Benefits and risks of rental investment
Last Updated on August 22, 2022 by rabiamuzaffar
The rental investment has a number of advantages: building up a long-term heritage, receiving additional income, living in the property in its old age, allocating it to relatives.
Rental investment has a number of advantages.
The first of these is the possibility of securing an income for the future and thus supplementing one’s retirement. At a time when it is now accepted that today’s working people will have less income once they retire, the prospect of being able to maintain their purchasing power thanks to rental income is interesting.
In addition, there is the possibility of living in the property during its old age or even at the end of the compulsory rental period. Before being able to live there, the investor Sunnyvale apartments for rent the property. However, for the investment to be interesting, it is necessary to ensure that the mortgage will be repaid before the end of the working life.
Housing can also be allocated to relatives (descendants or ascendants) to allow them to be accommodated properly and at an attractive rent. Rental investment then becomes a means of helping loved ones at a time when it is becoming very difficult to find accommodation everywhere due to the increase in rents and property prices over recent years.
In addition, investing in real estate with a long-term approach allows you to build up wealth that can then be passed on.
While it is difficult to borrow to finance the purchase of other financial investments, real estate has the great advantage of being able to be financed by borrowing. Thanks to the rents he receives, the investor can then repay, in part, the mortgage. At the end of this loan, he becomes the holder of an estate, while his initial outlay was sometimes very low.
Investing in real estate also makes it possible to reduce taxes payable through various mechanisms. Note that in certain tax regimes, loan interest related to the acquisition, repair, construction or improvement of the property is tax-deductible. The repayment of capital is never deductible. Be sure to take this into account when setting up your property finance plan.
To this is added a set of tax provisions to encourage investment in real estate. There have always been many laws encouraging rental real estate! At present, it is the laws that make investment in new property profitable owing to the tax benefits.
Moreover, potential home buyers not only have a place they can call home, but it can also come in handy when they need to liquidate an asset if needed. Especially owners with multiple properties have the luxury, knowing that they have a commodity that is not only worth a pretty penny but also desirable enough that they can sell it quickly when needed.
The risks of rental investment must be carefully considered. Indeed, the entire diagram described is based on the idea that the investor manages to rent the property and, therefore, to receive a rental income. However, the real estate market suffers, depending on the location, from an imbalance between supply and demand, and some homes are unable to find tenants, especially in regions where economic activity is limited. The other major risk is that the property is rented but at an insufficient rent, which does not allow the investor to make a return on his investment or that the maintenance work to be carried out there is very heavy.
Also for those investors who are mainly looking to flip their property have to be extra careful. Because if they pay over the actual price or for some reason property values go down, they risk losing money, and it becomes evidently harder to recuperate their original investment, let alone any profits.