Investing in rental properties provides many benefits that you won’t find in other types of investments. The income received from rents may be offset up to the allowable deductions for out-of-pocket expenses and the deduction for depreciation (even though rentals rarely actually depreciate).
Rental properties contribute to your wealth in three ways by:
- Increasing your net worth (equity) as the market value of the rentals appreciate over time and mortgage balances decrease as tenants pay them down for you.
- Providing increased cash flow when rents rise as the cost of living increases and again when mortgages are completely paid off. And
- Tax favored benefits. Not only may you deduct ordinary business expenses, you may also be able to avoid current taxes by exchanging the rentals to higher valued properties, thereby increasing cash flow without recognizing gains. In fact, if done correctly you may never have to pay tax on the gains.
Historically, real estate has out-performed the stock market during the past 50 years (when national averages are compared) and rentals held long-term typically provide greater cash flow than other investments during your retirement years.
However, rental properties don’t automatically provide benefits. They require someone to manage them and to interface with tenants. They require compliance to certain rules and good landlord practices to reduce liability exposure of their owners and managers.
Real estate taxation and risk management is one of our niche specialties. With tax planning, asset protection structuring and good landlord practices, we can help you pay less taxes, reduce the chance of lawsuits and help protect your personal property against legal actions coming from your rental activities.