So it looks like while the new tax law allows immediate expensing of capital expenidutres for the next five years, this does not apply to the actual rental property? Anyone confirm?
Posts made by rufflesinc
The INVESTMENT / RENTAL PROPERTY thread!!!!!!
tribute to SIS
As has been discussed, lets start an investment property thread. As Fatwallet Finance readers have likely seen , I am a BIG FAN of buying and owning investment property. However, unlike with the 5.25% fixed rate Netbank loan (where almost everyone agrees that is a great deal), NOT everyone will agree that owning investment property is such a great thing.
There are legitimate pros and cons, so its not clear cut that owning investment property is right for everyone. Location, your financial situation, and many other factors determine whether it is a good strategy.
Some Reasons TO BUY investment property:
- Its how many of the most wealthy people made their money, Almost everyone who is a multi-millionaire my family knows is not from the Internet boom, but from buying real estate and holding onto it.
- It can provide a steady source of income in later years after mortgages are paid off and you stop working (especially if you havent set up a retirement account)
- A GREAT time to consider becoming a landlord is when you are considering selling your current home to move to another one. As long as you can get enough rental income to pay the existing mortgage on it, Why pay the realtor’s commission, and other costs, when you likely now OWN a great piece of rental property!
- Rents tend to go up each year, while the mortgage on the investment property remains fixed…thus, more CASH IN YOUR POCKET as the years go by.
- You can claim a HUGE tax deduction for rental property! (I am not a tax expert so I will let others better qualified elaborate on that one)
- It plain feels good to own a lot of property. Its the AMERICAN DREAM.
- I can go on and on…
Some Reasons NOT TO BUY investment property.
- It can be a headache dealing with problem tenants and problems in the house.
- There may be some months you will take a loss for repairs, finding tenants, etc, and you should be in a position to be able to weather these losses.
- Well, thats about the only 2 main problems I can think of.
TIPS AND TRICKS:
If starting out, you want to find property where you will break even or possibly earn positive cash flow, meaning that the rent you will receive will exceed the mortgage payment, taxes and insurance. This way, owning the investment property will not be a current burden on your budget, as it “pays for itself” or even makes you a little money each month.
CAUTION: If you tell you realtor you are looking for properties that will get you the most positive cash flow, they may show you “ghetto” properties" that can be more trouble than its worth. Do your own research on what rents are in the area, and how much the mortgage, texes, etc. will cost.
As with all property, LOCATION LOCATION LOCATION. And what “kind of landlord” do you want to be?
SLUMLORD: Some of the most money to be made is in the ghetto, in areas where you can buy houses and apartments for $20k and under and rent them out to people on govt. subsidies for 3-400/month. But the problems associated with that come as well. Most people who are successful doing this own a number of these properties (they make money by volume), and also have a network of people who collect rent, harass and intimidate tenants, etc. And theres that stigma of being a slumlord.
“NON-SLUM” APARTMENTS/DUPLEXES/CONDOS: again, there is a lot of money to be made here, the downside is you will have lots of tenants (and more tenants usually means more headaches), and the people who reside in these places are not as stable
SiNGLE FAMILY HOUSES: I personally prefer to rent single family houses in nice areas. The tenants you will find for these residences are more stable, and nice houses appreciate more than ghetto houses or duplexes…Fewer tenants= fewer potential issues.
AVOIDING problems: I have chosen to have my properties managed by a professional management company. The quality of these firms vary greatly by area, a good idea is to talk to realtors in the area, as many own managed rental property themselves, and may get a “bonus” or discount on their own management for referring new business. They usually handle all dealings with tenants, from finding and screening tenants to collecting rent to maintenance, etc. They typically charge between 6%-10% of the monthly rent. They are especially useful if the rental property is not in your area, as it may be more difficult to manage rentals in other areas.
I also choose to maintain a HOME WARRANTY on the properties. A home warranty covers the electrical, plumbing, and appliances in the home for about $30-40 month. There is usually a service call fee of $35-50. This way, I do not have to worry about there being a $1000 repair any given month, and as soon as a problem develops, they can call a 1-800 # 24 hours a day and someone will be right out to fix it. This eliminates anyone calling me and bothering me.
Of course, since there is not one clear cut “best” way to own rentals, there will be people who will disagree with my strategy, and I encourage anyone else to share their tips and strategies on their investment property!