The Benefits of Owning Rentals

Mike: Welcome back to the FlipNerd.com REI classroom, where experts from across the real estate investing industry teach you quick lessons to take your business to the next level. And now, let’s meet today’s expert host.

Kevin: Hi, I’m Kevin Ortner, CEO of Renters Warehouse, and I’ll be your host for REI Classroom today. Today, we’re going to talk about the benefits of owning long-term real estate.

Mike: This show was sponsored by passiverental.com

Kevin: So there’s the obvious and the not so obvious. A lot of people really focus on the obvious, which are your cash flow and appreciation. So what’s cash flow? Cash flow is that monthly income you get from the revenue of your rent, minus the expenses on your rental property, that’s your cash flow. That’s what most people focus on. They also talk about the appreciation of a property. So today, it’s worth $100,000 and, hopefully, in several years, through real estate appreciation, it’s worth more. That’s a good thing. But I like to focus on the not-so-obvious: the tax benefits of owning real estate, as well as leveraging and using other people’s money.

So what are the tax benefits real quick? Now, the tax benefits are more than just deducting your mortgage interest, it may also come down to depreciation and expenses. And so let’s talk about those real quick. And this is where it really comes into play to have a great real estate CPA or a tax adviser that really understands real estate. But some of the most common deductions are your ability to deduct your mortgage interest, your expenses that are associated with managing or having that property, so things like your maintenance expense. Property management fees, if you use a third-party property manager, are also deductible.

And you can actually depreciate the property as well. The caveat there is you need to depreciate only the building and you can’t depreciate the land. The government seems to think that land is not a depreciable asset. So again, make sure you’re handling those in a proper way, but don’t forget that through real estate, you can actually lower your taxable income and thus, put more money in your pocket as well.

So there’s the obvious and the not-so-obvious, again, of your cash flow and your appreciation, your tax benefits. But my favorite is using other people’s money. This is where you can leverage a bank’s money to buy an asset and rent it out through real estate. Now, I always joke that you can’t go into your local bank and borrow money to buy Apple stock. If you want to buy $100,000 of Apple stock, they’re going to laugh you out the bank.

But if you want to buy $100,000 rental property, you can walk into the bank and say, “I’d like to borrow $100,000 to buy this investment property that I’m going to rent out,” and they’re absolutely going to do it for you. That means it only takes maybe 20 or 25% of that cost of your money down, you can leverage the rest of the bank’s money and get more return on your cash you’re putting into your investments.

The best part is, the using other people’s money part, is now you’re going to place tenants into that property, they’re going to pay you rent, which in turn pays down your mortgage. So not only are you borrowing the bank’s money, but you’re having someone else pay that mortgage down for you, meanwhile, your asset continues to appreciate. So other people’s money is my favorite part of this.

The bottom line is owning investment real estate is a great way to create wealth, financial freedom, and a long-term legacy for you and your family if you’re using it right. Make sure you’re analyzing your investments well, you understand what that monthly cash flow is going to be, you understand how it can affect your tax rates and the tax benefits. And assemble a great team. Use a great realtor or investment adviser to help you understand the trends in the market that you’re investing.

Make sure you have a great tax partner so you’re taking full advantage of these tax benefits that are around for you. And have a great lending partner that can get you great rates and great opportunity to borrow money to leverage your cash to go farther.

So remember the obvious and the not-so-obvious benefits of owning rental real estate for the long-term and that’s it for today. We’ll see you next time on the next episode of REI Classroom.

Mike: PassiveRental.com is your source for turnkey done-for-you rental properties. If you’d like to be an investor and not a landlord, please visit PassiveRental.com to learn how to purchase cash flowing, professionally managed rental properties in the hottest rental markets across the country. We can also help connect you with financing for your next property. Invest the easy way today and get started by visiting PassiveRental.com.

Please note, the views and the opinions expressed by the individuals in this program do not necessarily reflect those of FlipNerd.com or any of its partners, advertisers or affiliates. Please consult professionals before making any investment or tax decisions, as real estate investing can be risky.

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