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Purchasing a rental property may be for you - especially
in today’s real estate market - if you are looking for a way to increase your
personal wealth. Of course, we can’t
expect sky-high appreciation rates all the time and one thing about real estate,
particularly land, they’re not making it any more! With the continued increase
in population and area growth demand, values will continue to increase. And how
many times have you heard someone say, I wish I had bought property back when
prices were low? Today we must look at a
residential market in which a well-chosen, well-managed rental property of one
to four units can be the “shining star” in any investor’s portfolio. The key to success is doing your homework and
making sure that the numbers work in your favor. If you bought your own home, you already have
realized the financial advantages of real estate ownership. The following report will give a brief
overview of the many ways you can profit from owning rental real estate today.
properties can lower your taxes.
Investors tax incentives can be substantial. Some investors can use deductions from rental
property assets to offset some of their wage income. Other investors, while not eligible for the
offset, can avoid owing taxes on their rental income by showing adequate
expenses and deductions. Even if rental
payments do not cover the investor’s expenses, tax breaks may actually make up
the difference or more. As an investor,
you can claim deductions for actual costs you incur for financing, managing,
and operating the rental property. That
means mortgage interest payments, real estate taxes, insurance, maintenance,
repairs, property management fees, travel, advertising, and utilities if not
paid for by the tenant, can all be deductions.
All can be subtracted from your adjusted gross income when figuring your
personal income taxes up to the amount
of real estate income you receive. Also, don’t forget about depreciation. The tax
code assumes buildings and improvements wear out over time. These losses are deductible from income,
regardless of the property’s actual market value.
positive cash flow. Positive cash
flow results when the rent you receive exceeds the total you pay for the
mortgage, taxes, insurance, maintenance, and other costs. That’s not at all as hard as it sounds. First, decide whether you need a positive
cash flow before or after taxes. A
pre-tax positive cash flow translates into current income, a goal of many
retired investors and others with current expenses. Properties yielding a pre-tax positive cash
flow are harder, but certainly not impossible, to find. Be aware that not all properties will yield
rental income which is high enough to cover your expenses. Make sure you know how much rent to expect by
researching rents for similar units nearby, the property’s current rental fee,
and that of the last increase.
A positive after-tax cash flow can come from a negative pre-tax cash flow. Generally, the depreciation deduction makes
up the difference. If you meet the
eligibility test, you’ll be able to use the depreciation to shelter some of
your taxable income and reduce your tax bill.
Second, you’ll want to ensure your tenants make timely rent payments and
take care of the property. Of course, a
positive cash flow is impossible without income. A thorough credit, employment and landlord
check of any potential tenants is a must and will help you track down the best
leverage. As an investor, you
magnify the returns on your investment by borrowing a large part of the
purchase price using the bank’s money! That is, by limiting the amount of cash
you invest, you make your cash go farther.
Leverage means using borrowed money to increase equity. And equity - the difference between what the
property is worth and the balance owed on the mortgage - is what’s important
when figuring out whether your dollars are wisely invested.
from growing equity. Even at a
modest rate of appreciation, real estate will yield a higher return on the cash
investment than most other financial investments, such as bonds or long-term
CD’s. You build equity as your mortgage
principal is paid down, even if your investment property doesn’t increase in
value. Although homes in different parts
of town may appreciate at entirely different rates, the key is to have a
knowledgeable professional carefully guiding you through the steps. Learn the safest way to make principal
prepayments, like in a safe side fund rather than sending directly to the mortgage
company. Know how much equity you have
and learn to use it to leverage into other properties; then watch your real
estate portfolio and your personal wealth grow!
agent wisely. Working
with a full-time professional real estate agent is a must. Choose your agent by asking questions of him
or her. Find out how knowledgeable they
are about houses currently for sale in your price range and also of houses that
have recently sold. Does your agent work
with a good lender that has the reputation of excellent service and low rates
to assist you in obtaining financing?
Does your agent ask questions of you in order to have a full
understanding of what you are looking for and to help you to find the best
property for you?
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the very best counsel, advice and service possible for your real estate needs.
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don’t hesitate to call me. I look forward to the opportunity to serve you.™