The primary takeaway from Rich Dad Poor Dad—Robert Kiyosaki’s New York Times Best Seller—is “don’t just work for your money, make your money work for you.” One of the most common ways people accomplish this is by owning income producing property. As with all business ventures, there are associated risks to consider as well as rewards, and costs to weigh as well as benefits.
However, there’s a solid argument to be made that right now, owning income producing property—rental property in particular—boasts rewards that outweigh the risks and yields benefits that offset the costs.
Simply put, it’s a festive buffet for owners of rental property in the United States right now.
In 2017, Transunion reported that homeownership rates were at their lowest in 50 years, having an inverse correlation with rent rates, which are climbing rapidly X. Not only are millennials staying in the rental market through their 30’s, but 4.3 million more baby boomers are renting today than ten years ago X. Not to be cliché, but the best time to start investing in rental property is now! If that doesn’t work for you, strike while the iron is hot!
Irrespective to time, it’s important to remember that rental money is a consistent cash flow—profit made after calculating the difference between the monthly rental income and the monthly rental expenses X . If the mortgage is less than what you collect for rent, you may find yourself in the happy situation of having a surplus each month X. Any money left after paying your expenses will be money in your pocket X. Alternatively, a property owner may use their unit(s) as Airbnb in lieu if traditional rental arrangements. Nevertheless, the same logic applies.
Benjamin Franklin famously said, “in this world nothing can be said to be certain, except death and taxes.”
That said, it behooves one to deduct them whenever and wherever lawfully possible. The Internal Revenue Service (IRS) grants tax deductions on any rental property expenses that fall under ordinary and necessary expenses, improvements, and depreciation X. In essence, a property owner may deduct their insurance, interest on their mortgage, maintenance costs, and physical wear-and-tear on their property X. While the relative weight of this tax benefit is commonly understood by experienced real estate investors, many novices unfortunately underestimate it.
Finally, rental property bestows upon its owner the gift of appreciation—the increase of the investment property’s value over time. In other words, the investment property is growing in value while the property owner is generating cash flow X. This is best understood relative to the value of new vehicles, which are said to depreciate the minute it is driven off the dealership lot. Instead of buying him or her a brand-new vehicle this year, consider covering the down payment on a rental property that generates a surplus each month, qualifies for some sizeable tax deductions, and appreciates over time. They will thank you later!