Advantages of Renting over Selling
Sometimes a home doesn’t sell. You may have done everything correctly but the market was not favorable to you at that time. Don’t give up on the property altogether. When you need to leave a home, consider renting out the property as opposed to further efforts to sell.
Being a landlord is a scary proposition for many people. They think of a greasy individual who won’t fix anything but bangs on your door incessantly for the rent. Not all landlords are like that. Many are friendly, responsible people who respect their tenants. You can also become a landlord when you rent out your former residence.
Rental property creates cash flow. We want the cash to flow in to us and not out to the bank, but that is determined by the amount of the rent. Monthly rent prices should ideally cover the mortgage payment and any incidentals. If it doesn’t fully cover, try to get it as close as possible. Being responsible for $100 a month as opposed to the total mortgage cost is a better situation for you even if you start in a negative cash flow situation.
As a landlord, you could be receiving payments from a tenant without having to deal with a single leaky toilet. Landlords are responsible for repairs on the property, but you can hire a property management company to do that for you. The management company would screen tenants, execute repair orders, and collect the monthly rent. If you are moving to another state this is a great option.
Rental property is considered to be a real estate investment. As an investor, the government extends several tax breaks to you. For one, you can subtract a certain amount of money for depreciation of your home. This is a paper deduction since homes actually appreciate over time. The deduction is for the wear and tear on a home.
Landlords can claim depreciation for appliances in the home. This can be done in a lump sum or taken out over a number of years. Any depreciation amount lowers the taxable income. It is possible to claim enough deductions to claim a net loss on the property even though you are getting money every month from your tenants.
Renting out one home could be the beginning of a new opportunity for you. As a real estate investor, your properties make you money. Tax laws say that you can use money made from one property to invest in another and defer paying taxes on that profit.
When you sell, the deal is done and you are subject to capital gains taxes. Renting allows you to put off capital gains until you sell, if you ever do. Renting is not a bad proposition for someone who needs to move away and hasn’t been able to sell their home.
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