Today, we are discussing part three of our blog series on why owning rental property is an IDEAL way to pay for college educations and to fund your retirement (Part 1, Part 2). We have been using the acronym IDEAL and in previous blogs, we talked about income and deductions and depreciation. Today, we’re discussing the E and A which stand for Equity and Appreciation.
E is for Equity and A is for Appreciation
Equity is the difference between what you owe on a property and what it’s worth. Appreciation is the value of a property and the way it grows. If you have a loan on the property, remember that its entire value is appreciating, and not just the cash you put down. We’ll talk more about that with the next segment.
Paying Down the Loan
Over time, the rental payments you’re collecting will pay down the loan on the property. That happens while the value is increasing. When you’re ready, you can cash out that equity by refinancing or sell the property. Refinancing a rental property is a non-taxable event and you get the bonus of having your interest payments being tax deductible. When you find yourself needing a sizeable chunk of cash, this is a good option for you.
1031 Exchange
If not, set aside the monthly income for those college expenses as they come due. You can also consider a 1031 Exchange. This involves selling a property and re-investing in another property in order to avoid the capital gains tax. You may want to do this to upgrade a lower income rental or if your current property is finished appreciating. Many investors have also done this to buy a property for their student to live in while at college. You can rent those extra rooms out for additional income.
There are some great deals to be found in the Atlanta market, and our property management will save you from the headaches that many people associate with owning rental property. Please contact us today at Solutions Realty Network, and we can help you get started.
