Real Estate Investment – Lower Overhead and Lower Taxes

If you have invested before, you may be familiar with the saying “follow the big money.” It is usually used when discussing stock market investing and investing where the big money players are putting their money. You follow the lead of the large institutional and retirement account managers who do tons of research before investing. But these days it applies to rental property investing in a big way as well.

In an article titled “Wall Street is buying up family homes. The rent checks are too juicy to ignore,”the word is that big players are going into the rental property investment scene in a major way. What these institutions and retirement account managers see is the trend to higher home prices forcing first time buyers out of the market. In addition, the workforce is much more mobile these days, so there is a hesitancy to buy a home when you are not sure how long you will be employed in the area.

The small investor’s glass half empty outlook:

When considering going into the rental property investment business as an individual, you can be concerned about the challenge of competing with these major players when locating and buying properties. They have the resources to outbid the small investor or to put more researchers into locating motivated buyers. It is true that the buyer’s market will be more competitive with these big players out there aggressively buying properties.

The small investor’s glass half full outlook:

The thing about this competitive market is that you are not on the same level when determining the price you can pay for the home. While this can sound like a negative, consider these major players, many of them based in New York or other major population centers. They will be managing properties remotely. They will also, as do most huge corporate structures, be employing mid-level management, and that is expensive.

While the individual investor may invest out of their area, they can usually get local management for 8% to 10% of the rent to manage all aspects of property management. The huge corporation will still have that expense, but also the expense of their own overhead management at corporate level. They must factor their expenses into their offer price for an acceptable ROI, return on investment, for shareholders and stakeholders.

The individual investor has that advantage, but it grows even larger when they are doing their own property management locally. Those big players want the same things the small investor wants, positive cash flow and a decent ROI over time. They want that cash flow plus appreciation in value over time.

The local area rental property investor enjoys a significant advantage in lower costs of ownership and management due to much lower overhead. Another advantage is in an intimate knowledge of the local housing and rental markets.

Big players taking advantage; do not underestimate your small investor advantages:

All the rental property investment advantages are yours to enjoy:

  • Positive monthly cash flow.
  • Value appreciation over time.
  • Tax deductions for expenses including:
    • Property taxes
    • Repairs and maintenance
    • Utilities
    • Mortgage interest
    • Depreciation
  • 1031 Exchange for growing a portfolio to fund a comfortable retirement.

In this case, following the big money can be a great way to create a rental property portfolio to fund your desired retirement lifestyle.


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