Do you think that you want to have rental property, for extra income?
Date: 8/28/2009 2:06:38 AM ( 15 y ago)
Deciding to invest in rental property is not an easy decision. It is full of hopes of grandeur and lots of money, but reality will set in real quick. Rental property is full of headaches, long nights and much hard work and in most cases you can make a profit. Together with some careful planning and a few nerve pills you can be a success.
Considerations before you own:
1. How long will you hold on to the property? If you are intending to keep this rental property for life, then a fixed rate mortgage is necessary. If you are buying this as a short time investment then a variable rate of mortgage is the best mortgage for you. When shopping for rental property financing, make sure the loan has no prepayment penalty,. In case you sell before the normal two years is up, you do not want to get hit with a penalty.
2. On site manager or do it your self. If you decide to hire a manager, a painter, a plumber and a electrician, these will cut into your profits. When considering rental property, sit down with your agent and look at both sides of the proposition. If you intend to own several properties, then maybe it is advisable to hire a Broker to manage all properties.
3. Make sure the rental is located in a good rental market. Location, location, location. This is what you should keep in mind at all times and buy accordingly.
4. Never buy a overpriced home. Look at the comparables in the area you are choosing and never pay over value for the property. If you see a rental property you absolutely love, never disclose that to the seller of the property. When you go to see a property, always act disinterested.
5. Search for tenants of your choosing or hire a Realtor. Never let any tenant rent an apartment from you who does not submit a credit report. Any Broker who specializes in rentals can give you a full credit report and proof of income for the prospective tenant. The tenant must fill out an application with references also.
6. The final step in having a successful deal is shopping for financing. You as a prospective buyer have the right to shop around for financing. This can be a fatal mistake to a new buyer. The Broker has a relationship with many financial companies and can get you a loan through easier than a one time prospective buyer. Trust your agent and compare the rates, but let the Broker handle the financing for you.
Tax advantages of owning rental property
One of the advantages of owning rental property or a second home is the tax breaks. There are many tax advantages available to rental properties, not available to a single family residence which is your primary residence. Many first time buyers are unaware of such advantages and therefore cannot take full advantage of the many tax breaks. It is imperative to have a "seasoned Realtor" when purchasing rental property. One reason that investors or property owners, do not take full advantage of the tax benefits of their property is having fear of a tax audit. A tax audit will bring in 3 years of problems. A way around this fear, is to always allow a CPA to do your taxes, who in turn will inform you of all new laws concerning your property.
An experienced tax lawyer or a certified public accountant (CPA) can show you how to show a positive cash flow on the property or help you deduct the loss of the property on a schedule of rents. The home can also be depreciated and all expenses of the home is deducted against the rental income. It is very important to keep very good records in case you are audited. A software program that is very helpful is Quicken Rental Property Manager or Tenant Pro.
How to be successful in rental ownership:
Research, study, ask many question of Real Estate Brokers, buy in the right location at the best price, have the best tenants, and look at this in the long term not the short term with the right financing. Property ownership can be enjoyable and safe, with the right precautions.
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