Landlords Anonymous

5 Reasons Why Rental Properties are the Best Form of Passive Income

I, like many people, own stocks, bonds, mutual funds, IRA accounts, foreign currencies and a couple forms of passive income. Wow that sentence had a lot of commas! However, if I was to draw you a pie chart depicting how much of my financial portfolio is divided up between all of the above mentioned assets and real estate, we would be looking at approximately 90% real estate holdings and the other 10% divided among everything else. Perhaps the only reason why I don’t have 100% of all my wealth in real estate is because  I was “told” not to. I personally don’t see a problem with throwing all of your eggs in one basket so to speak, but with all the talk of “playing it safe” over the course of my financial education, I reluctantly decided to diversify. And thus I now own the typical mutual fund, a separate Roth IRA, a few hand picked stocks, 3 Million Iraqi dinars (which aren’t worth very much – I bought them while I was in Iraq, trying to speculate on a strong Iraqi economy rebound…maybe someday), and some loan notes I made to people in the past (which I now realize that I don’t care to be a lender anymore). There are several reasons why I love real estate over all the other assets.

1st Reason.

My money is (relatively) safe, tied up in the equity value of the home. I don’t live in a major city where home prices have dropped like a rock nor do I buy real estate that is priced for the upper middle to upper class citizens in my area. I tend to stick with properties in the lower middle to lower class areas of town. Does this make me a slumlord? No, I don’t think so. I believe a slumlord is someone who treats his tenants badly and neglects to do proper repairs on the home when needed. By owning the lower end to the bottom of the real estate market, there’s really nowhere else for the price of the property to go, but up. At least, as far as I have experienced. My home values have been generally stable over the last couple of years and I have had several offers to purchase them from other landlords in town.

2nd Reason.

My properties not only generate a stable source of monthly income through rent, but also might appreciate in value over the years. Several of my properties tax values have increased. That doesn’t mean they will sell for higher than I paid for them but obviously the county tax man believes they are worth more today than when I bought them. I view this as a double reason to love rental properties. You get the added benefit of watching your net worth rise, like owning an IRA, without having to make monthly contributions to it.

3rd Reason.

Someone else builds your equity in the property. If you did your math correctly (like i suggested in this article http://www.landlordsanonymous.com/2009/10/invest-in-the-right-rental-property/), then you should have someone paying the bank off for you and allowing enough for you to realize a nice little profit each month. Not only will the home’s net worth increase over time (hopefully), but your property equity will increase so when you go to sell the property one day, the banker won’t get to keep as much of the profit if you still owe a mortgage on home.

4th Reason.

Tax benefits! Holy cow. There are so many tax benefits when it comes to dealing with real estate. Gas for your own personal vehicle (as long as you use it for business purposes), repairs and improvements on the property (which increase value), and mortgage interest deductions to name a few. I will post another article on the many different tax benefits to owning rental properties.

5th Reason.

You have a real, solid, honest to God piece of property you can drive up to and place your hands on if you feel like it. I don’t know about you, but I feel sort of helpless owning a mutual fund. I have no say in anything except to buy, sell, or hold. In the field of rental properties, if I have a problem with a tenant who is not holding up to his end of the bargain, I can evict him/her and find a better one. If I want to inspect the property to see how it is being treated, I have the right to. Can you approach your mutual fund manager and ask to inspect what  he’s been doing for the last year with your money? Sure you can view specialized reports, but can you get your specific questions answered and have your input taken seriously? I’m not a control freak, but I like knowing that I do have some sort of control being in the rental property business.

These are just 5 quick reasons why I love holding rental property to increase net worth. It’s definitely one of the best “vehicles” someone could use to get to where they want to be in life.  Please leave a comment and let me know what you think!

Sunday, November 29th, 2009, by Jake and is filed under "For Brand New Landlords, For Up and Coming Landlords, Other Passive Income Ideas ". You can leave a response here, or send a Trackback from your own site.