4 Reasons to Invest in a Rental Property (If You Haven’t Already)

Did you know 77% of people in the U.S. would rather rent than purchase a home? 

Meanwhile, 44.1 million American households rent, and renters spend a combined tally of $485 billion in rent annually. One thing you can assume from such statistics is that investment property owners won’t have to worry about running out of people looking for places to rent.

If you’re sitting on the fence about whether or not to buy a rental property, there are good reasons to take the plunge. It’s not for everyone, however. According to one source, consumer debt in the U.S. totaled $17.1 trillion in 2023, up 4.4% from $16.38 trillion a year prior. 

So, if you’re knee-deep in consumer debt due to credit card balances, car loans, or something else, now might not be the time to add further debt in the form of a mortgage for a rental property. That might turn into a debt albatross that might be difficult to bounce back from.

But if you have the financial flexibility to invest in a rental property and are open to pulling the trigger on a deal, here are four reasons why this route makes sense.

1. You Get Rental Income

One of the main reasons people invest in rental properties is the promise of passive income. If you have a four-unit investment property requiring a mortgage payment of $1,500 and charge $800 monthly per unit, you’ll have $1,700 left after paying the mortgage. What you do with that is completely up to you. But it can be an attractive source of income. 

There is a critical mass of people seeking rental accommodations. As long as you offer attractive rental units, price your units fairly in line with real estate market dynamics, maintain your property, and treat tenants fairly, you can rely on a steady stream of rental income every month.

One thing that can make the passive income truly turnkey is hiring a property management firm. A property manager can find good tenants, collect rent, maintain your property, and more.

2. You Can Pay Less Tax

Another reason to consider buying an investment property is that you can legally reduce the amount of tax you pay. For instance, you can deduct from your income expenses such as property taxes, mortgage interest, property management, insurance, maintenance and repairs, and even utility bills if you include utility costs in the rent.

Hire an accountant who can advise you about specific rules in your area. That’ll ensure you get the tax benefits you’re entitled to without making mistakes that get you in trouble with the IRS.

3. You’ll Benefit from Property Value Appreciation

Yet another reason to buy a rental property is that the investment will grow in value over time. Whether you choose to retain it for the long haul or monetize it, you’ll benefit as the property grows in value. According to one source, U.S. house prices increased 6.6% year-over-year in March 2024, up compared to an increase of 6.4% year-over-year in the previous quarter. 

4. You’ll Have Options

When buying an investment property, you’ll have options. If you fall on hard times and need to move into one of your rental units, you’ll have that option as long as you respect any tenant leases in place. If nearing retirement, you can downsize from your family home and relocate to your rental property. There’s also the option of monetizing your investment property and using the money to go another route. By having a rental property, there’ll be options on the table.

These are some reasons to consider buying a rental property. Again, it’s not for everyone. One way to simplify things is to hire a property manager. It can make the investment property experience easier, free you up to do other things, and help you avoid costly mistakes.