• Kirstie Hines

Tax Write-Offs, Passive Income & Long-term Appreciation - The Benefits of Single-Family Rentals

Updated: May 21, 2019

Buying single-family rental properties can be lucrative for landlords. Benefits such as being able to save for retirement, a stable income, and long term capital gains are just a few of the advantages of investing. Combined with the ability to offset market volatility, single-family homes are one of the best investment opportunities for new and seasoned investors alike.

Let's take a look at some of the reasons why.

Little Capital Needed

Can you think of any other investment opportunity in which you put a small percentage of the value of the assets down, and then get to reap the full amount of appreciation? The beauty in single-family homes is that you can typically use the leverage of five to one; in other words - most mortgages only require a 20% deposit down in order to lend.

If we break it down, it effectively works like this:

You have $50,000 in capital to buy an investment home. You have the option of buying one outright for the $50,000 amount, or you can buy one for $250,000 by taking out a $200,000 mortgage.

If both properties appreciate by 5% over the course of a year, the house you bought outright for $50,000 now has an investment value of $52,500.

If you had decided to opt for the $250,000 property with a mortgage, your investment would now be worth $262,500.

This, of course, can go both ways, for example, if property depreciates. Therefore it is prudent to utilize the advice of an expert who is knowledgeable about the real estate market and can find the best investment rental for you.

Real Estate is Tangible

When you invest money into stocks and bonds, you have no control over how it performs. Yes, you can check your statements and trade if you need to, but you are effectively powerless in other aspects. Real estate, on the other hand, is tangible. When you buy a piece of property, you have the option to renovate it and improve its value. Improvements not only allow you to increase the value when you come to sell, but it also allows you to generate higher yields through increased rent.

Perhaps the most impressive part of investing in single-family home rentals is that as the rental property's value increases with the market, you can leverage the added value by refinancing. By 'cashing out' it's possible to take this money and use it to increase your property portfolio, by investing in further rental homes.

An Effective Pension Replacement

Traditional pensions are no longer the nest egg that they used to be. Diversifying your investment portfolio with single-family rental properties can be beneficial for many reasons. The stock market has averaged total returns of around 7-8% adjusted for inflation per year since 1928, but it can be extremely volatile in the short-term. Real estate, on the other hand, tends to generate a higher cash flow return. Rentals in particular can generate an unleveraged yield of up to 10% on a monthly basis, which can help to offset the living costs of retirement substantially.

Tax Benefits

Unlike other investment options, such as stocks and mutual funds, rental properties can be depreciated to reduce their tax burden. This is particularly useful for landlords.

Put simply; Depreciation is calculated by figuring out how much your property is worth for tax purposes, how long the IRS says you must depreciate it for (for rental properties this is typically 27.5 years), and then you deduct a certain percentage of its worth each year until the depreciation period is up.

Keep in mind that although the single-family home rental itself can be depreciated, the land it sits on cannot. Your calculation must only include the property that wears out.

Are Single-Family Rentals Something You're Considering?

Having a single-family rental home in your investment portfolio can be lucrative for the informed investor. The ability to scale quickly and diversify can yield much larger profits than other alternative investments.

According to, single-family rental homes make up more than one-third of all U.S. rental properties. The demand for single-family rental homes is at an all-time high, and the number of landlords is falling short of the demand.

If you're considering adding rental property to your portfolio, it's crucial that you educate yourself about your local real estate market. Utilizing the advice of a professional with experience in the single-family home rental market can be invaluable. If you would like advice or have any questions regarding purchasing a single-family rental homes, we would be happy to assist you with any questions that you have.

All information and materials in this article are for educational purposes only. Opinions expressed in this article are based on information considered reliable, but The Daily Money Show cannot guarantee the accuracy of the information nor should it be relied upon. The information discussed in this article should not be used as a recommendation to buy or sell securities nor should it be taken as investment advice. The Daily Money Show is not a Registered Investment Advisor or Broker Dealer. The Daily Money Show is not an accounting firm and does not give tax advice regarding any security or real estate transaction. You may want to consult with an accountant, attorney, real estate agent or financial advisor before proceeding with any transaction regarding securities or real estate.

21 views0 comments

Recent Posts

See All

5 Things You Need To Know This Tax Season

It's that time of year again — tax season! Here are five things that you should know about filing your taxes 2019 taxes. The Standard Deduction Increased The 2018 tax reform law doubled the standard d

5 Must-Know Saving Hacks You Should Be Doing

If you want to reach your financial goals, and ensure that you're optimizing your income, it's crucial that you learn how to make your money stretch further. The more money you can avoid spending, the

  • Twitter Social Icon
  • Facebook Social Icon