Find Good Investments in Rental Property
With interest rates so low, people are looking for different ways to invest their money. Housing prices are at an all time low, consider investing in rental homes. Let the low interest rates work to your advantage as you purchase homes to rent with only 20% down.
Location, location, location is key to finding good investment property. Become knowledge about the community. Do research, if necessary. People want to rent in areas that are convenient to schools, shopping and an easy commute to work. You will find cheaper houses in outlying areas but with gas prices so expensive, these are becoming unattractive to tenants. A recommended real estate professional can give great advice on where to invest.
You may want to look at foreclosures when looking for a good buy. You are not the only one looking for a bargain, many investors know to look at these properties. If a property has been on the foreclosure list for very long time, be cautious, there may be some sort of problem with it.
The disadvantage of all the foreclosures is that now banks are not willing to approve mortgages with low down payments for new investors. Typically, you need 20-30 per cent down payment for rental real estate. You want to be sure that your monthly payments 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 property will be profitable. Besides 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 other maintenance costs for up keep. There needs to be enough profit margin that you can handle these expenses as well.
Rental Properties Offer Owners Tax Advantages
Basic tax advantages landlords receive from 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 federal tax return.
In addition to these deductions, the landlord has other tax incentives. If you, the landlord, provide utility services such as water, heat and/or electricity at no cost to tenants, tax laws allow you to deduct these costs from the income on the property. Furthermore, all operating expenses for your rental property are tax deductible. This includes maintenance and repair costs, like repainting or replacing windows, gutters and floors. Fees for liability, property and rent loss insurance are also tax deductible.
Thanks to depreciation deductions, landlords are offered tax advantages by the IRSfor improving their rental properties. Improvements include installation of a security system, a swimming pool, new furnace or air conditioner, any new appliances or upgrades to the kitchen. Or maybe 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 Tax Advantages without Improvements
Depreciation costs are those accumulated by the normal use of any residential property including rented buildings. The IRS acknowledges the fact that a building wears out over time and permits landlords to deduct some of the cost of depreciation every year for up to 27.5 years. These deductions do not require you to spend anything in order to use the deduction on your tax return. Just calculate the value of the building and the allowable depreciation on that amount. The only time you will spend money for a depreciation deduction is when you make improvements to the property. Realize that you will have to make some of these improvements to keep the home livable.
Other Tax Deductible Expenses
If you don’t already have an accountant, you may want to use one now. An accountant specializing in rental properties will make sure that you get all the deductions offered to landlords; their fees are a deductible expense. Other possible expenses are the wages of employees hired keep books, deal with tenants or make repairs. If you engage a property management company to take care of those things; their charges would be a tax deductible expense. Items like office supplies, phone bills, and even stamps can be deducted as costs of doing business.
Buying investment property now when prices are low is a wise move. Later as the housing market recovers, you can sell at a profit, if you wish. Enjoy all the tax advantages of being a landlord and the extra income from a rental property. You may find a better return on your investment than other options open to you.