Investing in Rental Property

Now is a good time to invest in the housing market. When the real estate market was hot everyone was investing, now some are trying to get out since there payments are higher than they can afford. You should be able to find some good deals. 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 great return.

Here are some things to keep in mind.

Location is important. If you are not familiar with the area, you need to do some research. 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 renters, 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 available 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 hesitant to give loans out 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 if you decide not to manage it. 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 may want to purchase a home warranty. This can be especially important for an older property. That way if you have to replace or fix covered items in the first year you are covered and it will have paid for itself. Usually AC is an additional charge so you have to decide if it is worth it or not.

Rental Properties Offer Landlords Tax Deductions

Property owners receive from their investment in real estate deductions similar to those of homeowners. Landlords can deduct property tax expenses and mortgage interest costs from their federal tax return.

In addition to these deductions, the landlord has other tax incentives. All operating expenses for your rental property are tax deductible also. This includes maintenance and repair costs, like repainting or replacing screens, gutters and plumbing. Fees for liability, property and rent loss insurance are also tax deductible.

Improvements to your property are paid for through depreciation deductions. Improvements include installation of a sprinkler system, a swimming pool, new air conditioner or heating unit, any new appliances or upgrades to the bathrooms. In order to increase the money-making value to the home you may want to add on another room or a garage. These are also considered improvements, not operating expenses. These expenses can not be categorized as operating expenses, but are written off as depreciation of improvements which is done over time.

Depreciation Deduction 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.

Don't Forget that Accounting Costs are Tax Deductible

If you have more than one property you should consider using an accountant for your taxes. An accountant specializing in rental property taxes can help you take all the deductions offered to property owners. Similarly, the wages of employees hired keep books, care for tenants and make repairs are also deductible operating expenses. You may want to hire a property management company to handle those things; their fees would be a tax deductible expense.

Careful Record Keeping Is Essential

While an accountant is helpful to fill out tax forms, without accurate records of income and expenditures, they will not be able to do much for you. Whether using a professional or doing your taxes yourself, the most important thing is to keep receipts for everything. The more organized you keep your receipts the easier it is at tax time. You may want to make notations on the receipts to remember exactly what they are for. Be sure to keep receipts for office supplies, advertisements, gas and car maintenance costs if you use your vehicle to travel between properties.

If you buy now, you can buy property inexpensively and later when the real estate 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 can see a better income from rental investment than many other investment options available to you.

Look at our Logan Heights Affordable Homes for Sale in San Diego CA.