"Things to consider before buying an Investment Property!"
The combination of low housing prices, rising rents, low interest rates, plus the growth in construction for multi-family housing rentals suggest that it maybe a good time to focus your time and money in rental housing. However, like any investment today, there are always risks associated. Here are a few questions and considerations you should think about before buying any investment property.
Financing? How much down payment will the Lender require? Can you qualify for a mortgage for an investment property? What type of information will I have to provide? Because of the unpredictability of the stock market, many investors are considering Mutli Family buildings as a great alternative to traditional investments. One way creative investors are coming up with the downpayment is by using their self directed IRA. Check out this link to learn more: http://www.penscotrust.com
Tenants? A Landlord is a business owner, and the Tenant is the customer. Certainly there are always risks that you might wind up with bad tenants. However, tenants need to be appreciated, and the emphasis needs to be in finding good "customers". It's the tenants that are paying the morgage, taxes and expenses on your property. They should be treated like customers and like any good business owner you need to take care of the customer! You should be prepared to screen tenants, run credit checks, manage complaints, and have a sizable reserve fund set aside to pay for property-owner expenses. Owning and managing any property is a big commitment. Outsourcing the responsibilities to a property manager is a viable option, however, you can expect to deduct anywhere from 4 to 10 percent off your annual profits. (local property managers include Fusion Property Management and Coburn & Feeley)
Tax Implications? A good investment property should provide a positive monthly cash flow, appreciation and don't forget about tax advantages. With taxes due in a couple of days- its a good idea to consider ways to reduce your tax liability in 2013. While rental income is taxed at ordinary income rates, you can often post a tax loss while still generating a profit. Thats because you can deduct the depreciation of the rental building to offset income on not just the rental property, but also on your ordinary income. Also you can put off paying capital gains when you are ready to sell, provided you purchase another investment property. This is called a 1031 exchange and might make sense as your return on equity starts to diminish. With a 1031 you can leverage your initial investment by trading up to a more desirable investment property. As always before making a big financial decision check with your tax professional- just wait till after April 15th!
Feel free to contact us for any questions you might have or click here to see our listings of investment portperties in the Burlington area.