Imagine a continuous cash flow every month. This is why rental real estate investing is so popular. Despite the allure of the industry, it’s a competitive market that requires attention, responsibility, and research.
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 three essential tips to keep the cash flowing on your rental investments.
- Research your loan options. It’s important to speak with an expert, because as a novice investor you may become overwhelmed with the diversity of investment property options available. There are a plethora of unique loan programs and you will have to do some research to see what works best for you financially and for your potential property. If you’re interested in restoring a run-down multi-family unit and renting to vacationers or students, there are different ways to approach financing this type of property than renting out to a steadily employed family. You’ll learn to get creative in order to acquire the best deal.
- Report everything accurately. While the costs of property improvements and additions add value to your property, they must be depreciated when paid instead of deducted. Owners are also required to depreciate the cost of obtaining a rental, excluding the cost of land. Taxpayers deduct these costs on tax returns over a 27.5 year period. Additionally, report your income and expenses appropriately on your tax returns. About 25% of the tax returns with rental real estate were considered to have misreported their expenses because owners couldn’t determine the proper depreciation. This adds up to 3.9 million taxpayers misreporting expenses and another 2.1 million misreporting simply because they didn’t keep proper documentation.
- Be ready to make an offer. Be ready to walk-in, cash in hand. Secure the proper financing before you make a serious offer. Because great rental investment properties are difficult to secure, the competition is often fierce.