Owning a rental property provides you with long-lasting benefits that will compound over time.
There are many reasons to purchase a rental property in your 20s and 30s, primarily to set up your long-term financial future. Here are a few reasons why you should consider investing in a rental property.
One of the best investments you can make at a young age is purchasing a house. The average appreciation rate on a single-family house in Edmonton was 5% in 2020, with townhouses seeing a 17% growth, far more than most stock appreciation. This means that if you purchase a $100,000 house today, in 2030 the value would be $162,889 based on a 5% appreciation, gaining 62% value on your house over a 10 year period. With appreciation, property value will be significantly higher when you're in your 50s and 60s than it was when you purchased it in your 20s and 30s.
When you're renting out a house you typically want to factor in the cost of the mortgage and the cost of utilities in the rental price, with a little extra on top for income. This supplemental income can help you set up your financial future at a younger age. Being aware of the average rental rate in your city is important for helping you set an appropriate rental rate, while leaving room for utilities and income. Consider hiring a property management company to help manage the workload being a landlord can bring.
Setting Up Your Financial Future
With supplemental income from rental properties, you are awarded the opportunity to build your retirement savings without dipping into your current career's salary. You can tuck all your rental income into a high interest savings account, an RRSP, or reallocate that money towards purchasing more rental properties, exponentially growing your portfolio. Many people who have been involved in purchasing properties at a young age and accumulating more properties over time will be able to live off of their rental income when they retire.
When you own a rental property you are entitled to claiming a significant amount of taxable benefits. These benefits include claiming property tax, insurance, property management fees, maintenance fees, travel to and from your rental property, legal fees, office expenses, and more. These are all considered a tax write off, which can help lower your tax bracket, allowing you to pay less overall tax, and taking more money home on a monthly and annual basis.