There are many reasons to buy rental income properties in Tucson as an investment. I have owned residential rental income properties since my mid 20’s and it has proven time-and-time again over the last 30+ years to be a great investment.
BENEFITS TO BUYING RENTAL PROPERTIES
# 1 CASH FLOW
One big benefit of owning rental income property is for cash flow. Cash flow is the amount of money
you put in your pocket after all the expenses have been paid which is your net operating income or cash flow.
The cash flow you generate from rental properties is residual income and comes month-after-month where you are not exchanging hours for dollars.
The ultimate goal for many real estate investors is to own their rental properties free and clear through principle pay down from the rental income. Once the debt service is paid off cash flow increases dramatically allowing for time freedom.
#2 APPRECIATION
Appreciation is what I like to refer to as ICING ON THE CAKE when it comes to owning real estate.
Appreciation is when a property goes up in value increasing your equity and networth. This is a paper gain until at some point in time you sell the property.
#3 PRINCIPAL PAY DOWN – EQUITY
When buying a rental property many investors will get a mortgage to finance the purchase of the property. Each month the renter pays the rent the rental income is used to pay the mortgage.
When making the mortgage payment, a portion of the payment is applied to the principal which lowers the principal balance. So your renter is paying your mortgage which is building your equity in the property and your networth.
I am a big fan of buying my rental income properties with a 15-year mortgage. In 15 years of receiving the rental income and paying the mortgage payment, the mortgage is paid off giving me 100% equity in the property.
Equity is the Value of the property minus your mortgage balance.
#4 LEVERAGE
In real estate, leverage is the use of borrowed capital in the form of getting a mortgage to purchase real estate to increase the potential return of an investment.
The easiest example for real estate is a mortgage, where you’re the banks’ money to leverage the purchase. In most cases, a 20% to 25% down payment (and a good credit history) gets you 100% of the property and rental property you want. Some mortgage programs may even let you put down less.
An Example of Leverage
Let’s say that you’ve been looking for a rental income property in a great neighborhood. You find a property you like for $150,000 for which you will need a mortgage.
You move ahead and by the house for $150,000. The bank or mortgage lender requires an 80% loan to value so you have to put down 20% or $30,000.
Assuming real estate in this area goes up perhaps 5% a year, in 12 months the investment is worth $157,500. In 5 years, the home is now worth $187,500. Over 5 years that is a 125% cash on cash return not to mention your equity through principal reduction of your renter paying down your mortgage.
#5 TAX BENEFITS
There are tons of tax benefits when owning rental real estate. The IRS breaks down the deductions and record keeping on their website.
Straight from the IRS website:
If you receive rental income from the rental of a dwelling unit, there are certain rental expenses you may deduct on your tax return. These expenses may include mortgage interest, property tax, operating expenses, depreciation, and repairs.
You can deduct the ordinary and necessary expenses for managing, conserving and maintaining your rental property. Ordinary expenses are those that are common and generally accepted in the business. Necessary expenses are those that are deemed appropriate, such as interest, taxes, advertising, maintenance, utilities and insurance.
You can deduct the costs of certain materials, supplies, repairs, and maintenance that you make to your rental property to keep your property in good operating condition.
You can deduct the expenses paid by the tenant if they are deductible rental expenses. When you include the fair market value of the property or services in your rental income, you can deduct that same amount as a rental expense.
#6 RETIRE EARLY
If you are disciplined in your real estate investing and apply the cash flow to reduce your debt service and accumulate rental income properties with cash or leverage with 15yr mortgages you can have FREEDOM INCOME and retire early.
IN SUMMARY
If you want to put an early retirement plan in place through rental income give me a call. Love to work through a plan with you that will help you reach an income goal by a certain age.
If you want more information on running the numbers to analyze rental properties: click here
There is NO better time to start than NOW!
Tags: Tucson Investment Property, tucson rental home, tucson rental property
