been reading the words ‘income property’ and assumed what it is; ambiguity is to be avoided like the plague, so here it is! An income property is a property bought and developed with the idea of earning revenue from it. Income properties can be residential and either single-family homes or multifamily properties. They can also be commercial properties such as work units, stores or mixed commercial-residential properties. For some, they can also include static caravans. Owners make money through renting the property while it appreciates in value and then selling it for a profit when ripe for the picking. This means that you should be aware of the resale value potential and the rent yield of the property; we will cover this later.
Buying an Income Property;
5 Benefits!
No matter why you started, here are the benefits to keep in mind when you have a challenging time.
1. You’re in Boss
You are the master of your own domain; you scout for a property of interest; you choose a tenant from applicants; you choose your rental price and how you wish to manage the property and eventually you choose your sales price. It’s all about you!
2. Appreciation of Your Asset
One of the greatest boons afforded to you in real estate is that you can use a small amount of your own money while borrowing the rest; this can often be a whopping 4 to 20 times more from a lender. This gives you what is known as ‘leverage’ and essentially what you can use in your acquisition. In some respects, it is one form of liquidity.
As a side note: Essentially, you are dealing in your personal and professional life with different forms of liquidity to buy, sell, refund etc. in any exchange. If you reach into your pocket and have a dollar bill, you have that amount of true liquidity to use. If it takes time to go to a bank and get a dollar bill, you do not actually have liquidity, just the potential for liquidity. If you loaned someone some money and they need to pay it back to you, it is not liquidity. I draw your attention to this as there is a time component associated with leverage being actually available to do something and depends on the process you are working through; please bear this in mind.
3. Ice Cream Money
Once you have installed your tenant into your brand-new asset, they generate rental income. Any money after deductibles is all yours; have fun, save or reinvest, that’s your decision to make!
4. Help with Your Mortgage
Based on the old adage of never using your own money, let’s discuss the benefits of mortgages. A popular type of loan is a 30-year fixed-rate mortgage in the real estate business. The interest rate will remain the same for the duration of the loan; hence, the fixed-rate part of the name. When you start with this type of loan, substantially more money is paid to interest than to the actual principal amount. However, after 15 years, it’s close to an equal split. The longer you hold the property, the more of the principal is paid off by your tenant. And the more wealth you’re creating for yourself by maintaining the status quo.
It is worth saying here that variable-rate equivalent mortgages are the equivalent to gambling, while not impossible to use successfully; you may be getting a better or worse deal for the period and, based on random market changes, having to manage the repayments accordingly.
5. TAX Deductions
You’re entitled to tax deductions after purchasing the property; these include;
Property specific deductions:
- Property taxes
- Interest on your mortgage
- Maintenance repairs on the property
- Insurance
General business deductions:
- Travel expenses in your daily work
- Legal and professional fees
- Interest on credit cards used to make purchases for the property.