Try Rental Property Investment

Now is a fantastic time to invest in the housing market. When the real estate market was hot everyone was investing, now some are trying to get out quickly since their payments are higher than they can afford. You should be able to find some great bargains. The interest rates are still low, so you can't find a better combination. If you use a property management company, you won't even have the headache of dealing with maintenance issues or tenants. All you have to do is invest your money, and see a good return.

Factors to Consider

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 should check out foreclosures in your target area when looking for a good buy. Realize, however, that you are not the only one looking for a good deal, many investors are looking at these properties, too. If a property has been on the foreclosure list for some time, be wary, there may be an issue that has caused others to pass up the opportunity.

The disadvantage of all the foreclosures for the investor is that now banks are not willing to approve mortgages with low down payments. 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 go with using a property management company expect fees of $75 to $100 per month. You also need to plan on other maintenance expenses. There needs to be enough profit margin that you can handle these expenses as well.

Tax Breaks for Landlords

Landlords write-off mortgage interest costs, property taxes, and insurance costs from their federal tax returns on the schedule E of the 1040. Furthermore landlords have other tax incentives. If you include utility services such as water, heat and/or electricity at no extra cost to tenants, you can deduct these expenses from the income on the property. Likewise, all operating costs for rental property are tax deductible. These costs are things like maintenance and repair costs, such as repainting or replacing screens, fixing broken toilets and repairing appliances. Charges for liability insurance and rent loss insurance, if you choose to get them, are also tax deductible.

The IRS allows depreciation write-offs for improving rental property. Items that qualify are would be the installation of a security system or sprinkler system, upgrading the bathroom, purchasing new appliances or furnace or air conditioner. You may decide to put on an addition or tear down a wall, these would be regarded as improvements not operating expenses. These expenses are then deducted as depreciation over the life of the improvement. There are depreciation schedules for various items (ie carpets-5 years).

Depreciation Deductions

Depreciation expenses are those accumulated by the typical use of residential property. Fortunately, the IRS realizes that a building depreciates over time and permits owners to deduct some depreciation every year for a set period of time. You are not required to spend anything to take this write-off on your tax return.

More Tax Deductible Expenses

Do you have an accountant? You may want to use one now. An accountant with rental property specialization will make sure that you take 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.

If you buy now, you can buy property cheaply and later when the housing market improves 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. You will enjoy a better income from rental investment than many other investment options out there.