We all hear that it's great to diversify your portfolio so why not include some hard assets. Here are a few benefits and considerations you should make before you take the leap.
Pros
Steady Stream of Income:
Once you make the initial downpayment then your renter is essentially paying your mortgage while you are gaining appreciation (hopefully). This can be a good offset to the other retirement savings that might be decreasing as you use the money to live month to month.
Hedging Inflation
As inflation increases so do rents, unlike money that might be in the market that will be worth less over time with inflation. This also provides better balance and helps you to maintain your wealth over time.
Tax Advantages
Most expenses for the property are completely deductible such as: property maintenance, closing costs, property management, other professional fees like accountants or legal fees.
1031 Exchange
Did you know that you could start with a small, less expensive property to start then roll those proceeds into a large rental property and avoid capital gains tax? It's done through a 1031 exchange. If you have questions about this process please reach out.
Cons
Renters
Yes, I am serious...sometimes people can be difficult which is why you need to be very selective when picking your tenants. You will need to deal with personalities of all shapes and sizes but just remember they are paying you rent and improving your net worth when you get frustrated.
Tax-deductible
Things will break or need to be replaced on the property and who will they call - you! If you don't want to be a 24/7 handyman then look into the cost of using a property manager. You will have to outlay this cost initially but those fees can be tax deductible.
Market Value Change
The value of your property may decrease during the time you own it. This is why it's better to buy a property that needs a little fixing up so you can take advantage of the "value add" from doing some cosmetic updates to avoid overpaying upfront and potentially losing value.