rental property,
you should be prepared to come up with about 20% of the purchase price as a down payment, and a few more
percent for closing costs. For some people, this is no obstacle at all. The same underwriting requirements
will apply to you as to the first time buyer (see above).
LEARNING THE RENTAL BUSINESS - Some of the realities of homeownership - particularly fixing things that
break or wear out - will be very useful in being a landlord. There are many other issues which can be of
much greater importance, however, such as the legal relationship between tenant and landlord. There are many good books and even some courses which can help. Stonebridge agents will be happy to tutor you
in some of the critical activities which make being a landlord an rewarding experience.
To Learn More About Being A First Time Buyer Click Here to return to Realty Page to Fill Out Info Request
Form
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