Purchasing a Property to Rent Offers more than Just Extra Income for Investors
As an investor or entrepreneur, you should always be seeking new ways to grow your portfolio, invest your money wisely and, ultimately, make more profits to support yourself and your family. As such, there are many unique investing benefits that purchasing and renting out a property can offer, such as diversifying your portfolio, offering greater capital leveraging options, as well as even acting as a slight shield from taxes on your other income.
So let’s take a closer look at why you should consider property as your next investment.
Property Seldom Deflates in Value
While there are exceptions to this general rule, such as struggling countries or those with pending civil war, the majority of properties that are viable for investment have a very low chance of dropping in value. In fact, as more properties are built throughout the world, land and space is consequently becoming more valuable. Additionally, as amenities are built and cities expand, properties closer to the CBD also become more valuable. And while there are numerous other macroeconomic and local trends that can affect the price as well, as long as you make smart purchase decisions, you can expect your property to grow in value over time.
This is why so many investors choose property to invest in, since it is relatively risk-free aside from natural disasters or other factors that a great insurance package can cover. And while some higher valued property can be expensive to maintain, it can also bring in a lot more additional income. Furthermore, depending on how involved you want to be with the property, as well as how you intend to utilize it, you could choose to rent it out on a daily basis, netting more profits per day but requiring more effort to find renters. Monthly letting is an easier and more stable option, however, and can sometimes even cover the monthly mortgage loan repayments as well, making either choice viable.
Liquid Capital that offers Additional Income
Purchasing an apartment for extra income is an excellent way to utilize your capital, and offers far greater returns than many other investments you can make. Additionally, because you can always sell the property if you need the capital for other uses, this property technically becomes liquid capital. As such, it allows you to leverage the property as contingency for getting bigger loans as well. Generally, banks won’t simply lend out money without property or equivalently valued assets to offer in case you can’t pay the loan back. An additional property, however, enables you to take bigger loans and grow on your investment portfolio further – All while offering additional income as well.
Diversifying Your Portfolio
Another great benefit that purchase apartments can offer is more diversity for your portfolio. As an investor, you will understand that investing all of your capital into one area is dangerous, since you are essentially, as the old adage goes, putting all your eggs in one basket. If that particular investment was to suddenly drop in value, your total capital would be greatly affected. However, by investing in a variety of different investments, you are substantially safer if one or more drop in value.
Additionally, if you are seeking to purchase property as investments, then you want to consider purchasing property in different areas around the world. This way, you can also benefit from fluctuating currency values, and potentially afford much more valuable properties in growing or developing countries as well.
A Rental Property can also be a Tax Shield
Finally, as HackYourWealth shared in an insightful article on homeownership, depending on the country you live, you can also include mortgage loan interest in your tax deductibles. Furthermore, if you own a property or apartment that you rent out, you can also include the maintenance and operating costs as well. This acts as a shield from tax for any other income you earn and ensures that you can enjoy as much tax deduction as possible, while not compromising on your potential earnings. This is another fine benefit of owning property to rent, and is why you should certainly consider purchasing an apartment.
Potential Pitfalls of Purchasing Rental Properties
While there are many fantastic advantages mentioned above, it’s perhaps even more important to understand the possible downfalls of purchasing a property to rent for extra income. These are mistakes that, although many smart investors wouldn’t make, are made often by individuals or entrepreneurs who rush into deals without taking every aspect into consideration. They are as follows:
Unexpected Expenses – Good estate agents are invaluable when you are investing in property, since they will be capable of estimating the true value, as well as what it may be worth in a few years’ time. They will also be able to tell you about any of the potential problems, like broken roof tiles or badly insulated rooms, that are often difficult to ascertain in a basic show-house experience. As such, it’s critical that you speak in-depth with your agent to ensure that you aren’t simply buying a house or apartment full of potential expenses.
Negative Cash Flow – Another important aspect that Investopedia highlighted in an insightful article is how much monthly mortgage repayments will be. If the rent that you expect to earn does not cover the expected monthly payments, then you will have to pay in the difference. Ideally, you want to find a property that you can rent out for slightly more than what you expect to pay in interest rates, levies and other costs. This way, only have to provide the initial cost and allow the property’s rental income to pay off the rest. Then, after a few years, and once the loan is paid off, any rental income that you receive from the property is bonus. Additionally, you can then resell the property after a few years and, depending on the property value appreciation, earn a lump income, with which you could purchase an even bigger property and start again on a larger scale.
Ignoring macroeconomic and Neighbourhood Trends – Finally, it’s vital that you take other factors, which could affect the value of the property, into account. As Time recently shared in an interesting article, neighbourhood trends like the safety and security of the area, the potential rise or fall in quality of local amenities, development or industrialization of the local area, or any other factors that could affect the quality of life in the area. Additionally, you don’t want to invest in a country that is in a downward spiral. Because unless there is potential for growth, development and stability, the property value may be volatile and subject to conditions that you can’t control.
While there are some risks involved in purchasing property if you invest in prudently and consult with professionals who can offer experience and insight like the experts at PropertyGuru Singapore, then purchasing an apartment for rent income can be a wise, and lucrative, decision. So take some time to consider whether you would like to diversify your portfolio while enjoying some of the other unique benefits that owning property can offer, because it may just be the ideal solution for you.