Top 3 Benefits to Owning Income Property
By Tim Frye
Let’s be honest with ourselves here. Nobody wants to sit and rot in front of a computer, 9-5, for 80% of their short time here on earth as 10-50% of the fruits of your labor roll over to the big bully upstairs, without having anything to supplement income going on the side that could one day pull you out of the cycle that perpetuates banality.
Now there are many ways to accomplish this method of income supplementation. Many are dicey and treacherous, such as investing in the stock market or contributing all your hard earned money into a 401 k that is essentially exposed to the same market vacillations.
Here at Pronto Education we like to recommend the type of investment methodology that is multifarious and double-edged, meaning advising your client to put money into an asset that can eat away at their tax bill while concomitantly giving them consistent monthly scratch for as long as your client exists.
Owning a rental property, or a few of them if you’re lucky, is one way to supplement your 9-5 income and produce some monthly fluid capital.
- You Answer to You
Upon deciding that you are going take the jump and invest into an income producing property, you immediately become your own boss. Your activities are now autonomous, and not only do you get to pick the property to invest into, you get to choose the appropriate tenant for the domicile, and also determine the relative price you will charge the future tenant.
- Futuristic Appreciation of Leveraged Asset
The term leverage is defined as the investment of a relatively small amount of money by the participant and the borrowing of the rest, usually at a rate ranging from four to twenty to one. If you buy a property utilizing a hefty portion of debt over equity, the asset is said to be “highly leveraged.”
Here is a live example of leverage at its finest. Let’s say you loaded $10,000 into a property. You would then borrow $90,000 from the bank offering the best interest rate.
So when you combine your money with the bank loan, you now have a leveraged $100,000.
Let’s assume that each year, for a period of ten years, the asset appreciates 5%. And that appreciation is gained on the entirety of the purchase including the loan amount, so you are earning interest on way more than your initial investment of $10,000.
You are now looking at an extra $60,000 due to your utilization of the leverage principal!
- 3. Monstrous Tax Write Offs
Every rental property owner is irrevocably entitled to more than substantial write offs on their Schedule A. You are permitted to deduct the interest on your mortgage, any credit cards used for the purpose of purchasing the property, insurance fees, repairs, and any other expenses that are considered “necessary and ordinary” in the course of running your rental business. And let us not forget those pesky and intrusive property taxes.
Rental owners can also utilize the pertinent depreciation deduction for the asset, based on specified and relative depreciation schedules, regardless of whether the property is appreciating or depreciating.
Remember that there are ceilings placed on the amount of business loss that a taxpayer can take on rental property activities, and they are based heavily the individuals amount of material participation.