4 Tax Advantages of Rental Property Investment

Real estate has historically been considered a lucrative investment option for centuries and for good reasons. Modern-day tax advantages of rental property investment are among the many financial benefits of investing in real estate. From depreciation deductions to mortgage interest, rental property owners can benefit from a range of tax incentives that are not available to other types of investments. This makes rental properties an attractive option for those looking to invest in real estate and build long-term wealth. 

What are the Tax Advantages of Rental Property?  

1. Depreciation

Depreciation is a non-cash expense: it does not require you to spend any money out of pocket to obtain the tax benefit. When you purchase a rental property, you can claim a tax deduction for the property’s depreciation and any improvements made over a period of 27.5 years for residential properties, or 39 years for commercial properties. This means you can deduct a portion of the cost of the property each year on your tax return—reducing your taxable income, resulting in lower tax liability. You can claim depreciation even if the property increases in value over time. This is a valuable tax benefit, as it helps offset rental income.   

2. Deducting Operating Expenses  

One of the important tax advantages of owning a rental property is the ability to deduct operating expenses from your rental income. Operating expenses are all the costs associated with running and managing a rental property. This includes property management fees, repairs and maintenance, and so on. By deducting these expenses from your rental income, you can reduce your taxable income and potentially lower your tax liability. This can be particularly beneficial if you have a high rental income.  

3. Mortgage Interest   

Mortgage interest—the interest you pay on the rental property’s debt—is also tax deductible. You can deduct the interest you pay on the mortgage for the entire year, as long as the mortgage is secured by the rental property. If you have multiple rental properties with mortgages, you can deduct the interest paid on each mortgage.  

4. Cost Segregation  

Cost segregation involves identifying and separating the different components of a rental property and classifying them as shorter-lived personal properties or land improvements, which allows for accelerated depreciation and tax deductions. This allows property owners to depreciate certain components of their rental property. This is beneficial for newer properties, as a cost segregation study can identify components that may depreciate quicker than the building as a whole. 

Maximize Your Wealth with CF Capital 

Overall, the tax advantages of owning real estate can significantly elevate an investor's financial success—making rental property investing an attractive option. If you’re considering investing in real estate such as a multifamily property and taking advantage of the tax benefits, contact CF Capital. We offer investors the opportunity to obtain these tax benefits passively and many additional benefits of owning real estate, without the headache of management. 

CF Capital is a real estate investment firm focused on acquiring and operating multifamily assets to help investors maximize their returns. Interested in partnering with CF Capital? Get in touch with us. 

Multifamily Rent Growth: What to Expect in 2022 and Beyond

The current economy has real estate investors worried as interest rates have increased and inflation is having an undeniable impact on consumers. According to most macroeconomic forecasters, it seems that the likelihood of recession is much higher: the interest rate hikes have already impacted investors from making deals as they hold out until the capital markets level out. Despite the uncertainty, rental returns for properties, especially multifamily properties, have historically grown over time. The multifamily rent growth is positioned very well and is forecasted to have a solid performance. 

 

What Does Rent Growth Rate Mean? 

The rent growth rate is the expected or projected trend of the market rental rates over a particular period of analysis, usually month to month. Each year, you can determine if your rental revenue increases and by how much. Then you can compare this to the average growth rate in the area, determining how your investment property performs compared to others in the same market.  

In a multifamily investment, rent growth is arguably the most important component to increasing Net Operating Income (NOI). Rent growth is the main source of profit. That’s why projecting rent growth and keeping up to date on rents compared to competitors is crucial. 

 

History of Multifamily Rent Growth 

The multifamily market remains one of the largest and most resilient among all assets in the US. The strength of the rental market has grown since the end of 2020, with more markets seeing higher rent growth in the year and a half compared with the five years leading up to the pandemic. In 2021, multifamily investors saw substantial cap-rate compression, this is largely due to the pandemic causing driven interest rates declines and increased rental rates. This caused multifamily assets to increase in value. Since the beginning of 2021, every market has experienced rent growth. 

In 2022, the multifamily market has remained robust. Though COVID-19 never fully went away, Americans are getting back to the norm of working conditions, which means legal consequences of not paying rent can be enforced. Like almost every industry, inflation has impacted the costs of multifamily payroll expenses, maintenance, property taxes, utilities, and other expenses. However, the overall performance grew more than the expenses, creating a net positive impact and this will likely continue. 

 

What to Expect in 2022 and Beyond 

The multifamily rent growth market is expected to continue to grow given that housing is essential. As interest rates have increased, inflation is very real for consumers, and as the economy gets back to a “normal,” post-pandemic operating environment, multifamily investors will benefit with the demand for multifamily rentals, as first-time homebuyers need to keep renting and wait for a more favorable time to buy. Investors will produce equity in the market and cash flow.  

 

How CF Capital Can Benefit You as an Investor 

Multifamily investing remains one of the most popular and best-performing assets. At CF Capital, our team is dedicated to assisting current and future multifamily property owners and investors in executing the highest level of efficiency. If you have any questions or want to learn more, contact us today!