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Why Rental Properties Are Still a Good Investment When Interest Rates Rise?

Commonly, interest rates always remain flexible and vary parallel to the state’s economy and global interest rates. Thus, rental property owners may have a great fear of increased monthly premiums on the property. Thanks to the United States authorities who benefit the rental property owners from the fixed-rate mortgage. Fixed-rate mortgage refers to the fixed rate of interest for nearly 30 years on rental property loans. So, rental property owners have to pay fixed interest rates until the completion of the mortgage. Sometimes, the interest rate is so low that it is negligible. Are you worried about apartments for rent in Centennial? If yes, this informative blog is here to keep you worry-free.

Benefits of the rental properties

With increasing interest rates, rental properties remain undisturbed. Before exploring the main topic, it is necessary to determine the advantages of rental properties.

Tax benefits

Rental property owners take great advantage of residential or commercial rental locations. The rental owners enjoy deductible taxes as under:

  • Deductible operating expenses

Operating expenses that are used to manage and maintain a rental property are tax deductible. Some operating expenses include leasing commissions, landscaping, supplies, repairs and maintenance, property management fees, homeowner and landlord liability insurance, etc.

  • Deductible Mortgage interest

A loan that is used to buy a rental property has deductible mortgage interest.  So, it is better to pay mortgage loans with a business credit card instead of a personal one to get deductible tax benefits.

Moreover, rental property owners can also enjoy deductible owner’s expenses, (travel, education, subscription to a real estate club) deductible depreciation, and pass-through deductions. However, these are complex matters and require legal consultation from real estate advocates.

Continuous cash flow

Rental properties are a continuous source of cash flow. Sometimes, a property mortgage is easily paid with the rent of the property. In other cases, the owners have to add smaller amounts. However, rental properties are a long-term investment that brings monthly payments for you. Rental properties are a safe and easy source of passive income.

Deductible travel expenses

Rental property owners are benefited from the deductible travel expenses. Deductible travel expenses require traveling for clear business purposes. In addition, rental property owners should spend most of their time in real-estate business activities while traveling. Further, they have to prove that relevant travel is a necessary part of the business.

Free of FICA taxes

FICA tax is also known as payroll tax. The payroll tax applies to the earned income. Luckily, rental property income is not categorized as earned income. So, rental property income is free of FICA taxes.

On the whole, mesmerizing benefits of the rental properties keep the investors on cloud nine. When the interest rate increases, it does not affect the smooth sailing of the rental property.

Rental properties as a growing marketplace

Rental properties have always grown at a steady pace. Some factors heighten the rental income and benefit the owner:

  • Location of the rental property
  • Schools/colleges
  • The facility of shops and markets
  • Municipal development
  • Neighborhood
  • Opportunities for jobs
  • Property tax rates

How many amenities are available at the rental property? Whether it is a single-family home or multiple ones, more facilities lead to better rental income. With the development in the area, the rental property can prove gold for you. The idea of rental apartments in a building for residential and commercial purposes is also appealing. Real estate owners seek rental properties as the best developing opportunity. You can pay the mortgage easily and keep a handsome amount in your pocket as well.

Good investment opportunity with rental properties

Rental properties are an appealing source of wealth for real estate investors. Here are three elements of a rental property that benefit the owners in short and long-term goals. Have a look at:

  • Equity Building

If your mortgage payment can easily be paid with the monthly rent, it is superb. Tenants are the reason to build equity for you. You are gaining a monthly income while the market value of the home remains the same.

  • Appreciation

The real estate properties are skyrocketing over time. So, with rental properties, you can not only pay the mortgage but your home value also increases. Thus, tenants are building equity by paying mortgages and the property is seeking appreciation also. Eventually, with increasing appreciation, equity will also increase.

  • Continuous Revenue source

Rental incomes generate steady revenue for the owners. After paying the mortgage, the remaining amount of cash might be low but it is encouraging. In the long run, we see only the figure of the cash flow received by the rental property. Rental properties are considered the best investment for continuous cash flow and increasing revenue.

As described earlier, United State rental properties enjoy fixed-rate mortgages on rental property. That is why increasing interest rates does not have any impact on rental investment. On the other hand, if you belong to other countries where increasing interest rates on the mortgage can affect the rental cash flow, remain worry-free. As the captivating benefits of rental properties keep the investors around the rental properties.

Wrap Up

Several ways can help real estate investors to get more wealth from rental properties. First, improving the property and maintaining it in good condition brings tenants high rent rates. Thus, it creates more equity and leads to profits from the first month of the rental property business. Second, refinancing a mortgage can help you improve your income. Mortgage interest rates keep on fluctuating. If you observe a significant drop in the mortgage interest rate, you should refinance your mortgage. Though no one can predict the interest rate, if you ever find drops in it, switch the game on.

Eventually, you can make a house offer for rental purposes even in the hikes of inflation. It increases profitability by forcefully lowering expenses. Mortgage interest rates do not remain high always, they variate over time. To sum up, rental properties are a great attraction even with the increasing interest rates.