Rental real estate investing is a hot market because it gives you continuous cash flow every month. However there are a lot of responsibilities in the rental ownership world and a lot of competition out there, the Government Accountability Office or GAO found that 8.7 million individual tax returns reported rental real estate activity for 2001, and the number grew to 9.1 million (5%) by 2005. The GAO said individuals owned about 83% of the 15.7 million rental housing properties with fewer than 50 units, and about two-thirds were managed by their owners. Here are 5 top tips to keep the cash flow coming on your rental investments.
- Don’t misreport your income and expenses on your tax returns. The most common type of error was misreporting related expenses, which GAO estimated 43% of taxpayers with rental real estate income. About a quarter of the tax returns with rental real estate activities were considered to have misreported expenses because owners couldn’t substantiate their expenditures. That amounts to 3.9 million taxpayers misreporting expenses and 2.1 million considered to have misreported simply because they didn’t keep proper documentation.
- Properly report property improvements. This one can get tricky. The costs of property improvements that add to the value of a property or extend its useful life, such as a bathroom addition or new built-in appliances, must be depreciated rather than deducted when paid. In other words, taxpayers must deduct these costs on their tax returns over multiple years. Property owners also must depreciate the cost of acquiring a rental property, except for the cost of the land.
- How to find prime rental properties in your area. You can find foreclosures to buy, flip and rent for free by looking up the addresses of houses that look abandoned at your local county courthouse – or use a service like www.bustedhouses.com which compiles the hidden listings for you and emails it out. You just have to sign-up.
- Secure financing before making an offer. Cash in hand is always the strongest position to have when making an offer but if you know you’ll need financing to close the deal, secure the proper financing before going in to make an offer. Great rental investment properties are hard to find so the competition can be steep. Walk-in ready to roll.
- Know your loan options, do your research. As a novice investor you might not appreciate the variety of investment property options out there or that there are unique loan programs to go with various types of purchases so it’s important to talk to an expert. If you’re interested in restoring a run-down 4-unit multi-family building and renting to college students vs. renting out a family home to a steadily employed couple or family there are different ways to approach financing and get creative to get the best deal to start your real estate rental investment portfolio.
Now, as the market is still rebounding, it’s prime-time for real estate rental investing because there are many renters out there looking for clean properties in nice areas. Low home prices, combined with low interest rates and thousands of people looking to rent instead of own, make this a real estate.