Owning rental properties in New Orleans, LA has numerous advantages. Commercial real estate investments can provide you with predictable cash flow, excellent returns, and tax benefits, while you’re potentially building wealth.
However, there’s a lot of work involved when you own a rental property in New Orleans, LA. This is especially true when you choose not to hire a property management company. But if you stay focused, you’ll reap the benefits.
Here are some advantages of renting out your property and why it is considered a good investment.
4 Reasons Why You Should Invest in Rental Properties in New Orleans
1. Passive Income
Renting out a property can provide a passive source of income. There is a recurring income associated with this business that does not require much effort.
Many people find it attractive as a side hustle or even a way to increase their financial safety in retirement. Rental income may also be taxed differently than income from employment.
2. Tax Benefits
A commercial real estate investment can provide several tax benefits to the real estate investor. Depreciation, interest expenses, and other tax deferral strategies help you legally defer paying capital gains taxes.
A current cash flow will often be less than the total depreciation and interest expense, thus creating an equivalent return to a tax-free bond. These benefits are, however, most often recouped upon the sale of a property.
3. Value Appreciation
Investing in commercial real estate can bring a return through appreciation, or the increased value realized when a property is sold. Most investors assume that the annual appreciation rate varies between 4 and 6%. By 6% annual appreciation, a property worth $1,000,000 would be worth $1,300,000 after five years.
Appreciation is only one factor that can guarantee investment returns in real estate. Location, development, improvement, and inflation are other ways that a commercial property’s valuation can increase.
In real estate, leverage is the use of borrowed funds to purchase a property. Utilizing leverage involves borrowing money from a lender to obtain investment properties rather than covering the entire cost on your own. Real estate investing can be attractive because of this.
Consider a $1 million property, for instance. A typical equity investment is $250,000, with the rest funded by debt or mortgage. A sale of $1,250,000 will yield a 100% return on investment. Without leverage or mortgage, the property would only have a 25% ROI.
One of the reasons why people may hesitate to invest in rental properties is the risk involved. But with these risks comes an opportunity for higher returns. Landlords actually have the potential to make more money. You only need careful planning and exceptional service to your tenants.
Are you considering investing in rental properties? Make the most of property ownership by connecting with a dedicated and experienced property management company so that you can focus on growing your portfolio.