How To Build Long-Term Wealth With Rental Income


Renting out a property is a significant wealth creation tool that can boost your passive income and help you build long-term wealth over a period of time. Although, bear in mind that you are more likely to get the best return on investments when you have a mix of varied investment instruments like mutual funds, bonds, stocks and so on.

When it comes to real estate, it is important that you make investments that are aligned with your financial goals and risk tolerance. The property market does fluctuate quite often but there is always a demand for rentals. The success of your rental investment however, depends on multiple factors. But most of these factors are in your control. So let us take a look at the key areas of your rental property investment that will help you build wealth in the long run.

Conduct Investment Property Analysis

An investment property analysis will help you determine important real estate metrics. This includes understanding the approximate Return On Investment (ROI), capitalization rate, and cash-on-cash returns that you could expect from your rental property. These are a few essentials to consider before investing in different properties.

While accounting for the ROI, you must also factor in other expenses like property insurance, taxes, vacancy rate and mortgage (if applicable). You can compare these against the property revenue streams like rental income and the change in your property’s value based on current market prices to get a fair idea about investing in a positive cash flow property.

Start Small and Build Gradually

If you intend to build long-term wealth with your rental income, bear in mind that over-investing or only tapping into expensive properties may not be the best approach and could even lead to potential financial hazards. There is an inherent risk of the property not being rented out, thereby wiping out your funds in asset upkeep.

The key is to start small and begin by investing in a single property. Once it starts generating a good amount of passive income, only then consider looking at other investment options. The lack of efficient investment planning could lead you to make impulsive decisions and lose out on golden opportunities to build long-term wealth from your rental income.

It is best to speak with a tax advisor or finance expert who can help you make informed choices regarding your real estate income and manage wealth better.

Check On Tenant Occupancy

Having a rental property does not assure that you will always have a tenant living there all year long. Although, a long-term tenant who makes timely payments might actually be the best way to ensure a steady rental income.

Let’s say your rental is occupied for 10 months of the year at INR 10,000 a month and remains vacant for the remaining 2 months. What should have been an annual rental return of INR 1.2 lakh in this case will now be reduced to INR 1 lakh. Such reductions in your rental income over time will have a negative impact on your personal finance. Therefore, try to actively look for a tenant before the existing occupant leaves.

Tax Breaks and Benefits

You can save tax on rental income by checking the tax deductions that are applicable on your property. Moreover, you are also eligible to receive tax benefits if your rental incurs any losses.

Furthermore, you could purchase a joint property along with a family member, exclude maintenance charges as part of the monthly rent and deduct municipal taxes to reduce your tax liability and thereby generate more rental income.

Rental properties should be looked at as a long term investment that takes a considerable amount of time and skill to manage and grow eventually. We suggest that you look into a home insurance policy for your rental in order to remain protected from loss of rental income due to unexpected circumstances such as natural disasters, theft etc.

For advice regarding smart investments, reach out to Dezerv, an expert led investment platform that will manage your financial portfolio and help you maximize long-term wealth.