Profit From Your Rental Property
The idea of creating a second income through rental property has gained in popularity with the ups and downs of the stock market. The uncertainty of companies leave many wondering how they are going to supplement their current income.
Not everyone is landlord material but those who are, want to find investment property at a good price. Finding good rental property takes time, connections and lots of research.
You should decide on how long you want to own rental property. The longer you plan on owning the rental property, the more you should plan on investing in maintenance and repairs. If you only plan on owning it for 5-7 years, you will want to refrain from investing too much money into repairs and improvements.
However if you plan on owning it for 20 years, a new roof, possible siding, appliances and possibly even a heating and cooling system may be required within that time.
For some, a longer term of ownership makes more sense. They can invest money into the property and regain it through the proceeds of the rent. Many people find they enjoy the landlord role and buy numerous properties. This allows them to quit their day job and work solely on their rental properties.
Overpaying for a property in the beginning can cost you in the long run. The reason for this is, if you overpay for the rental property in the beginning, you may never recoup the costs of the overpayment and repairs to bring it up to your city’s codes. Many states and cities have their own housing codes. These must be met before even considering renting your investment property.
You should consider out of pocket costs when buying rental property. Will you be able to recoup those costs reasonably fast? If you’re out of pocket expenses are more than you feel you can recoup in the first few years of renting, you may want to consider a different property to invest in. There is no set formula to follow due to the real estate market being different in each state, county and city. What works for one may not work for you.
Sometimes recouping you’re out of pocket expenses is as simple as tax deductions. Yes there are tax breaks for landlords. However you should know that replacing a roof or pipes in a rental unit is considered an improvement and not a repair.
Therefore there is no tax break for the improvement, only the repair to keep the home in living condition. If you have to wait 20 years to recoup on the improvement, you want to consider another property with less up front work required to make it tenant ready.
Expect your rental property to have a 5% vacancy rate. If you have only 1 unit, multiply that by 12, then multiply it by .05 to determine the amount of time in months your unit is expected to be vacant each year. This would be a little over 2 weeks per year or .60 months. This may not seem like much but when you are talking hundreds of dollars per month, that .60 month means hundreds of dollars.
Finally, make sure you have money left over after your property purchase in order to make repairs, pay insurances, taxes and maintenance. If you are broke after the purchase, it may be a while before you have the money to do repairs, slowing down the amount of time before you can get a tenant into your property. In that case, you would lose money before you ever start earning it.
Not everyone is landlord material but those who are, want to find investment property at a good price. Finding good rental property takes time, connections and lots of research.
You should decide on how long you want to own rental property. The longer you plan on owning the rental property, the more you should plan on investing in maintenance and repairs. If you only plan on owning it for 5-7 years, you will want to refrain from investing too much money into repairs and improvements.
However if you plan on owning it for 20 years, a new roof, possible siding, appliances and possibly even a heating and cooling system may be required within that time.
For some, a longer term of ownership makes more sense. They can invest money into the property and regain it through the proceeds of the rent. Many people find they enjoy the landlord role and buy numerous properties. This allows them to quit their day job and work solely on their rental properties.
Overpaying for a property in the beginning can cost you in the long run. The reason for this is, if you overpay for the rental property in the beginning, you may never recoup the costs of the overpayment and repairs to bring it up to your city’s codes. Many states and cities have their own housing codes. These must be met before even considering renting your investment property.
You should consider out of pocket costs when buying rental property. Will you be able to recoup those costs reasonably fast? If you’re out of pocket expenses are more than you feel you can recoup in the first few years of renting, you may want to consider a different property to invest in. There is no set formula to follow due to the real estate market being different in each state, county and city. What works for one may not work for you.
Sometimes recouping you’re out of pocket expenses is as simple as tax deductions. Yes there are tax breaks for landlords. However you should know that replacing a roof or pipes in a rental unit is considered an improvement and not a repair.
Therefore there is no tax break for the improvement, only the repair to keep the home in living condition. If you have to wait 20 years to recoup on the improvement, you want to consider another property with less up front work required to make it tenant ready.
Expect your rental property to have a 5% vacancy rate. If you have only 1 unit, multiply that by 12, then multiply it by .05 to determine the amount of time in months your unit is expected to be vacant each year. This would be a little over 2 weeks per year or .60 months. This may not seem like much but when you are talking hundreds of dollars per month, that .60 month means hundreds of dollars.
Finally, make sure you have money left over after your property purchase in order to make repairs, pay insurances, taxes and maintenance. If you are broke after the purchase, it may be a while before you have the money to do repairs, slowing down the amount of time before you can get a tenant into your property. In that case, you would lose money before you ever start earning it.