Rental Property Is A Great Investment

With interest rates so low, investors are looking for new places to place their money. Housing prices 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.

Here are Some Things to Keep in Mind

Location is important. If you are not familiar with the neighborhood, you need to learn about it. Is the area convenient for shopping and schools as well as the highways so people can get to work? If you buy in bedroom communities, the houses are cheaper but less attractive to c, with gas prices so high. Relying on a good realtor who is experienced in investment properties is a good idea. Be sure to get recommendations.

With foreclosures at an all time high, you can find many good deals. The best ones get snapped up right away. Be cautious about homes that have been on the market too long, it is either overpriced or something else could be wrong with it.

The downside of all the foreclosures is that banks are more cautious about giving out loans with no money down. You should expect to put 20-30 per cent down for rental property. You want to be sure that your monthly payments leave room for profit.

Be sure to factor in fees that you will need to pay the property management company. As with any other property, you need to expect that there will be other maintenance costs. You need to be making enough money on the property to take care of it as well.

When you buy, you consider purchasing a home warranty. This may be helpful for an older property. If you have to replace or fix covered items it will have paid for itself. Usually AC is an additional charge so you have to determine if it is worth it or not.

Tax Breaks for Landlords

Landlords write-off mortgage interest costs, property taxes, and insurance costs on the schedule E of the 1040 tax return. Furthermore landlords enjoy other tax incentives. If you include utility services such as water, heat and/or electricity for "free" to tenants, you can deduct these expenses from the income you receive on the property. Likewise, all operating costs for rental property are tax deductible. These costs include maintenance and repair costs, like repainting or replacing screens, broken fixtures and repair of appliances. Charges for liability insurance and rent loss insurance, if you choose to get them, are also tax deductible.

The IRS allows depreciation deductions for improving rental property. Improvements could be the installation of a security system or sprinkler system, upgrading the bathroom, purchasing new appliances or an 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 various depreciation schedules for various items (ie carpets-5 years).

Depreciation Deductions

Depreciation expenses are those accumulated by the typical use of residential property even rentals. 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 deduction on your tax return.

Other Tax Deductible Expenses

If you don't already have an accountant, you may want to use one now. An accountant with rental property specialization 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 these things; their charges would also be a tax deductible expense.

Invest now when prices are low. 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.