When the housing market crashed six year ago, my husband and I found ourselves with an overpriced house that we couldn't sell. Rather than dumping it and taking a $150,000 loss, we converted it into a rental with the idea of riding out the recession until the housing market improved.
Even though the house has been a drain on our finances and time these past 6 years, it hasn't been a total loss. Here are a few of the ways in which we've benefitted from owning rental property.
Tax benefits. One of the big reasons for anyone to own rental property is because it lowers our federal taxes. Mortgage interest, taxes & insurance, property upkeep, utilities, even the costs of advertising for tenants is all tax deductible and can be offset against the rental income. These deductions along with the depreciation kicked us into a whole different tax bracket. Before owning the rental, we had been paying $4500 a year in federal and state withholding. For the past six years these taxes have been zero.
Produces income. Even though we're "feeding" our rental to the tune of $6500 a year, it is generating monthly income which has improved our monthly cash flow. Since many of our bills usually fall in the second week of the month, receiving a hefty rent check at the beginning of each month has made bill paying much easier.
Diversified our investments. Ten years ago, our retirement plan consisted of a pension, stocks, and a 401k. Owning a rental means that we've added yet another type of investment to our portfolio which will generate income in our retirement. Even though real estate values are still low in our community, the rental is a tangible property that will always have value and will continue to grow in value as the years roll along.
Learned new skills. Owning and managing rental property is a real eye opening experience. Not only did we learn how to deal with the public and city officials, we also learned how to make all kinds of repairs that previously had been out of our "comfort zone." The on-the-job experience we gained as DIY managers has opened up new job opportunities for the both of us which has also increased our income.
There is no arguing that owning a rental has it downsides which can include unforeseen repairs, disagreeable tenants, and periods of vacancy. From a retirement and tax savings standpoint however, it has been (so far) a smart financial strategy for our family.
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