Is It Still a Good Time to Buy a Rental Property?
With the changes happening in the housing market right now, we believe the future looks bright for rental property owners in Phoenix. No matter what the real estate market is like, there are advantages to owning rental properties that compensate for any temporary market fluctuations, and these benefits will be discussed in more detail below. But first, to put things into perspective, let’s talk about the market trends, as reported by the Cromford Report.
What Is the Real Estate Market Like Right Now?
Overall, our Phoenix property management team has noticed that the rental supply is starting to increase. Meanwhile, demand is remaining at a normal level. This indicates that the market is finally reaching a neutral balance. While the grand days of getting a year-over-year appreciation of 27.4 percent may be winding down, the real estate market is headed toward a balance between supply and demand. A balanced market does not mean that prices will decrease. Rather, it indicates that prices will match the rate of inflation—they'll still be going up, but just at a slower rate.
According to the Cromford Report, Phoenix can expect stable demand because the area is experiencing ongoing population growth. As long as people continue to need a home to live in, there will be a demand for rental properties. To you as a Phoenix homeowner/investor, this means that your property remains a worthwhile investment. Whether your cash flow is positive or negative, you can enjoy a number of benefits, such as generating income, increasing owner equity over the long term, and numerous tax benefits compared to many other income-producing assets.
You Can Enjoy Having a Long-Term Investment
When you invest in a Phoenix real estate property, you should expect to hold your investment over the long run. Over the course of many years, your property will appreciate in value. Say, you buy a home for $460,000 today with a 10 percent down payment. After making your monthly payments for five years, the remaining balance will be approximately $381,000. After five years, this property will be worth $691,682. This growth is from an appreciation level of just 8.5 percent per year. Basically, you can enjoy more than $300,000 in equity growth after just five years from an average level of appreciation.
In reality, a Phoenix rental property management company generally expects this level of appreciation. In a balanced market, 8.5 percent is a very normal level of appreciation. The only real deterrence to buying a property right now is the current interest rate, but interest rates do not remain the same forever. Judging by recent history, these interest rates are likely to decrease in the future. When that happens, you can always refinance for a lower payment.
Tax Advantages Help You Get More From Your Investment
When you own a rental property, you can enjoy a range of tax benefits. At tax time, you can deduct the expenses you incurred that relate to the rental property. Here are several examples of deductible expenses that you can use to lower your overall tax bill—but as a reminder, please make sure to talk to your tax accountant about any actions that might affect your financial portfolio.
Travel costs from visiting your rental property.
Professional fees for lawyers, accountants or similar expenses.
Insurance costs.
Accelerated depreciation for household items.
The management fees for your Phoenix rental property management company.
Maintenance.
Interest payments from the property’s mortgage.
Depreciation
By far, one of the best ways to reduce your tax bill is through depreciation. With depreciation, you can write off the value you lose as your property gets older. According to the Internal Revenue Service, a residential property depreciates over the course of 27.5 years.
If you need to get these tax benefits early, you can accelerate the depreciation loss. In addition, you can even depreciate individual items on a faster schedule. Flooring, cabinets, appliances and other parts of your rental property have a shorter life expectancy, so they can be depreciated on a faster basis. Because this kind of depreciation can be confusing, you should always ask your accountant about depreciation schedules for rental properties.
Interest vs Appreciation
There will always be ups and downs in the real estate market. Unlike the stock market, real estate investments allow you to bring in ongoing revenue during most economic environments. Because rental payments allow you to build equity in the property, these are great investments over the long run.
The biggest factor affecting Phoenix homeowners right now is the increase in interest rates. Fortunately, these interest rates are outweighed by appreciation rates. More importantly, they will most likely decline in the future. When that happens, you can refinance and reduce your mortgage payment. In the interim, you can make your investment more lucrative by taking advantage of its tax benefits.
As a Phoenix rental property management team, we can answer all your questions about buying rental properties right now. By making wise investment decisions today, you can enjoy long-term growth and a number of tax benefits. If you have any questions, feel free to reach out to your Phoenix property management team at Service Star Realty.
Service Star Realty
2929 East Camelback Road #119, Phoenix, AZ 85016
(480) 426-9696
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