Building Wealth with Short-Term Rentals: Top Tax Strategies

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Building Wealth with Short-Term Rentals

Real estate is a great way to diversify your portfolio and increase your net worth. However, if being a landlord doesn’t appeal to you, consider short-term rentals. While there’s still work involved in maintaining the property, you control when the property is available and what amenities you offer.

It’s a great way to transition into real estate investing and increase your earnings. Here are X reasons to consider it.

Rental Income can Pay your Mortgage

Even without full-time residents, you can often cover your mortgage payment and other expenses with the income earned. In addition, short-term rentals charge more for their stay than long-term per day, making it easier to pay the costs of owning real estate and earn a profit.

Leverage your Investment with a Mortgage

A mortgage leverages your investment in a short-term rental. For example, with 20% – 30% down, you can buy a property, rent it out and use the rental income to cover the mortgage payment. This may offer a higher return on your investment than a smaller investment in stocks, bonds, or other assets.

Earn Consistent Cash Flow from Short-Term RentalsEarn Cash Flow

You earn cash flow frequently when you have short-term rentals. This is because you control when the property is available and when you’ll receive cash flow. How you use the funds can help increase your net worth too. After covering your expenses, you can use the cash flow to buy more properties and increase your earnings even further.

Appreciation

Real estate typically appreciates, except for major crises, like the housing crisis of 2007. Because you own the property, you earn the appreciation. This means your investment grows as long as you keep the property. Then, you can tap into it with a cash-out refinance to use the equity or sell the property and realize capital gains.

Tax Deductions

Real estate investors have many ways to reduce their tax liability, using the short-term rental tax loophole, depreciation, and the 1031 like-kind exchange. Working with a reputable CPA ensures you take advantage of all tax deductions and credits available.

Real Estate Passes Down to your Heirs

If you keep your real estate investments and pass them down to your heirs, they won’t pay capital gains taxes on the profit. The cost basis for the home is the home’s value on the day of transfer (the day you die). If they sell the house shortly after, they typically won’t pay taxes on the money earned.

Final Thoughts

Short-term rentals can be a great option if you’re looking for a way to diversify your portfolio or dip your toe into real estate investing. You are in control of the entire process and can take a break whenever needed.

The cash flow can pay your expenses and increase your net worth, helping you invest money in other areas, and further growing your portfolio.