Tax incentives for real estate investors can often make the difference in your tax rates.
Deductions for rental property can often be used to offset wage income.
Tax breaks can often enable investors to turn a loss into a profit. For which items can investors get tax breaks?
You could claim deductions for actual costs you incur for financing, managing and operating the property.
- mortgage interest payments
- real estate taxes
- property management fees
- utilities (assuming the tenant doesn't pay them)
These expenses can be subtracted for your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive.
In addition to deductions for operation costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, can these "losses" can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense -you are not actually spending any money- the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.
There are two kids of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and save investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. this is more common, but it is generally not as strong or save as a pre-tax positive cash flow. Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow - whether is be pre-tax for after-tax - requires rental income. Be sure to find quality tenants; a thorough credit and employment check is problem a good idea.
One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.
While investing in real estate is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD's, the return on investment for real estate purchases can often be greater. The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it's time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional. Thanks for visiting! Let me know if I can help you!
How To Increase Your Home's Market
Value For $0.00 Out Of Pocket
Unless your home shows at its very best, it can cost you hundreds, perhaps even thousands of dollars during its sale, and you might have to wait a very long time before you even receive an offer.
Fortunately, you don't have to spend a fortune to get your home ready for sell. Some repairs may be necessary, such as fixing faulty plumbing or painting, but there are several things that you can do for nothing out-of-pocket that will make sure your home shines.
· Make rooms appear larger by packing away extra furniture and knickknacks.
· Clean out closets so everything appears orderly. Most people demand neatness in a home they intend to buy even if their residence is a mess.
· Always keep your blinds and draperies open and your windows sparkling clean to let as much natural light into your home as possible.
· Make sure your kitchen is spotless. Rid clutter from countertops and organize your drawers and cabinets. Buyers will look inside.
· Clean the refrigerator. Remove magnets with coupons and your child's artwork.
· Make sure all floors are as clean as possible. Wax wood floors, shampoo carpets, bleach the grout in tile floors, if necessary.
· Dust everything in sight, clean dead insects from light fixtures, and polish mirrors.
· Clean the oven, broiler, and vent hood.
· Make sure bathrooms are spotless. Hang your best towels. Clean all fixtures.
· Prune all plants. Throw out dying plants.
· Take down offensive posters or Artwork from your teen's rooms and put away all toys in younger children's rooms.
· Make sure your utility room is clean. Don't let laundry stack up.
· Clean the garage thoroughly.
· Mow the yard and keep it well watered. Edge sidewalks.
· Weed any flowerbeds and trim trees and shrubs, if needed. Uproot dead flowers, plants and shrubs.
· Sweep all sidewalks, patios and porches.
· Remove any rusted swing sets or patio furniture that is rusted, shabby and beyond repair.
· Put away all toys, bikes, rollerblades, etc.
· Make sure that pets are kept out of the way and pet areas are clean and odor free.
· Repair broken sprinkler heads.
· Water the lawn only very early in the morning or late in the evening.
· Clean the roof and gutters.
· Repair a broken or sagging fence. Make sure that the fence opens and closes without having to use excess force.
· Fix the doorbell if it's broken and make sure that the front door is free of debris and dirt, as well as opens and closes with ease.
· Move firewood off the ground and away from the house. Otherwise, the area may be noted as conducive to termites or fire ants in a termite inspection.
· Park cars down the street during showings.
1. A real estate transaction is complicated. In most cases, buying or selling a home requires disclosure forms, inspection reports, mortgage documents, insurance policies, deeds, and multi-page government-mandated settlement statements. A knowledgeable guide through this complexity can help you avoid delays or costly mistakes.
2. Selling or buying a home is time consuming. Even in a strong market, homes in our area stay on the market for an average of ____ days. And it usually takes another 60 days or so for the transaction to close after an offer is accepted.
3. Real estate has its own language. If you don’t know a CMA from a PUD, you can understand why it’s important to work with someone who speaks that language.
4. REALTORS® have done it before. Most people buy and sell only a few homes in a lifetime, usually with quite a few years in between each purchase. And even if you’ve done it before, laws and regulations change. That’s why having an expert on your side is critical.
5. REALTORS® provide objectivity. Since a home often symbolizes family, rest, and security, not just four walls and roof, home selling or buying is often a very emotional undertaking. And for most people, a home is the biggest purchase they’ll ever make. Having a concerned, but objective, third party helps you keep focused on both the business and emotional issues most important to you.
1. What is the assessed value of the property? Note that assessed value is generally less than market value. Ask to see a recent copy of the seller’s tax bill to help you determine this information.
2. How often are properties reassessed and when was the last reassessment done? Generally taxes jump most significantly when a property is reassessed.
3. Will the sale of the property trigger a tax increase? Often the assessed value of the property may increase based on the amount you pay for the property. And in some areas, such as California, taxes may be frozen until resale.
4. Is the amount of taxes paid comparable to other properties in the area? If not, it might be possible to appeal the tax assessment and lower the rate?
5. Does the current tax bill reflect any special exemptions that you might not qualify for? For example, many tax districts offer reductions to those 65 or over.
1. What are the most popular mortgage loans you make? Why?
2. Which type of mortgage plan do you think would best for us? Why?
3. Are your rates, terms, fees, and closing costs negotiable?
4. Will I have to buy private mortgage insurance? If so how much will it cost and how long will it be required? NOTE: Private mortgage insurance is usually required if you make less than a 20-percent downpayment, but most lenders will let you discontinue the policy when you’ve acquired a certain amount of equity by paying down the loan.
5. Who will service the loan? Your bank or another company?
6. What escrow requirements do you have?
7. How long is your loan lock-in period (the time that the quoted interest rate will be honored)? Will I be able to obtain a lower rate if they drop during this period?
8. How long will the loan approval process take?
9. How long will it take to close the loan?
10. Are there any charges or penalties for prepaying
The lender must disclose a good faith estimate of all settlement costs. A check to cover your closing costs will probably have to be a cashier’s check. The title company or other entity conducting the closing will tell you the required amount for:
- Loan origination fees.
- Points, or loan discount fees you pay to receive a lower interest rate.
- Appraisal fee.
- Credit report.
- Private mortgage insurance premium.
- Insurance escrow for homeowners insurance, if being paid as part of the mortgage.
- Property tax escrow, if being paid as part of the mortgage. Lenders keep funds for taxes and insurance in escrow accounts as they are paid with the mortgage, then pay the insurance or taxes for you.
- Deed recording fees.
- Title insurance policy premiums.
- Inspection fees—building inspection, termites, etc.
- Notary fees.
- Prorations for your share of costs such as utility bills and property taxes.
A Note About Prorations. Because such costs are usually paid on either a monthly or yearly basis, you might have to pay a bill for services used by the sellers before they moved. Proration is a way for the sellers to pay you back or for you to pay them for bills they may have paid in advance. For example, the gas company usually sends a bill each month for the gas used during the previous month. But assume you buy the home on the 6th of the month. You would owe the gas company for only the days from the 6th to the end for the month. The seller would owe for the first 5 days. The bill would be prorated for the number of days in the month, and then each person would be responsible for the days of his or her ownership.
What to Keep From Your Closing
- The Real Estate Settlement Procedures Act (RESPA) statement. This form, sometimes called a HUD 1 statement, itemizes all the costs associated with the closing. You’ll need for income tax purposes and when you sell the home.
- The Truth in Lending Statement summarizes the terms of your mortgage loan.
- The mortgage and the note (two pieces of paper) spell out the legal terms of your mortgage obligation and the agreed-upon repayment terms.
- The deed transfers ownership of the property to you.
- Affidavits swearing to various statements by either party. For example, the sellers will often sign an affidavit stating that they have not incurred any liens on the property.
- Riders are amendments to the sales contract that affect your rights. For example, if you buy a condominium, you may have a rider outline the condo association’s rules and restrictions.
Insurance policies provide a record and proof of your coverage.
Tips for Finding the Perfect Neighborhood
The neighborhood you chose can have a big impact on your lifestyle—safety, available amenities, and convenience all play their part.
Make a list of the activities—movies, health club, church—you engage in regularly and stores you visit frequently. See how far you would have to travel from each neighborhood you’re considering to engage in your most common activities.
Check out the school district. The Department of Education in your town can probably provide information on test scores, class size, percentage of students who attend college, and special enrichment programs. If you have school-age children, also considering paying a visit to schools in the neighborhoods you’re considering. Even if you don’t have children, a house in a good school district will be easier to sell in the future. Another source is SchoolMatch
Find out if the neighborhood is safe. Ask the police department for neighborhood crime statistics. Consider not only the number of crimes but also the type—burglaries, armed robberies—and the trend of increasing or decreasing crime. Also, is crime centered in only one part of the neighborhood, such as near a retail area? Another source is www.homestore.com
Determine if the neighborhood is economically stable. Check with your local city economic development office to see if income and property values in the neighborhood are stable or rising. What is the percentage of homes to apartments? Apartments don’t necessarily diminish value, but do mean a more transient population. Do you see vacant businesses or homes that have been for sale for months?
See if you’ll make money. Ask a local REALTOR® or call the local REALTOR® Association to get information about price appreciation trends in the neighborhood. Although past performance is no guarantee of future results, this information may give you a sense of how good an investment your home will be. A REALTOR® or the government planning agency may also be able to tell you about planned developments or other changes in the neighborhood—like a new school or highway—that might affect value.
See for yourself. Once you’ve narrowed your focus to two or three neighborhoods, go there and walk around. Are homes tidy and well maintained? Are streets quiet? Pick a warm day if you can and chat with people working or playing outside.
Mistake #1 –– Pricing Your Property Too High Every seller obviously wants to get the most money for his or her product. Ironically, the best way to do this is NOT to list your product at an excessively high price! A high listing price will cause some prospective buyers to lose interest before even seeing your property. Also, it may lead other buyers to expect more than what you have to offer. As a result, overpriced properties tend to take an unusually long time to sell, and they end up being sold at a lower price.
Mistake #2 –– Mistaking Re-finance Appraisals for the Market Value Unfortunately, a re-finance appraisal may have been stated at an untruthfully high price. Often, lenders estimate the value of your property to be higher than it actually is in order to encourage re-financing. The market value of your home could actually be lower. Your best bet is to ask your Realtor for the most recent information regarding property sales in your community. This will give you an up-to-date and factually accurate estimate of your property value.
Mistake #3 –– Forgetting to "Showcase Your Home" In spite of how frequently this mistake is addressed and how simple it is to avoid, its prevalence is still widespread. When attempting to sell your home to prospective buyers, do not forget to make your home look as pleasant as possible. Make necessary repairs. Clean. Make sure everything functions and looks presentable. A poorly kept home in need of repairs will surely lower the selling price of your property and will even turn away some buyers.
Mistake #4 –– Trying to "Hard Sell" While Showing Buying a house is always an emotional and difficult decision. As a result, you should try to allow prospective buyers to comfortably examine your property. Don't try haggling or forcefully selling. Instead, be friendly and hospitable. A good idea would be to point out any subtle amenities and be receptive to questions.
Mistake #5 –– Trying to Sell to "Looky-Loos" A prospective buyer who shows interest because of a "for sale" sign he saw may not really be interested in your property. Often buyers who do not come through a Realtor are a good 6-9 months away from buying, and they are more interested in seeing what is out there than in actually making a purchase. They may still have to sell their house, or may not be able to afford a house yet. They may still even be unsure as to whether or not they want to relocate. Your Realtor should be able to distinguish realistic potential buyers from mere lookers. Realtors should usually find out a prospective buyer's savings, credit rating, and purchasing power in general. If your Realtor fails to find out this pertinent information, you should do some investigating and questioning on your own. This will help you avoid wasting valuable time marketing towards the wrong people. If you have to do this work yourself, consider finding a new Realtor.
Mistake #6 –– Not Knowing Your Rights & Responsibilities It is extremely important that you are well-informed of the details in your real estate contract. Real estate contracts are legally binding documents, and they can often be complex and confusing. Not being aware of the terms in your contract could cost you thousands for repairs and inspections. Know what you are responsible for before signing the contract. Can the property be sold "as is"? How will deed restrictions and local zoning laws will affect your transaction? Not knowing the answers to these kind of questions could end up costing you a considerable amount of money.
Mistake #7 –– Limiting the Marketing and Advertising of the Property Your Realtor should employ a wide variety of marketing techniques. Your Realtor should also be committed to selling your property; he or she should be available for every phone call from a prospective buyer. Most calls are received, and open houses are scheduled, during business hours, so make sure that your Realtor is working on selling your home during these hours. Chances are that you have a job, too, so you may not be able to get in touch with many potential buyers. Come back soon!