If approached correctly, real estate provides endless benefits. Many individuals generate passive monthly income from owning rental properties. Furthermore, most properties experience appreciation in value over time but are determined by factors such as the home location. Real estate investors have numerous ways to invest, whether conducting fix and flips or renting out a multi-unit home. Pennsylvania is an excellent state for rental properties due to a cost-effective housing market with steady population growth and rental rates.
Single-family Rental Properties in PA
Owning a single-family house has its pros and cons. A single-family house is a residential property with one household and can vary from detached to row homes. Tenants prefer a single-family home due to privacy and less outside noise. These single-family dwellings don’t have shared spaces, which is ideal for individuals with pets or children. As a landlord, if forced to sell, a single-family home has more potential buyers than a multi-unit property.
One negative aspect of owning a single-family home is a vacancy. If the house goes even one month without a tenant, it eliminates all income. When owning a multi-family house, if you have at least one rented unit, that tenant can cover the mortgage payments, maintenance expenses, and home improvements.
Multi-family Rentals
As mentioned above, the most significant benefit of owning a multi-family residence is that income from multiple units can offset possible vacancies. Limited numbers of multi-units are available for purchase, and most areas are strict on zoning, which does not allow investors to convert single-family dwellings into duplexes and other forms of multi-family investing. There are also more tax breaks associated with owning a multi-unit. One is the ability to deduct depreciation expense over time and maintenance costs even if you are “house hacking” in one unit.
What is “House Hacking?”
A popular form of real estate investing has been gaining much steam. This method of real estate investing is called “house hacking.” The concept is simple: purchase a multi-family property, rent out one of the units, and live in the other unit. Essentially, the tenant paying rent covers the owner's living expenses/mortgage.
Some individuals are advised to use their FHA (First time home buyer loan) to purchase these properties due to the low down payment and mortgage rate of roughly three percent. When using the FHA loan for multi-unit dwellings, the owner must reside there for at least a year but can also deduct overall maintenance costs.
Benefits of Owning Rental Properties
Owning rental properties is an excellent way to generate another form of income and can provide generational wealth due to property appreciation. Other benefits of owning a rental property:
Standard tax deductions: It’s essential to be aware of all tax deductions to maximize profit from rental properties. These deductions include mortgage interest, home maintenance, property management, and tax preparation costs.
The recent increase in rental rates is 3% per year. Due to the housing supply, housing demand, and inflation, the average rental rate continues to increase. If property tax increases, the landlord can adjust the rental rate to accommodate expenses.
Rental property can diversify your portfolio. Real estate is a safer investment compared to the stock market & other similar forms of investing money.
Some investors like having complete control over their investments and having the ability to unload at any time. Even with tenants renting the property, the homeowner has the right to sell the home. Selling a house with a tenant may be difficult but not impossible; ensure you approach things correctly and follow the law.
If times get rough, the landlord can move back into the property, especially if they own a multi-unit, then the owner can utilize the house hacking method.
Ways to Purchase a Rental Property
There are two standard methods to approach purchasing a rental property. The most used route is to hire a licensed real estate agent. The realtor can search platforms such as MLS to find potential rental properties that fit each person's investment preferences. The agent can guide the investor through the process, offering advice and running numbers for rental rates. Realtors are familiar with the market and have experience dealing with homebuyers and the rental aspect of real estate.
Some investors want to eliminate agents' fees and commissions by using a wholesaler to purchase a rental. A benefit of using a wholesaler is less competition compared to an agent listing a house on MLS, Zillow, and other platforms available to anyone on the internet. Typically, when buying a house through a wholesaler, there are no home inspections, which can lead the buyer to be unaware of potential issues. Lastly, using a wholesaler can lead to a buyer overpaying. Agents are held to ethics and can properly guide their clients.
Endless Opportunities with Rental Properties
Real estate professionals will suggest owning rental properties. These rentals allow for passive income, property appreciation, and financial security from the ability to house hack. It’s said that 90% of millionaires in America come from real estate. Rental property values adapt with inflation, and housing will always be needed. If you own a rental property out of state, it’s suggested that you hire a property manager to oversee the daily operations. When the time comes to purchase a rental, use a realtor to guide you through the process!
