Personal Finance, Real Estate

Top 10 Advantages to Owning a Rental Property

People often rent out their residential property as a source of income, particularly during the vacation-heavy, warm summer months. Here are the top 10 advantages to owning a rental property.
Published: 08/09/2022 10:42 am
Updated: 08/12/2022 11:33 am
#real estate #rental property #income #passive income
August 2022 | Lindsey K.

People often rent out their residential property as a source of income, particularly during the vacation-heavy, warm summer months. These rental properties can include a single house, apartment, condominium, mobile home, vacation home or similar property. The IRS identifies the following as rental income:

  • Normal rent payments
  • Advance rent payments
  • Payments for canceling a lease
  • Expenses paid by the tenant
  • Security deposits (if not planned to be returned)

Yes there are tax implications for rental properties, but they also come with some great advantages to the owners. Below you will find the top 10 advantages to owning a rental property.

Passive Income Stream

Everyone that is looking to be better off financially is always looking for passive income streams. Rental properties can possibly be great passive income streams. If you own a rental property for the right price, in the right location, you may find it extremely easy to keep it occupied. That results in consistent rental income you can rely on. If don't own a dedicated vacation property and if you opt to rent your home short-term, you might still find that it can be a source of passive income.

Person handing cash to another person.

Possible Tax Breaks

Tax forms with a calculator and pencil.

Yes there are tax implications for rental properties, but there also may be possible tax breaks. When you own a rental property, certain costs you incur are tax-deductible, meaning that could help offset your IRS bill. IRS.gov is a great resource for initial research, but it's a better idea to sit down with a tax professional before you purchase a rental property, so you can identify how to benefit.

Increased Value Over Time

Brick cottage in scenic greenery.

Properties, such as homes or dedicated vacation properties, tend to appreciate in value over time. If you own your rental property for many years down the road, you might be able to sell it for more than you bought it. In the future, that money could do a lot for you, such as help fund your retirement or allow you to meet other financial goals.

Property Equity

Two people having a discussion with paper and pen.

When you own a property, both your home or dedicated rental properties, you have equity in that property. That means you have the option to borrow against it. If you find yourself needing money, you can take out a home equity loan or line of credit to access the cash you need. Often, it's a fairly affordable way to borrow, but make sure that you really need that money and are not stretching yourself thin.

More Financial Security

Woman on a bench overlooking the water.

We all want to be more financial secure so that we can have piece of mind. Owning a rental home means having another asset to your name and owning assets typically leads to better personal finances. That rental property could help you feel more secure financially during times when other investments of yours take a hit. It can also possibly serve as cash income when other sources slow down. Additionally, that property can serve as your financial emergency plan -- meaning you can sell it if your financial situation goes south and you need the money.

Possible Vacation Home

Log cabin in the autumn leaves.

If the property you own is a short-term rental, you don't have to fill it with tenants all the time. Instead, you can choose to use that location for you and your family to use an escape from the regular 9-5 grind. If you own a rental property in a desirable vacation location, such as near a beach, lake, it can be a great personal getaway, available whenever you need it.

Diversify Your Investment Portfolio

Person holding phone while looking at financial charts.

The value of any assets, whether it be stocks, bonds, or real estate, can fluctuate in value. By having money spread across multiple assets types, can help hedge against that volatility. So investors with money also in real estate and stocks, aren't feeling the same pain as investors who have money solely in stocks. That's the beauty of owning a rental property -- it's another type of investment that might perform well when your other assets have lost value. This idea of diversifying your portfolio is key for financial success.

More Benefits for Less Work

Person sitting on a couch reading.

When you own a rental property, obvious it does take work. But you don't always have to do that work yourself. If you hire a property manager or just hourly help, you can benefit from a steady income stream without having to spend your own hours dealing with maintenance, repairs, and other issues.

Family Asset

Grandfather reading with grandchildren.

It's possible, you may have family you're hoping to take care of financially down the road. If you own a rental property, that property might gain significant value over the years. If you reach a point where you no longer need the income yourself, you can pass that home on to your family.

No More 9-5

Office space with person working in the backgrounnd.

When you own a rental property, obvious it does take work. However over time you might find that your investment is so successful that you no longer require your existing 9-5 job. You could make your rental property investments your full time focus. Maybe you started with one property but then expand that into a larger business you can run day to day.