Aren’t you looking for a way of raising more income to increase your net worth and to improve your quality of life? Well, getting a raise from your job is proving difficult, why not invest your savings in the properties market?
It isn’t the easiest way for you to raise income, and you have to get an expert in general avoidance rule matters but, with the guts and the right skills, you will earn extra money. Here are some of the reasons why Investment in Property is a great way of generating income?
- Appreciation of the high-leverage asset
Investing in a highly-leveraged asset like property means that you are investing little money from your personal account and you borrow the rest of the money. The borrowed amount could be 20 times your initial capital. Such high-leverage assets are more of debt than equity, however, the appreciation value, includes the cost of the debt and that means that you’ll earn more money.
- You are the boss
Investment in property puts you at the helm, and you have control over all the decisions surrounding the property. So, you choose what to invest in, who to rent to, how much to charge and how to manage/ maintain the property. If you are employed, you don’t have to worry about reporting to two bosses.
- Tenants amortize the mortgage
If you take a 30-year fixed interest rate Mortgage and the interest remains the same for the entire duration of the mortgage, it means that you will have to deal with tough few years before striking a balance. Holding the property for extended periods means that more of the principal is paid off by your tenants. In the process, you create more wealth for yourself.
- Tax Write-offs
Property owners get entitled to big tax deductions. You get to write-off the interest on your mortgage or even the interest on credit cards which may have been used to make investments in the property.
You can also write-off maintenance repairs, insurance, legal and professional fees, travel expenses, and property taxes, among others. Besides these deductions, the government steps in and allows you to depreciate the property’s purchase price. This government move is based on the set depreciation schedule which applies even when your property appreciates!
Therefore, the large financial commitment in property investment and income generation ultimately accrues great financial rewards.
- You can use equity for future investments
Income property is a huge long-term investment, and its value appreciates with time. You will also pay down a significant amount towards the mortgage. In the long run, you will be in a position to go through a future redevelopment using the equity generated from that one income property.
- The negative gearing on property investments
While many potential benefits are arising from income properties, you should be aware of the fact that outgoings and your expenses will be high the first few years. While this seems like a loss, it isn’t and, you can offset the losses against your income tax.
As an investor following the negative gearing strategy, you should consider choosing interest-only loans because of the associated tax-deductible expenses in the income property.
Finally, to measure your rental income, keep in mind the gross rental yield as well as the return on investment!
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