Why house rentals in Long Beach have become a “favored class” of income properties!

The future of rental income and property appreciation looks very bright. Tenants in rental houses tend to stay an average of 6 or more years in our experience. Because they stay so long there tends to be few vacancies as a result. The prices of houses in east Long Beach where we do most of our business have increased abut 10% over the past 12 months.

We expect the trends in rents and home price appreciation to continue so the future looks very good. The demand for rental houses is very strong. When we put a house up for rent we receive multiple applications in a very short time period.

Because of recent events the outlook for house rentals is even stronger. State and local laws have set limits on rent increases and eviction rules for apartments. Houses have been exempted. As a result, house rentals have all of a sudden become a “favored class” of income properties.

To make this investment even more attractive rental houses still offer many of the traditional benefits of real estate investing including tax write-offs for depreciation, the lower capital gains taxes for houses owned more that one year, lower interest rates for mortgages, the ability to refinance a property and use the proceeds for any purpose with no tax consequences, the ability to trade into larger properties with no tax consequences and, finally, the ability to pass this investment to heirs usually without tax consequences and the heir’s ability to write off the depreciation based on the higher value of the property at the time it was inherited.

I know of no other investment that offers this “bundle” of financial benefits. The only downside is that it takes a larger down payment than most other investments and this asset is not liquid if money is needed right away. Management can be a headache but there are a few good companies that do it right.

A few years ago Warren Buffet in an interview indicated that he considered rental houses to be an excellent investment. The only reason he didn’t buy rental houses was because he couldn’t hire management to take care of all the individual houses. He noted this could be the best investment for an individual who could buy one or more of these.

Finally, there may be a time when you decide to sell your rental house(s). However, if you hold on for the long haul this investment will surely provide you with a world-class wealth building asset. I suspect you already know this.

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