The current economic climate has investors searching for safer expenditures that still provide a fantastic return on investment. Many venture capitalists have discovered the lucrative option of short-term and vacation oceanfront rental property. But, when is the best time to break into this market and make your first purchase? What are the pros and cons of managing oceanfront rental property, and how can you make this a positive addition to your investment portfolio?
For many investors, the tax benefits of owning a rental property provide one of the principal advantages of the investment. Although every tax situation is unique, most rental property owners enjoy a generous tax deduction for operating and ownership expenses and tax breaks for property depreciation. Since most rental income is treated as ordinary income, these deductions may place an owner in a lower tax bracket, reducing their tax liability. Taking advantage of these benefits requires detailed recordkeeping, and the professionals at property management sites like Casago can help keep paperwork in order.
Interest paid on a primary mortgage for a rental property is fully tax-deductible, making it an attractive addition to any investment portfolio. Owners also have the option of listing the home office deduction of five dollars for every square foot of space dedicated for exclusive business use and can be taken for a maximum of 300 feet of space. In most cases, rental income is not earned income, making it free from FICA or payroll taxes.
Source of Income
An occupied rental property is a source of income used to cover the expenses of owning oceanfront rental property. In addition to the mortgage payment, property owners can expect property insurance and management expenses as monthly expenses. Business-savvy owners include these expenses in the monthly rent rate. When considering the potential of owning a property, investors often look at the annual profit potential to account for factors like vacancies or problem tenants.
With inflation levels currently at a 40-year high, many households feel the effects of the decreased value of the U.S. dollar. Historically, gold and real estate are reliable hedges against declining dollar values, as the worth of these items increases faster than inflation. With cryptocurrency values and the stock market plunging, consumers are searching for solid investments to protect some of their money from the effects of budget-busting inflation and allow them to hold on to more of their money.
Dual Purpose Investment
An oceanfront rental property will bring top dollar in the rental market, making it an excellent source of passive income each month. However, when the property is available, it can become a personal vacation getaway or even a second home for the owners. Applying the monthly rent payment to the mortgage each month allows the equity in the property to build much faster. Once the owners have paid off the mortgage, they have 100% equity in the property.
Rental Property is Recession Friendly
A slowing economy doesn’t translate into people not taking vacations, though they may plan shorter trips to keep a lid on expenses. Many travelers opt for extra niceties like an upgraded location by shortening their stays. Rental locations in prime locations continue to generate passive income for owners when many need it most. For owners of oceanfront rental property, this is excellent news.