There are many reasons the rental market is hot. The instability of the labor market is just one of those reasons. The instability of the real estate market and the fact that homeowners are walking away from their underwater homes also impact the rental market. When a buyer walks away, his buying days are over for a minimum of three years. This has helped to create rental demand.
Despite the increase in demand for rental housing and the absence of the 2010 tax credit, investors in residential property still have many tax advantages. A homeowner with a $150,000 mortgage at eight percent will pay $9,969.27 dollars in interest the first year. That amount will reduce slightly in subsequent years but only nominally.
That same homeowner may pay $4000-$5,000 or more in property taxes. In this case, let’s use $4,000. Those property taxes, which may pay for snow removal on your street, your school district, your trash removal, the lights on your street and many other benefits are all tax deductible.
By purchasing this home, you have just earned $9,969.27 plus $4,000 or $13,969.27 in tax deductions. And, your children are being educated.
With today’s real estate, you can invest in green energy practices and improvements that will earn you even more tax deductions. Are you kidding? Today’s real estate market may have risk, what investment doesn’t, but today’s real estate acquisitions also have great tax advantages.
There are lessons we have learned during this recession. We have learned that real estate does involve risk. But, we have also learned that the tax advantages of ownership will not go away. And, these advantages can help in difficult times.
The rental market also carries risk. When buyers obtain a fixed rate mortgage, they know what their home will cost every month for the remainder of the life of the mortgage. When tenants rent, they are exposed to factors beyond their control.
Landlords can raise the rent, list the property for sale and decide not to rent any longer. In all these situations, the cost of renting increases. Every time a tenant has to relocate there are significant expenses and unrest. Many times school districts must change. The renting experience is unstable at best.
If you invest and invest wisely, you enjoy tax deductions, a feeling of ownership and stability and the creation of equity all at the same time. There is no comparison to that formula versus the rental experience. Real estate investing is a wise decision, even today.