When it comes to building your investment portfolio, it’s a good idea to have a diversified amount of income-generators. For the second year in a row, Americans named real estate a better long-term investment over stocks, gold, savings accounts/CDs or bonds, according to a 2015 Gallup Survey.
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Owning a rental property can be a great way to bring diversification to your retirement portfolio, if you are able to buy correctly and efficiently manage its unique demands. Here's what rental property can bring to your retirement planning.
- Long-term returns. As the owner of rental property, you have the opportunity to generate income in several forms. First, you collect monthly rents, in which you gain profit and pay down the mortgage, which generates equity. You also have the means of increasing your equity as the property value grows over time.
- Inflation hedge. The reason it’s a good idea to have a multitude of investments is to reduce risk in the event of an economic downturn, which results in inflation. As a real estate investor, you can combat inflation by increasing rents to meet it. When inflation occurs, money is worth less. Since money is used to buy real estate, home prices generally move up to compensate for inflation.
- Tax benefits. A huge plus of having an investment property is that you get favorable tax treatment without having to stash it in a special tax-advantaged account, like a 401(k) or an IRA. Landlords receive a multitude of tax deductions, including interest, depreciation, repairs, office expenses, etc.
Diversifying your investments can be a great way to yield higher returns and pose lower risk to your portfolio as an entity , but becoming a landlord, like any other investment venture, needs to be strategically executed.If you are interested in what rental properties can do for you, download our free Investment Guide for more information about navigating the world of rental property or talk to one of our mortgage bankers.