Easy Investing Strategies » Investment Property

Investment Property Tax Deductions

admin — Mon, 23 Nov 2009 00:14:21 +0000

IRS Tax Attorneys or CPA’s can help explain all the great tax advantages there are for property investors and landlords. Owning rental property provides some of the greatest tax advantages out there. Did you know that when you own investment property, all the interest expenses, management fees and maintenance costs as well as appreciation of the home as an asset are tax deductible? This is one of the reasons very wealthy people tend to invest large sums of money in real estate, as it provides decent returns, exceptional tax benefits, and an added potential for residual cash flow.

Let’s look at some of the tax benefits landlords can take advantage of when owning investment properties.

If a mortgage or other type of loan is used to purchase an investment property, the mortgage interest paid on the loan is tax deducible. Points paid on a mortgage loan are also deductible, but generally spread out over the life of the loan instead of deducted in the first year like on primary residence mortgage loans.
Insurance premiums paid on the home are tax deductible for the year they are paid.
The purchase price of the home is tax deductible and spread over 27.5 years. For example, if you paid $150,000 for a home, and $50,000 of the purchase price is the land value, you deduct $100,000 over 27.5 years, or $3,636 a year.
Maintenance repairs made to keep the home in an acceptable condition for rental purposes is also considered a tax deduction.
Management company fees are also considered a tax deduction if fees are paid to manage, maintain or assist with the landlord responsibilities of the rental home.
Mileage driven to the home for maintenance, showings, collecting rent, or conducting repairs can be deducted using the per mile calculation each year designated by the IRS.
Legal and tax preparation fees associated with the investment property can be a tax deduction as well.

After reviewing the list of tax benefits available to real estate investors above, it becomes apparent why so many investors look for real estate opportunities. The list above is not conclusive, and the tax laws regarding investment properties changes yearly. Consult with your IRS Tax Attorney or CPA to find out all the advantages that individual property investors can take advantage of.

HUD Foreclosure Homes

admin — Tue, 10 Nov 2009 03:35:46 +0000

HUD stands for the department of Housing and Urban Development. When a home is referred to as a HUD home, it means that the home currently has a FHA loan, and is currently in foreclosure. What does this mean for investors? It means there are exceptional real estate opportunities out there at below Fair Market Value prices for property investors that have time and resources to search for them.

Many web sites claim to be the key source to foreclosures, but when looking for foreclosures close to your home, simply search on google for “HUD Homes ”. For example, to find HUD homes in Texas, simply search google for “HUD Homes Texas”. The first few listing will direct you to local agents or real estate companies offering HUD homes.

Purchasing a HUD home occurs through a sealed bid auction. The auction is online, and initially only open to owner occupied bidders. This means you can only bid if you plan to live in the home as your primary residence. If no bids are received after a few days, bidding opens to investors. An agent experienced in selling and purchasing HUD homes is required to place the bid, and most sites allow you to search for these types of real estate agents by location.

Keep in mind HUD homes are sold AS-IS, meaning HUD will not repair any damages. Many HUD homes require major work. Be sure to review the home inspection report, and to hire your home inspector to thoroughly check out the home.

Purchasing HUD homes for investment property is a great way to expand any property portfolio, and there are exceptional deals to be had resulting in great cash flow and appreciation opportunities.

Cash Flow vs Capital Appreciation from Investment Property

admin — Mon, 09 Nov 2009 03:05:59 +0000

Working capital cash flow verses capital appreciation is an age old question all property investors face. Should one purchase a property focused only on cash flow, only on appreciate, or a mix of both. Let’s first look at a few examples of what cash flow and appreciation are to further understand the benefits of each.

Cash Flow in its simplest form is the gross amount received minus any expenses to maintain the asset. For example, if you lease a property for $1000 per month, and your mortgage, taxes, repairs and management fees to maintain the property are $700, then your cash flow would be $300 per month, or $3600 a year. In this situation, you would be cash flow positive or positively geared. If your expenses were $1100 to maintain this property, then you would be loosing $100 per month, and would be in a negative cash flow situation, otherwise known as negatively geared.

Appreciation is the increase in value of the investment property over time. For example, if you purchased the investment property for $150,000, and ten years later the property value of the home was $245,000, your asset appreciated $95,000, or an annual appreciation rate of 5%.

Now let’s dissect the cash flow verse appreciation situation above. Let’s assume we held the property for the full ten years and then sold off the property for the appraised amount of $245,000. A $3600 cash flow over ten years would of gained you $36,000. The $96,000 appreciation gain however is almost three times the amount gained from cash flow alone. In this example, appreciation should clearly be the focus, with trying to maintain positive cash flow if possible.

If the area you are purchasing investment properties in does not appreciate between 5% – 8% a year, then cash flow is most likely the better answer. Just remember that there is really only one way to increase cash flow, and that is to raise rent. It is very difficult to cut net operating costs on investment properties in order to increase cash flow. This is important to keep in mind when searching for an purchasing investment properties.

Investment Property Loans – Getting the best rates

admin — Thu, 05 Nov 2009 04:14:48 +0000

Have you ever wondering why investment property loans have higher rates compared to primary residence loans? The simple answer is that banks and lending companies consider the property a higher risk since the owner does not plan to live in it. Since the owner is not occupying the property, the consensus amount lenders is that the property will not be taken care of as well, resulting in a greater risk for the lender. Investment property lenders generally have a 1% – 1.25% adder to the current mortgage rate trends. So if the current 30 year fixed rate is at 5.5%, lenders will offer investors a mortgage of 6.5% – 6.75%. It is very wise for a property investor to get rate quotes from several lenders, and start negotiating between the lenders. The reason is that some lenders consider investment property to be minimal risk, especially if you have an excellent credit score. Rates vary drastically between lenders, and with some simple steps you can acquire an investment property loan with a rate close to or within 0.25% of the what primary mortgage rates are offering.

So how can lenders offer such low rates for investment properties? Lenders can wrap up the 1.25% into closing costs, and some even reduce their fees by this amount to win over borrowers so they do not go with other lenders. So it is very wise for those seeking investment property loans to shop around, as there are very competitive rates out there.

Learn how to compare investment properties through Cap Rate or Capitalization Rate analysis.