Are you considering investing in real estate in the Charlotte, NC area? You're not the only one.
Property appreciation rates in North Carolina increased by 15.4% over the last year and show no signs of slowing down. Demand for housing in NC exceeds the supply of homes available for purchase. Many would-be homebuyers find themselves priced out of the market and will continue to rent homes.
In this article, we look at 5 key benefits to investing in rental property. Read further for information on building wealth with rental investment and property management services.
1. Proof of Concept
Rental property is a stable investment. Sure, rates go up and down, but overall you have a tangible investment that is always in demand. In 2019, roughly 10.6 million Americans claimed rental income on their taxes.
Do your homework. Explore neighborhoods and what they have to offer such as low crime rates, good schools, and conveniences that are in demand.
Consult with a property management team in the area you are considering to get an idea of the monthly rent to expect. A professional management team can help you work out to find an ideal property for your financial goals and manage it for you.
2. Making Money While You Sleep
Many people cite rental income as "passive income". Actually, there is more work involved that you need to be realistic about.
That definition depends on you and the level of involvement you want to have in listing your rental, interviewing potential tenants, repairs, and regular upkeep. When tenants move voluntarily or not, there are legal forms to take care of and clean up.
So yeah, you are making money while you sleep, as long as your property has tenants. However, keeping your property rented involves some expertise in pricing and marketing correctly to keep your rental in high demand.
3. Tax Benefits
If you are older and the kids have grown up, you may be looking for additional tax breaks. Rental property offers a few tax write-offs that you may find attractive.
A similar situation is a young investor without exemptions looking for a business opportunity that offers substantial tax breaks.
Mortgage Interest
The beauty of rental property investment is that your tenant is paying your mortgage each year. An additional benefit is the tax deductions. The interest you pay each year to your lender can be claimed as a business deduction.
Each year, you will receive a statement from your mortgage lender that shows the total amount of mortgage interest paid. It is a form 1098 that you or your accountant will file with your Federal income tax. Mortgage interest can also be deducted on North Carolina state tax forms.
Property Taxes and HOA Fees
If you purchase a rental property in a community that has a Home Owner's Association (HOA), you will have annual dues to pay. You may deduct a percentage of your HOA fees from your taxes.
Additionally, state and local property taxes can be deducted on your North Carolina state tax forms.
Repairs and Maintenance
Managing a rental property includes regular repair and maintenance that the IRS views as business expenses. Here are some examples.
- Plumbing leaks
- Repairs due to tenant (repainting, carpet clean or replacement, broken hardware)
- Lawn maintenance
- Weather-related maintenance (snow removal)
Basically, maintenance that is reasonable in the daily operation of your business can be deducted. Repairs that are necessary in keeping your rental property in good operational order and avoiding loss of value are accepted.
Capital improvements are also eligible for deductions but are typically prorated. Some examples are a room addition or installation of a patio area.
Business Expenses
There are additional business expenses that are also allowed as deductions. Here are a few you may or may not be aware of for rental property investment.
- Advertising
- Insurance
- Utilities
- Security monitoring
- Property management services
Rental property investment offers many tax benefits that are unique to each type of property. Additional deductions may apply to your type of rental. Plan ahead with tax advice and management consultation to make sure that you are making the most profit on your rental property.
4. Building Equity
Investing in rental property gives you an opportunity to expand over time. Unlike other investments, you have leverage. Meaning, you do not need to come up with the full cost of your investment to get started.
Maintain good credit and over time, you will build equity in your rental that is available to borrow against. This allows you to invest in additional properties and grow your business as a landlord.
5. Flexibility
Perhaps one of the greatest benefits of owning rental property is flexibility. There are many types of rental property available in the Charlotte, NC area. From single-family homes, condos, townhomes, vacation rentals, and business leasing, to name a few.
The amount of time that you hold on to your investment is also flexible. Just as you can sell stocks when the market is up, real estate works the same way.
Right now, there is a large pool of renters looking for homes in the Charlotte area. As the market changes, you may find it profitable to sell and change the type of rental property investment you hold. For example, moving from single-family homes to condos or apartments.
As you build credit and equity, you have the flexibility in experimenting with business rentals. Investing in rental property offers you diversity.
Consult a Property Management Team in Charlotte, NC
Now you know some of the key financial benefits of investing in rental property. Your next step is to work on a plan of action. Speak with an accountant about your business ideas.
Bottom Line Property Management has been offering property management solutions in the Charlotte area since 2008. If you're looking for honest and straightforward services to help you succeed in rental property investment, contact us for a free consultation.
