Investors are Turning to Rental Property
With interest rates continuing to remain low, people are looking for different ways to invest their money. Housing prices are at an all time low, consider investing in rental property. Let the low interest rates work to your advantage as you purchase homes to rent with only 20% down. Factors to Take into Account Location, location, location is key with rental property. Become knowledge about the community. Research the area, if necessary. People want to rent in areas convenient to schools, shopping with an easy commute to work. You will find affordable houses in outlying areas but with gas prices so expensive, these are becoming unattractive to tenants. A recommended real estate professional can give valuable advice on where to invest. You may want to take a look foreclosures available in your area when looking for a good buy. Remember, you are not the only one looking for a good deal, many entrepreneurs know to look at these properties. If a property has been on the foreclosure list for very long, be wary, there may be some sort of problem that have caused others to pass it up. The problem with all of the foreclosures means that now banks are not willing to approve mortgages with low or no down payments. Typically, you need 20-30 per cent down payment for investment property. Only buy in the price range that will leave room for profit for the amount of rent you'll be able to ask for the area. Make sure you calculate all of your expenses when determining if a particular home will be profitable. In addition to your mortgage, if you decide to use a property management company expect fees of $75 to $100 per month. You also need to plan on regular maintenance expenses. Allow enough profit margin that you can handle these expenses as well and still have a good income. Rental Properties Offer Owners Tax Breaks Basic tax deductions landlords take on their investment in real estate properties are like to those of homeowners. You are able to deduct property tax expenses and mortgage interest costs from your 1040. In addition to these write-offs, the landlord has other tax incentives. Some multi-unit complexes provide utility services such as water, heat and/or electricity at no cost to tenants, tax laws allow you to deduct these expenses from the income on the property. Furthermore, any operating expenses you have for your rental property are tax deductible. This includes upkeep and repair costs, like painting or fixing windows, gutters and floors. Fees for liability, property and rent loss insurance are also tax deductible. Due to depreciation deductions, landlords are offered tax incentives for improving their rental properties. Improvements can include things like installation of a security system, a swimming pool, new air conditioner, any new appliances or upgrades to the rooms. Or perhaps you want to add on another room or a porch to the rental home. These also would be considered an improvement, not an operating expense. These expenses may not be written off as operating expenses, they are written off as depreciation of improvement deductions. Depreciation Write-Offs Depreciation expenses are those accumulated by the typical use of residential property. Fortunately, the IRS realizes that a building depreciates over time and allows owners to deduct some depreciation every year for a set period of time. You do not have to spend any money to take this deduction on your tax return. Additional Tax Deductible Expenses If you don't already have a personal accountant, you may want to hire one now. An accountant expert in rental properties will make sure that you take all the deductions offered to landlords; their fees are also a deductible expense. Other expenses could be the wages of employees hired to keep books, deal with tenants or make repairs. If you engage a property management company to take care of things; that expense would be a tax deductible. Careful Bookkeeping Is Essential While an accountant fills out tax forms, without accurate notes of income and expenditures, they will not be able to do much for you. Whether using a professional or doing your taxes yourself, the most important thing is to keep receipts for everything. The more organized you keep your receipts the easier it is at tax time. You may want to make notations on the receipts to remember exactly what they are for. Be sure to keep receipts for office supplies, advertisements, gas and car maintenance if you travel between properties. If you buy now, you can buy property inexpensively and later when the housing market goes up you can sell at a profit. In the meantime, you will have all the tax advantages of being a landlord plus the extra income of a rental property. Enjoy a better income from rental investment than many other investment options out there.
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Print Article | Download PDF | 4 views | Jul 16 2008
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