Investing in Nashville real estate provides some great opportunities for earning money and building wealth. A lot of the owners we talk to want to know when they can expect to begin making money off their investment property.
Here’s the truth: You make money as soon as you buy that property.
How can this be?
Well, there are two important things to remember, whether you’re a new or experienced investor. First, real estate investing does not get you rich quickly. Your investments make you money over the long term. Second, there are lots of different ways to see a profit when you own rental real estate. It’s not just cash flow and you can’t measure your success by rental income alone.
Increasing Nashville Home Values
Most rental property owners want to turn a profit as soon as the rent starts coming in. That would be great, but it may not happen. If you’re earning $1,600 a month in rent and your expenses are around $1,550 every month, it may not seem like you’re earning much on your rental property.
But, that property is increasing in value. Your tenants are paying down the mortgage for you and contributing to other expenses.
There’s also capital appreciation, which is the increase of a home’s market value compared to its purchase price or acquisition cost. When you factor appreciation into your investment strategy, you’ll see that it will help you earn the income you’re hoping for as the property increases in value. Nashville real estate values are going up, and they will likely continue to increase. It’s a great market with a lot of room for appreciation.
And appreciation does not only occur with property values. Rental rates usually increase over time as well, so your income today is very likely to be less than it will be 3 years from now. Escalating rents is an important factor to consider when assessing rental property performance over time.
ROI with Depreciation and Tax Benefits
As we said, it’s not only the rent that’s coming in that contributes to your profit. You also have to consider what you’re earning by taking advantage of tax breaks – especially depreciation.
Rental property owners must declare all the income earned off a rental property, but you can offset that income with any expenses related to your rental home. These may include:
- Maintenance costs
- Legal and accounting fees
- Property management fees
- Any travel expenses related to visits you made to your property
Depreciation allows you to deduct the investment and purchase costs of your rental property. Even better, you get to take this depreciation over the life of the investment instead of just in the year you purchase it. Currently the IRS has an average lifespan of 27.5 years on record for a home, so that’s the number you’ll use in your tax planning.
These things will help you earn money on your Nashville investment property, and it’s easy to forget these benefits when you’re measuring your rental income against your expenses every month.
Increase Earnings with Upgrades and Updates
One way to generate more money with your investment property is to keep it well-maintained, modern, and attractive to high quality tenants. If your kitchen has appliances that are decades old and your bathroom floors are a patchy green linoleum, you’re probably losing good tenants. All that turnover will cut into your profit. Make sure the home is clean, painted, and shows well.
If your home is new and already in great condition, don’t spend a lot on upgrades now. To really maximize your investment, you’ll want to wait until you need to begin replacing things such as floors, appliances, and fixtures.
We have a lot more to tell you when it comes to earning money in the Nashville real estate market. If you’re ready to talk about your profits, your cash flow, and your long-term ROI, please contact us at Omni Realtors & Property Management. We’d be happy to help you set some realistic expectations.