Investment in real estate rental

Interestingly, renting a property is an investment. Like Rodney Dangerfield, no respect. While conventional investments such as shares and bonds receive financial mail and the Wall Street Journal, they search for "how to buy real estate" and find out all sorts of money-free schemes that appear to be intended for sale of books and real estate investment strips. On TV there is a Report on Business TV, but for real estate you will see flipping shows or infomercials. It can be purchased without any money, but it involves scheduling a high mortgage, and for renting real estate just do it if you have capital in other properties. In other words, if you have one property for free and clean up relatively easy to arrange the credit line at the premiere. Assets of $ 100,000 cost about $ 400 per month, plus taxes and maintenance of about $ 200. In short, she would wear and give you the revenue to pay the financing costs.

A more general method of buying property income is with a deposit. Usually, you can invest less than 40% of your investment property with your probability.

Reason # 1 for your own real estate income is because tenants buy you for yourself.

There are many reasons for own investment property. Even if other benefits are not realized, this is a justified investment. But the fact is that there are more advantages to buying real estate for rent

Reason # 2 is the lever. The most notable description of the work of a policeman in the book Lionel Needleman, Buy, Rent, Sell by Needleman (Needleman is not a quick speaker, in fact, he is an excellent author and professor with many published books and articles on housing in the UK and Canada. are somewhat simple and need to tune in to your local market, but the book is worth a glimpse

Explains the impact as follows: John and Mary each buy property $ 100,000. After one year, both houses increased their value by 10%. selling property and comparing profits.

John started $ 100,000 and now has $ 110,000 meaning he has earned a 10% return on investment. Mary, on the other hand, put $ 10,000 on her property and the mortgage amounted to 90,000 When it comes to selling, the mortgage is cleared and everything is over. It also earned $ 10,000, but since it invested only $ 10,000 in income, it did a 100-percent return on its advance. As you might suspect, the real kicker is that, as John put into a house, kept him for a year and then sold him with a $ 10,000 profit, Mary bought 10 houses, kept them for one year and then sold them for profit of $ 100,000. They both started with $ 100,000, but after a year John got $ 110,000, while Mary $ 90,000 more. The numbers are simplified in this example, but they clearly show the spell of leverage. [Reason##3suporeziUvećiniporeznihzonatroškovinastalinainvesticijskimnekretninamaodbijajuseodprihodaIopćenitoopterećenjeamortizacijemožebitinastrukturikojajezapravogubitakpapirakojismanjujeporeznoopterećenjeAmortizacijaradiovako:znamodasevrijednosttrajnestavkekaostrukturasmanjujesgodinamaČakiakosenekretninaodržavasavršenostarakućanevrijedijednakukoličinunovcakaoinovakućaOvajgubitakjeamortizacijaatugubitakamortizacijemožeteiskoristitizasmanjenjeukupnogporeza

Of course, when we invest in property, we expect to increase in price, while the long term often. What happens with the depreciation in this case? The taxpayer said the property had fallen into the price through amortization but at the end of the process we sold to profit. The taxpayer usually says that you "re-captured" amortization and taxed tax.

Recording is not fun. It's like finding out that you've already spent the money you intended to spend in the future.

There is a great solution. When you buy an investment, you have reduced the original investment between building value and asset value. Without cheating, set the value of land as low as possible, and structure as high as reasonably reasonable (do math and you will see that you are paid to be reasonable by your allocations). When assets increase in price and liquidate, you tell the taxpayer that you have not used any depreciation because the structure depreciated while the country increased its value. This profit is capital gain and capital income is usually taxed at lower rates of income such as … rent. You charge the money you earn when you earn it as a rent and pay taxes when it comes to capital gains.

Possessing an income-generating property also allows you to write off the cost of things you could ever buy, from office supplies to property ownership.

Reason # 4 is a capital gain. Capital gains do not always happen, but it often does. As we have seen from the leverage, capital gains can be utilized. Even better, capital gain may sometimes be higher than what some people earn during the work year. Reason # 5 puts everything together by combining cash flow, impact, and tax planning. Real estate for rent creates a cash flow. Initially the cash flow can be neutral or even negative, but after a while it will often become positive. When do you need to pay income tax from the surplus of rent. The solution to this is re-mortgage and to bear additional interest expense, reducing its taxes. Take advantage of the initial property again. The next step is to take this money and buy another property with income. You do not pay income tax, but rather amortization and still earn a capital gain. Better yet, with two properties spread the risk, and when the time comes for sale, you can extend the timeline and sell properties at different years to reduce your tax.

You can not repeat enough that you have to buy it wisely. You need to know where the potential tenant is. Properties that are desirable and located in the preferred area remain leased. "Preferably" does not have to be "fairy", but warm, clean, dry and good price is critical. Whether you buy a 1 bedroom or a three bedroom bedroom with an apartment is not important.

Metric are key. The first is the price and rental ratio. What does this mean to take the price, say $ 100,000, and split the rent, say $ 1000 / month, to that. In this case, the result would be 100. The numbers between 75 and 175 are great, but never forget that projected capital gains and interest rates affect that number with which you go. Low interest rates allow a larger number, and projections of solid capital gains require a larger number. Over 200 is not good at almost any location unless you need reliable revenue, are not concerned about capital gain, or you never plan to sell. Another excellent metric is the lump sum. This is the percentage of cost the need for a down payment to allow real rent to carry the property. The lease must be a) rent on the market, not "hoping" for rent, and b) net rent, not gross rent. If the investment will carry on less than 45% worth a look down. Clearly, if interest rates are weak, the net rent will carry more, which means that the lump sum may be high. Keep in mind that low rates do not last forever, so if you can not lock it long, you must assume that the break is equal to and low in low interest rates and may be higher in higher interest rates.

If you find a piece of property that has a desirable price / rent ratio and a preferable flat rate (and is in good standing and not a bad idea), it is worth throwing the numbers on the spreadsheet and determining the internal rate of return (investment metrics in real estate that combines different income streams) and projected cash for sale. There are spreadsheets and programs that can calculate this, but the key is "GIGO" – garbage in the garbage. Use correct taxes, correct interest rates, your profit tax projections, and realistic capital gains and maintenance estimates. Properties in busy urban areas are mostly increasing in value more than real estate in rural or depressed areas. Often they also have what it does with inferior scales – a city center in the city center could have a much worse rental price and break even one point of a small home in town. However, the appreciation of capital in the rural area is likely to be much risky. Measuring mortgage payments and tax relief on a detailed budget table let you evaluate exactly how you compete for competitive investments.

It would be stupid to ignore the issue of bubble property or decline. Buying metrics helps and disables. It helps because if you are having difficulty with lump sums and rental multipliers, you would not buy overpriced investment property (real estate with a low income does not actually appear in the bladder and does not fall into the value). This prevents you because you can not buy it on the bubble data, no matter how much you want, because there are no metric features.

The other side is that when the market falls, there are a lot of metrics but often little mortgage financing and a lot of overcrowded customers and acclaimed sellers.

All in all, a balanced market is optimal for buyers, though customers who get measurements and come to market close to the top often feel like they. I hit a jackpot.