Are you looking for a way to make your hard-earned bucks do some work themselves for a change? Investing in real estate looks like a tried and true way to save for the future — a high-performing asset.

But is that really the case today?

Yes, we think it is. And we’re going to tell you why. Sure, no investment is guaranteed to be a winner, but there are lots of reasons why it makes sense to buy a rental house or vacation home.

Let’s take a closer look at five key reasons to buy a rental home.

1. Generate an Extra Income

When people think about investing in a rental home, this is usually the first thing that comes to mind. If you have money sitting in a savings account, the rental yield may look much greater than interest.

Even if you have a loan to service on the property, you may still be able to generate some cash flow from it. The key is doing your homework.

Carefully calculate your return on investment. This is a percentage figure that you calculate based on how much profit is made as a percentage of the cost of the investment.

Don’t forget to factor in all variables, such as maintenance, repairs, insurances, and taxes. The time to make these calculations is before you commit to buying the property.

There are lots of factors at play when you buy a rental home. Even the most attractive seeming rental home may not actually stack up when you get your calculator out. Always buy with your head and not your heart.

If you do all these checks, you could generate a nice, reliable income for years to come. And the best part? You own the property outright at the end of the mortgage term!

2. Provide a Retirement Income

If you choose to buy a rental home, it’s good to think of it as a long-term investment. Many people use it as a way to fund their retirement. This can work in two ways.

If you buy a property using financing, over the years the rent should cover the mortgage repayments and maintenance of the property. Finally, you will own the home outright when the mortgage is paid off. 

You then have two choices:

• Sell the property and use the cash to supplement your retirement fund
• Continue to generate an income from the property, with no financing deductions

Either way, it opens up a potential revenue stream for your retirement. If you hold onto the property for decades, you are more likely to ride out the ups and downs in the property market. If everything goes according to plan you will have a property that is worth significantly more than you paid for it.

3. Tax Benefits

Naturally, when you increase your income, you increase your tax liability.

However, there are a number of tax deductions open to landlords. These include:

• Interest (including mortgage interest payments)
• Depreciation (deduct the cost of real estate over several years)
• Repairs (regularly, necessary repairs are tax-deductible)
• Personal property (furniture, appliances, and necessary equipment)
• Home office (if you use part of your home to run your property rental business)
• Insurance (most insurance premiums can be deducted in full)

This list is not comprehensive but gives you an idea of the many ways you can save on your tax bill as a landlord.

This also highlights the importance of good record-keeping. You’ll need to be able to provide a paper trail for all of these deductibles.

As you can see, there are tax advantages to buying a home on finance, as the interest payments are deductible. Rental home financing can be a good way to obtain an asset and generate an income over many years.

4. Diversify Your Investments

We’ve always been warned not to put all our eggs in one basket. Adding rental housing to your portfolio can be a smart way to diversify your investments.

Stock market investments can be difficult to predict. If you have everything invested in the stock market, you may be leaving yourself open to a high level of risk. 

The real estate market tends to be more steady. Over the last year, US property prices have risen more rapidly than at any time in the last 30 years. Year on year, on average, properties tend to rise in value, making them a more stable investment.

That said, always thoroughly research the area you are considering buying a rental home in. National property price averages can be deceiving for some areas.

5. Rental Homes Can Also Be Vacation Homes

An interesting area of rental housing to consider is buying a vacation home. It’s true, it’s a different proposition to buying a regular rental house. It comes with its own pros and cons.

Some of the pros include the fact that you’ll have a vacation house you can use! This will give you a hideaway to head to whenever bookings are quiet or during the off-season.

Also, you can charge a much higher weekly rent in a vacation home than in a regular rental home. It can also be a place to retire.

You’ll be running your vacation rental as a business, so you will also qualify for tax deductions. However, you will also have to factor in additional costs, such as a housekeeper to turn the house around between bookings.

Ready to Buy a Rental Home?

The decision to buy a rental home may yield rich rewards.

Get your financing right, find the right tenant, and you can have an asset that grows in value year by year. It can be a smart way to diversify your investments, as well as a great way of saving for retirement.

Are you curious to know more about real estate? Head over to our Real Estate section today to learn more about this hot topic. 

Jane