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Rental Advantages

Suppose that you made a killing when you sold your house, or you're simply a good saver, or you're the beneficiary of a nice inheritance. If you've got some extra cash burning a hole in your pocket, consider investing in some rental real estate. Real estate is a good long-term investment. Historically, real estate investors have enjoyed average annual rates of return (in the range of 9 to 10 percent) comparable to stock market investors' returns.

Part of the reason for those healthy real estate returns comes from the fact that land is in limited supply so the price of land -- and the property on it -- generally faces upward price pressure as the economy and population expands. And, because you can borrow upwards of 80 percent of the purchase price of a property, you leverage your invested capital to work harder for you; you earn returns not only on your down payment but also on the borrowed money.

Looking ahead to your golden retirement years, rental real estate not only should appreciate in value but also provides you with rental income for living expenses. And, when you eventually decide to sell your rental real estate to tap into the equity in your property, under current tax laws, the maximum federal income tax rate you pay on your capital gain is 28 percent, which may be less than the tax rate you pay on your employment or investment income.

And, last but not least, if you have a great deal of your retirement nest egg stashed in the stock market, rental real estate can help you diversify your investment portfolio. Of course, when you consider how diversified your investments are (or aren't), don't forget all the money you may have "invested" in real estate by virtue of owning your home.