Real estate investing stands out as a premier method for building wealth, and for good reason. Beyond the immediate returns from income-generating rental properties, there are also numerous long-term benefits of SFR investments.
Below, we’ll dive into some of the biggest financial benefits of Austin real estate investing, especially when partnered with an experienced Austin property management company to improve and ensure the quality of your rental property.
Sought After Financial Benefits
When most people think about SFR real estate investing, they think about the typical sought after financial benefits. This includes, first and foremost, cash flow, which is the amount of money your rental property generates after all of your operating expenses and mortgage has been paid.
Properly executed Austin real estate investing establishes consistent, sustainable cash flow, which adds to your monthly income.
At the same time that you’re generating cash flow, you’ll also be building wealth through equity and appreciation. Over time, the value of real estate tends to increase, especially if you’ve partnered with an experienced property management company. Consequently, if you decide to sell your rental property, you’re likely to earn a profit based on its current price compared to what you paid for it.
Additionally, as mortgage payments are made, equity in your rental property grows. This not only increases your payout upon sale but also serves as a resource you can access through home equity loan or line of credit, providing financial flexibility.
Tax Benefits
In SFR real estate investing, you’ll also enjoy some tax benefits. Since your rental property will be a business enterprise, you’ll generally be allowed to deduct any costs related to owning, managing and operating your property. This could include anything from repairs and property management fees to related travel.
If you have a mortgage on the property, you can also likely deduct the interest as well as at least a portion of the property taxes you pay. In addition, you can write off depreciation related to your investment property when you purchase it and then improve it over time.
All of these tax benefits will help to lower your overall tax liability, which actually increases your income.
Leverage
Austin real estate investing provides leverage that other types of investments simply don’t offer. This is done through the use of a mortgage, which helps you finance the cost of your investment over a long period of time.
When you purchase your rental property, you will likely be required to put at least a small down payment. The rest of the money that’s needed to purchase the property will then be financed from a lender.
This leverage that you get can provide you with a significant return on investment (ROI). Not only will you be earning money off the amount of money you put down at closing, but you’ll be earning money off the bank’s investment as well.
In many ways, you’ll be able to earn a positive ROI on the bank’s investment, since you could earn a higher rate of income than the interest rate you have to pay on the mortgage.
Tax-Deferred Exchanges
In most cases, when you sell an investment, you have to pay capital gains taxes. However, there is a way to defer these taxes with real estate investing.
If you plan on selling a property and then buying a new one, you can defer the capital gains taxes you would typically have to pay on the sold property through a 1031 exchange.
This could be a significant savings, as a 1031 exchange allows you to roll over the profits that you make in one property to another property without having to pay tax on the gains. In fact, you won’t have to pay taxes on any of the gains from a rental property until you sell your final property and don’t use a 1031 exchange.
Cash Out and Collateral
As mentioned before, the equity you build in your home can be a significant source of capital for you. The more equity you build in your home, the more cash you will have at your disposal for other purposes.
You can use a home equity loan or home equity line of credit to fund improvements to your rental property or to even purchase additional rental properties to expand your Austin real estate investing portfolio. The great part about these two options is that you can pull money out of your rental property tax free.
In fact, many successful real estate investors will use the equity they’ve built in rental properties as collateral for their next venture, which they might find through their property management company. In addition to a loan and line of credit, you also might benefit from a mortgage refinance, depending on the specific situation you’re in with your rental property and mortgage.
Work with an Austin Property Management Company You Can Trust
These are just a few of the financial benefits of Austin real estate investing, and why so many people are turning to the sector to increase their short-term income and build their long-term wealth at the same time.
If you own a rental property in the Austin area, it’s important that you partner with an Austin property management company that you can trust. At 1836 Property Management, our team of professionals have years of experience serving and supporting real estate investors just like you.
Contact us today to find out more about how we can help you take your SFR real estate investing empire to the next level.
