Buying An Investment Property…
is an excellent way to generate income by building wealth over time. It is important to know what you are getting into before you buy. With that in mind, here are two things you should know about rental income.
- It is not the consistent income stream you may believe it to be.
There are variable costs of owning rental property which cut into the net income. Examples of this are property taxes and insurance costs, which change year to year. Maintenance expenses vary over time, as you may have several trouble-free years, then suddenly need an expensive repair, such as replacing a heating or water system etc.
Consider unexpected breaks in your income stream as well, such as vacancy between tenants for longer than you had anticipated. You may never need to go through the process of evicting a tenant, but this possibility may also be lengthy, time consuming, and costly, especially without experienced help on your side.
The rent you collect can produce varying amounts of net income monthly & yearly. Seriously plan for the unexpected when buying a rental property.
- There is an upside even if you experience a period of losing money.
Depreciation can be your best friend. Tax code eventually allows you to depreciate the value of a home to zero, even though it is likely to have gone up in value.
Rental income is classified as passive income. Depending on how much you earn annually, you may be able to use these paper losses from your investment property to offset income from another income source. Currently if you earn less than $100,000 annually A.G.I. you can use up to $25,000 of losses from this passive investment income to offset another income source. This benefit phases out for higher incomes, but can be an advantage to real estate investing, as these paper losses can help protect more of your return from Uncle Sam.
Cardinal Point Property Management is available to help you in all aspects of Property Management / Leasing, and services all areas within 25 miles of Portsmouth, NH (including ME & MA)
As always, please feel free to contact me regarding any property management questions. Advice is always FREE
Til next time,