Income Property as a Real Estate Investment Strategy
Rental Property Management
Income-producing real estate, whether residential or commercial, is a great long-term investment… as long as you are not looking for an immediate reward or return. There are three main reasons to invest in income property and all of them are “slow” pay-offs: cash flow, appreciation, and tax benefits.
Cash Flow is the positive income stream generated from buying rental property that is paid by the tenants, less any operating expenses incurred in the operation and ownership of the property, including debt service. A mistake many novices make is not accounting for ALL expenses. In addition to the monthly mortgage payment, remember to also include taxes, insurance, maintenance, repairs, utility bills (water, sewer, garbage, gas, etc), advertising costs, property management, landscaping, and anything else that you must pay for as the owner of the property. Also, don’t assume too much income, which means to allow for vacancies. It takes at least a month to clean and re-rent an income property, so during that time, you as the owner will need to continue paying everything that you normally pay for, PLUS everything the tenant used to cover, without rent coming in to help offset those expenses. It all adds up.
Appreciation is the increase in value of the income property during the period of ownership. At the same time, the debt owed on the property will decrease, thus the investor's equity in the property, as well as their net worth, increases. Appreciation can be fast or slow, generally the latter. We all know a property’s value these days can seemingly change in the blink of an eye, so what used to be guaranteed appreciation may no longer hold true or take longer to realize. Carefully study the comps and trends in the neighborhood where your rental property investment is located.
Tax Benefits generally include a mortgage interest deduction and property depreciation, but always consult a qualified tax professional to have this confirmed. The IRS provides for several different means of determining the amount of depreciation an investor can take on any given income property. Many investors don’t “count” tax benefits when making a purchase decision and instead think of them as a “bonus.” If the property cash flows and is located in an appreciating area, then the tax benefits are just icing on the cake— on top of the rental property income.
Cash Flow is the positive income stream generated from buying rental property that is paid by the tenants, less any operating expenses incurred in the operation and ownership of the property, including debt service. A mistake many novices make is not accounting for ALL expenses. In addition to the monthly mortgage payment, remember to also include taxes, insurance, maintenance, repairs, utility bills (water, sewer, garbage, gas, etc), advertising costs, property management, landscaping, and anything else that you must pay for as the owner of the property. Also, don’t assume too much income, which means to allow for vacancies. It takes at least a month to clean and re-rent an income property, so during that time, you as the owner will need to continue paying everything that you normally pay for, PLUS everything the tenant used to cover, without rent coming in to help offset those expenses. It all adds up.
Appreciation is the increase in value of the income property during the period of ownership. At the same time, the debt owed on the property will decrease, thus the investor's equity in the property, as well as their net worth, increases. Appreciation can be fast or slow, generally the latter. We all know a property’s value these days can seemingly change in the blink of an eye, so what used to be guaranteed appreciation may no longer hold true or take longer to realize. Carefully study the comps and trends in the neighborhood where your rental property investment is located.
Tax Benefits generally include a mortgage interest deduction and property depreciation, but always consult a qualified tax professional to have this confirmed. The IRS provides for several different means of determining the amount of depreciation an investor can take on any given income property. Many investors don’t “count” tax benefits when making a purchase decision and instead think of them as a “bonus.” If the property cash flows and is located in an appreciating area, then the tax benefits are just icing on the cake— on top of the rental property income.
Rental Valuator Software
Analyze Before You Buy!
FOR A LIMITED TIME, DOWNLOAD THIS CALCULATOR TO ANALYZE YOUR REAL ESTATE DEALS! In just seconds, you can evaluate a rental property investment, from a single family residence to a large apartment building, and create detailed reports and marketing materials! Great for Investors buying rental property, Agents and Wholesalers! Any Skill Level!
Use this free tool to save valuable time!
Perform needed analysis faster, make smarter investing decisions and do better and more profitable deals with our FREE software!
http://tinyurl.com/d83hyy
Use this free tool to save valuable time!
Perform needed analysis faster, make smarter investing decisions and do better and more profitable deals with our FREE software!
http://tinyurl.com/d83hyy
29 Little-Known Legal Loopholes That Will Reduce Your Taxes
By Thousands!
The internet's leading tax reduction expert reveals just how easy (and legal) it is to reduce your taxes by thousands of dollars— GUARANTEED! Wayne M. Davies, author of The Tax Reduction Toolkit, has been helping small business owners, those buying renatl property, and self-employed people pay less tax for the past 15 years. His Toolkit discusses the benefits of incorporating your business to avoid over-paying taxes, how to self-audit, includes a year's subscription to Wayne's newsletter, a phone consultation, and much more. Learn more about the The Tax Reduction Toolkit here...
Reducing Vacancies at Your Income Property
Income Property
Nothing kills a carefully planned income property budget like a lack of renters. It's like throwing a birthday party and having the guest of honor fail to show. Many owners throw money at the problem, buying up advertising or working with head-hunting realty companies. You may be surprised to learn that a low-cost, more thoughtful approach can produce better results, especially in a rural community.
Listing your open unit or units with a realty company does work sometimes, but it can cost you an entire month's rent. Taking out advertisements in the newspaper is another costly, hit or miss method. What you need to do is employ some good old-fashioned flyering and networking methods that will drive renters to your door to keep generating rental property income.
Money does talk, but when you go through a newspaper, you're not getting a good volume for your dollar. Likewise, a renting company. The fact is, most people in your community would be very happy to make just $50 for referring that golden renter to you. The challenge is to get enough people keeping their ears open for your benefit.
Consider printing up a set of flyers and/or business cards that prominently offer $50 to the person who refers a lease-signing renter to you. Put the flyers up in a dozen local businesses, and hand the cards out to your circle of acquaintances while explaining the concept to them. Realistically, your acquaintances would be happy to make the referral to you anyway, but you want to really get them thinking about it. By making a commitment, even one as small as $50, you are communicating how important the rental property income is to you.
Once your units fill up, make sure to keep recording the names, numbers, and email addresses of potential renters. Two months before your next unit becomes available, send out an email reminding prospective renters that you're alive. And if they refer themselves, you'll knock fifty dollars off their rent.
Listing your open unit or units with a realty company does work sometimes, but it can cost you an entire month's rent. Taking out advertisements in the newspaper is another costly, hit or miss method. What you need to do is employ some good old-fashioned flyering and networking methods that will drive renters to your door to keep generating rental property income.
Money does talk, but when you go through a newspaper, you're not getting a good volume for your dollar. Likewise, a renting company. The fact is, most people in your community would be very happy to make just $50 for referring that golden renter to you. The challenge is to get enough people keeping their ears open for your benefit.
Consider printing up a set of flyers and/or business cards that prominently offer $50 to the person who refers a lease-signing renter to you. Put the flyers up in a dozen local businesses, and hand the cards out to your circle of acquaintances while explaining the concept to them. Realistically, your acquaintances would be happy to make the referral to you anyway, but you want to really get them thinking about it. By making a commitment, even one as small as $50, you are communicating how important the rental property income is to you.
Once your units fill up, make sure to keep recording the names, numbers, and email addresses of potential renters. Two months before your next unit becomes available, send out an email reminding prospective renters that you're alive. And if they refer themselves, you'll knock fifty dollars off their rent.
Advantages of a Multi-Family Rental Property Investment
Buying Rental Property
Most investors concentrate on some aspect of single-family houses, but multi-family units (duplexes, triplexes, quads) can provide rental property income advantages that no other type of investment offers:
Cash flow. Cash flow on a multi-family is greater than that of a single family because you have more rents coming in. The more units you have under one roof, the less risk you have. If you lost your tenant in a single-family home, you've lost 100% of your rental property income. And if the house stays vacant for a couple of months, that loss could equal your profit for the entire year. If you had a triplex and lost one tenant, you still have two rents coming in to pay the expenses, or at least most of them.
Economy of Scale. If you have four single-family houses opposed to one quad, you have four roofs to be replaced or repaired, four furnaces that could break, and four tenants spread throughout your city or even the country. If you're considering buying more than one rental property, maybe re-think multi-family buildings.
Less Competition. There doesn’t seem to be many real estate gurus out there pushing the benefits of multi-family properties, so most investors are pursuing single-family homes, yet a multi-family building is a great rental property investment. Remember that you can also wholesale, retail, rehab, lease option, and buy foreclosed and “subject to” apartments as well.
Affordability of Property Management. Because of the bigger cash flows, you can probably afford to hire management companies to manage your tenants, freeing up your time to do what you do best—find and finance the next deal.
If you are interested in creating more wealth at a faster rate, consider adding multi-units to your rental property investment portfolio. If you’ve got conventional financing, closing on a duplex, triplex, or quad (any income property with 4 units or less) is typically no different than buying a single-family home. Five units and above, though, are generally financed under commercial terms.
Cash flow. Cash flow on a multi-family is greater than that of a single family because you have more rents coming in. The more units you have under one roof, the less risk you have. If you lost your tenant in a single-family home, you've lost 100% of your rental property income. And if the house stays vacant for a couple of months, that loss could equal your profit for the entire year. If you had a triplex and lost one tenant, you still have two rents coming in to pay the expenses, or at least most of them.
Economy of Scale. If you have four single-family houses opposed to one quad, you have four roofs to be replaced or repaired, four furnaces that could break, and four tenants spread throughout your city or even the country. If you're considering buying more than one rental property, maybe re-think multi-family buildings.
Less Competition. There doesn’t seem to be many real estate gurus out there pushing the benefits of multi-family properties, so most investors are pursuing single-family homes, yet a multi-family building is a great rental property investment. Remember that you can also wholesale, retail, rehab, lease option, and buy foreclosed and “subject to” apartments as well.
Affordability of Property Management. Because of the bigger cash flows, you can probably afford to hire management companies to manage your tenants, freeing up your time to do what you do best—find and finance the next deal.
If you are interested in creating more wealth at a faster rate, consider adding multi-units to your rental property investment portfolio. If you’ve got conventional financing, closing on a duplex, triplex, or quad (any income property with 4 units or less) is typically no different than buying a single-family home. Five units and above, though, are generally financed under commercial terms.
Improve Your Rental Property Income
by Improving Your Property Rating
Could your condominium or townhome use a facelift? Have you contemplated a remodeled kitchen, new carpet, or updated furniture, but not sure which area to focus on to improve your individual unit rating? From simply re-painting to complete renovations, condo owners are finding ways to increase their rental property income.
Considering the economy, some of you may have noticed a decline in your rental revenue this past year or two, especially if your unit has a low rating. Most properties rate units individually. So even if you own a unit at a high end property, but have a low individual rating, your unit may not be getting rented at all unless the property has full occupancy. Lower ratings mean lower occupancy rates which mean less rental property income generated by your unit. The more you can improve your individual unit rating, the more likely you are to increase your rent revenue.
One of the most important aspects of refurbishing your property is to realize where you can get the most bang for your buck. Find an interior designer or someone to help guide you in the right direction so you're upgrades are in your best economic interest. You'll want to refurbish in the proper areas to improve your rental property investment.
Below are a few suggestions for your income propety (and keep in mind there are many sustainable, earth friendly and "green" options for all of these choices):
1. New carpet
2. Paint the unit, possibly adding accent walls, bringing in warmth
3. Update artwork and accessories
4. Make sure mattresses & bedding are comfortable & not worn
5. Upgrade any outdated furniture
6. Replace lighting with new, efficient lighting
7. Remodel the kitchen with new cabinets, countertops, & appliances
8. Remodel the bath with new cabinets, countertops, and tile
Making improvements to your income property can also improve guests' experience as well as increase the marketability of the building.
Considering the economy, some of you may have noticed a decline in your rental revenue this past year or two, especially if your unit has a low rating. Most properties rate units individually. So even if you own a unit at a high end property, but have a low individual rating, your unit may not be getting rented at all unless the property has full occupancy. Lower ratings mean lower occupancy rates which mean less rental property income generated by your unit. The more you can improve your individual unit rating, the more likely you are to increase your rent revenue.
One of the most important aspects of refurbishing your property is to realize where you can get the most bang for your buck. Find an interior designer or someone to help guide you in the right direction so you're upgrades are in your best economic interest. You'll want to refurbish in the proper areas to improve your rental property investment.
Below are a few suggestions for your income propety (and keep in mind there are many sustainable, earth friendly and "green" options for all of these choices):
1. New carpet
2. Paint the unit, possibly adding accent walls, bringing in warmth
3. Update artwork and accessories
4. Make sure mattresses & bedding are comfortable & not worn
5. Upgrade any outdated furniture
6. Replace lighting with new, efficient lighting
7. Remodel the kitchen with new cabinets, countertops, & appliances
8. Remodel the bath with new cabinets, countertops, and tile
Making improvements to your income property can also improve guests' experience as well as increase the marketability of the building.