Building Wealth With Rental Income
Rental income is another way to build wealth. Many investors build a portfolio of rental properties so large that they live off rent payments exclusively. The greater the positive cash flow from rent, the greater the income.
Renting while on vacation is like throwing money out the window, but many people still rent because they are not willing to make the commitment of additional home ownership or have not been able to save enough for the payments.
Owning a rental property or a vacation home that can be rented out to short-term tenants during the off season may be a solution. Instead of renting while on a vacation, many people are opting to own a vacation or second home due to the tax advantages and investment potential of owning real estate. Wealthy people do not own second homes only because they can afford to do so; they also own second homes for tax write-offs or for long-term investments. Many wealthy individuals intentionally maintain mortgages strictly for the tax deduction, even though financing the deal is unnecessary.
Mortgage interest and property taxes are also tax-deductible on a second home. Vacation homes, especially those on the water or on a golf course, will most likely appreciate in value. In Florida, vacation homes are an extremely popular way for many to invest and maintain a get-away shelter. Businesses that own vacation homes for the enjoyment of their associates and clients deduct costs as a business expense.
Some buy residences strictly to rent to long- or short-term tenants. Rental payments help pay off the mortgage while the property appreciates in value, thus building equity. At the same time, landlords may enjoy a positive rental income. Rental properties also qualify for depreciation allowances as a tax benefit.
If you want the benefits of both a second home and a rental property, you can buy a multi-unit apartment and live rent-free in one of the units while the tenants pay the mortgage. In this way, one can act as an on-site owner landlord. Some individuals rent out to tenants for part of the year while remaining up north, then fly south to live in the residence for the other part of the year.
An arrangement offering similar benefits is a time-share, where several individuals retain part-ownership interest in one residence and take turns actually residing in the home. This reduces an individuals risk, commitment and investment, while offering use of a great part-time vacation home.