Investing in real estate is always beneficial and even profitable. Regardless of the times we’re living in and the different kinds of crises we find ourselves in, we always need a place to live in. Many people worldwide aspire to own at least one more property, besides their own home. Owning even one property brings a passive income. However, owning multiple properties has even more benefits. Of course, the initial investments are larger and there are other potential challenges we need to overcome.
The benefits of owning multiple properties start with a higher passive profit – the more properties you own, the more passive income you have. Then, another benefit is a diversified portfolio, which is a great risk diversification tool. Additionally, when you own multiple properties, you have certain tax benefits. Moreover, with a greater rental income, you have more money which you can reinvest in a smart way. As properties appreciate over time, you can also make a greater potential long-term return on investment (ROI)
1. Higher passive profit
To start off with the most obvious benefit – is higher passive income. This is often a reason good enough to start considering investing your money in properties. This is surely one of the biggest potential advantages of owning multiple rental properties. It is a great way to generate more income from more than one cash stream. Essentially, you can earn money from renting any home. However not all properties are considered to be suitable real estate investments. If you invest your money in the right properties, your multiple properties can be equivalent to multiple incomes. However, before you decide to purchase a property, you should conduct thorough market research to choose the right one(s).
2. A diversified portfolio
A portfolio of rental properties serves as a risk diversification tool by owning different types of properties, in different cities, areas and even states. An investor can opt to invest in different properties such as multifamily properties, short-term vacation homes or single-family properties. This kind of investment strategy protects the investor from stock market volatility and changes in the local real estate market. Nowadays, there are even certain sensitivity analysis reports that are used by investors. Their aim is to run diverse rent collection strategies across individual properties as well as whole rental property portfolios. With virtual real estate investing you can buy, sell, or rent properties as well as invest from any location. Not only is this more convenient, but it also allows for a more diverse portfolio.
After you have completed the purchase of properties, you might need some additional help in managing them if they are in different cities or areas. For instance, if you live in Melbourne, you can manage the ones that are close to you. However, if your properties are further away and you don’t have so much free time on your hands, you can always hire property management in Burwood, Carlton, Parkville or any other area.
3. Tax benefits
Another great benefit of owning multiple properties is the tax benefits that come with them. As an investor, you can create a large cash flow with minimized taxes. When you own multiple properties, some operating, as well as owner expenses, are deducted. Also, the mortgage interests are decreased as well as the costs of travelling to and from the property. Moreover, investors also use depreciation to reduce taxable net income. You can claim compensation for investment property wearing out on the basis of depreciation. This is defined by every state and area individually. It can bring you a vast reduction in taxes you have to pay.
4. Possibility to reinvest rental income
When you have a great rental income, there is more money available for you to reinvest in a smart way to earn even more money. In real estate, it is called the snowball effect – owning more rental properties allows you to reinvest the money in additional properties over a certain period of time. The snowball effect is parallel to a snowball rolling downhill and becoming larger in size, in the same way, your profit increases by owning multiple properties.
5. Larger potential ROI
Moreover, by owning more properties, you can achieve a larger long-term profit on investment (ROI). More rental properties generate more rental income and they appreciate over time as well. It means that you earn a certain amount of money for such a property and its value increases by a certain percentage over a certain period of time.
Investing in different types of real estate is never a bad idea – when you start with one, it’s easier to continue investing in the next one and so on.
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