Is Now The Perfect Time To Invest In A Rental Property?

Despite higher interest rates making financing more expensive than usual, now may be the perfect time to invest in rental real estate because of all of its advantages and long-term potential for wealth generation. Don't let those rates scare you off — there are plenty of compelling reasons this could be a wise move. Read on to learn more about the current market and the benefits of buying a rental for investment purposes. 

Current Market 

According to Nasdaq, it’s possible some significant increases could occur in 2023 — potentially as high as 9%. This news has caused many Americans who were considering buying a home to pause and reconsider their plans. Instead, many are opting to continue renting for the time being.

As more people decide to rent, the demand for properties increases. Rental demand plays a big role in determining your property's vacancy rate and potential income. When demand is high, landlords can charge higher rental rates and keep their properties occupied more consistently. The National Association of Realtors reports rental prices are expected to rise 5% over the coming year. 

Although interest rates are high, it seems like many markets are experiencing home price reductions, which can give you a better chance to negotiate and get a lower purchase price. This can also mean less competition for rental investors, which is always a welcome relief. Plus, buying low can increase your rental yield by lowering your monthly mortgage payment and down payment investment.

See also: Bezos-Backed Startup Lets You Become A Landlord With $100

Advantages Of Investing In A Rental Property

Owning a rental property can be a great way to build wealth and secure your financial future.

Passive Income 

When you own a rental property, you're basically getting paid to do nothing — or almost nothing. Once you find a tenant and get everything set up, you can sit back and relax while the rent money comes rolling in. There will always be some maintenance and upkeep involved, but for the most part, owning a rental property can be a great way to earn extra cash without having to put in too much effort.

Tax Breaks

Rental properties can also offer great tax benefits, which can help to boost your returns even further. For example, you might be able to deduct expenses like repairs, property management fees and some travel expenses related to managing your property.

Appreciation 

When you own a rental property, you're not just earning money from the rent — you're also building equity in an asset that can appreciate in value over time. This means that your property could be worth more in the future than it is today, giving you the potential to earn a significant return on your investment.

While your property is appreciating, you're also earning rental income that can help to cover your mortgage payments and other expenses. This means that you can keep the asset and build equity without having to put in a lot of additional money out of pocket.

Tips For Entering The Rental Market Today

Research the area. Before buying, it's important to take the time to thoroughly research the local market and understand its trends. This will give you a better idea of what kind of rental rate you can expect for your property and whether it will be able to cover expenses and mortgage payments.

Crunch the numbers. Buying a rental property isn't just about finding a property with a good location. You also need to make sure the numbers work. Calculate the potential rental income, estimate expenses like property taxes and maintenance costs, and make sure you can cover your mortgage payments.

Be realistic about your expectations. While rental properties can be a great way to earn passive income, it's important to be realistic about your expectations. Don't assume you'll be able to make a fortune overnight. Instead, focus on finding a property that can generate steady, reliable income over the long term.

Consider working with a property management company. Managing a rental property can be a lot of work, especially if you have other obligations like a full-time job. Consider working with a property management company to help you find tenants, collect rent and handle any maintenance issues that come up.

Don't forget about taxes. Owning a rental property can offer some great tax benefits, but it's important to understand the rules and regulations. Talk to a tax professional to make sure you're taking advantage of all the deductions and credits available to you.

Prepare for the unexpected. No matter how well you plan, there will always be unexpected issues that arise when you're a landlord. Be prepared to handle things like unexpected repairs, difficult tenants, evictions and other challenges that come with owning a rental property.

Always make sure you have funds on hand to cover the rent if the tenant doesn’t pay. 

Think Long Term

When done properly, rental investments can generate a steady income while providing you with an opportunity to build equity over time. It's important to note that rental investments should always be viewed through a long-term lens as short-term fluctuations in the real estate market can greatly affect your bottom line.

See more on real estate investing from Benzinga:

• Techies Will Soon Flood Austin Even Harder. Here's How To Invest In Its Real Estate Before That Happens
• 'People-First' Real Estate Fund Shares Rent With Tenants While Generating Strong Returns For Investors