Buying and holding real estate can be a great investment if done properly and it can propel you toward financial freedom. It’s very possible to retire early by building enough passive income through rental properties and this is exactly my plan. Now having rental properties is not for the faint of heart. It’s not a simple get rich scheme or anything close to that. It’s a slow and steady way to build wealth and generate enough monthly cash flow to live off of. Most investors who purchase real estate to hold are doing it for this very reason. I personally choose to buy rental properties out of state because of the market I live in. So far its been a great ride and I’m looking forward to retiring early as fast as possible.
Here are my top 6 reasons to buy a rental property:
1) Cash Flow
- The returns I have been able to generate from rental properties are significantly higher than what I could get through other investment vehicles including stocks, bonds, etc. If purchased properly you can see hundreds and hundreds of extra cash flow each month from just one rental property. Even after deducting all expenses and future expenses. (Vacancy, repairs, etc.)
- Real estate by nature is an appreciating asset. Even with the bubble we went through awhile back it is clear that real estate is back on the rise. Appreciation to me is icing on the cake as I typically don’t run my numbers speculating on appreciation however deep inside, I know it’s there and being able to tap in to equity via HELOCs or equity loans can be a great strategy to leverage that money and buy more investments. It can be a great way to rapidly build net worth.
3) Principle pay down
- While you’re sitting pretty making cash flow each month from your properties and possibly gaining equity through appreciation, other people (your tenants) are paying down your principal balance for you also. (Assuming you are financing your properties). That is just amazing! What other investments exist out there where you can get other people to pay off your leveraged loans you are using to buy investments. It really is a beautiful thing. And speaking of leverage…
- If you read Rich Dad Poor Dad, or countless other books on real estate investing you will see how some of the richest people in the world built their wealth by leveraging other people’s money (Banks, private money, etc..) to buy income producing assets. Having the ability to purchase rental properties with someone else’s money gives you the ability to grow substantially and provide higher returns to your COC (Cash on Cash) returns.
5) Tax Benefits
- There are numerous tax advantages to having real estate. Many write-offs that help you come tax day. Some of these deductions include depreciation on each property you own, mortgage interest, repair expenses, travel expenses (mileage to and from your rentals), Home office (provided your meet certain requirements), Insurance premiums and legal and professional services (accountants, property mgmt., etc.)
6) Retire early
- This is my favorite of course. Having rental properties is a means to financial freedom. It’s one of the best ways to build passive income and retire early. You can have a never-ending flow of monthly income all while your assets appreciate. Its gold!!
Be aware not every property can generate these kinds of benefits. Being selective when choosing a rental property is a critical piece of the puzzle which is why I have a strict criteria about the properties I’m purchasing now.
Can you think of other reasons to buy rental properties?