Investment Property

This can help pay for unexpected repairs and vacancies. CPA Paul Berning suggests having a line of credit, secured either by the property or your own home, to cover larger costs.
While rental income can supplement your retirement kitty, most people shouldn’t count on it to replace other investments or allow themselves to be entirely exposed to the whims of the local real estate market.
Avoid overpaying

Investment Property

As one experienced landlord put it: “You make your profit when you buy a property, not when you sell it.”
The rental real estate market is generally tougher on investors who overpay than on homeowners who do the same thing, several landlords said. If you pay too much for a rental, you can’t count on a “greater fool” coming along later to bail you out.
Apartments in New York, for example, currently sell at a 60% premium over their “inherent” value. Others try to estimate what the property could be worth after needed repairs and upgrades are made, and they don’t pay more than 70% of that price, less the cost of those repairs, CPA Berning said.
What’s key is to make sure your rental income will cover your out-of-pocket costs, Berning said. That includes the mortgage payment on the property, as well as taxes, insurance, maintenance, repairs and a vacancy rate of around 5%. Here’s the math: 5 units times 12 months equals 60; 60 times .05 is 3.)

Investment Property

If you can at least break even, you’ll be able to profit from any price appreciation as well as from tax breaks available to rental property. Cain’s Web site sells software to help you make these calculations.
When crunching the numbers, you should know that there’s a big difference in how repairs and improvements are treated for tax purposes. The higher the basis, the lower your taxable profit.
To better estimate your costs, get a thorough inspection before you buy a property. Some landlords have favorite electricians, plumbers and contractors that they send to any prospective property, promising them that they can do any repair work they find.
Longtime landlords say all this work pays off in profitable properties that build their net worth while providing a steady income stream. “It doesn’t matter if you’re a professional or a laborer,” Callahan said.

Experienced landlords find their properties in a variety of ways. Some hunt for foreclosures, making friends with city hall clerks or bank employees who know which properties are about to be sold. Some run ads in local newspapers. Others work with real estate agents who keep their eyes peeled for possible buys.
Several landlords recommended joining a local landlord or property owner’s association to make contacts. Callahan’s Web site offers links to local groups, as does the National Real Estate Investors Association.
“When you begin to own rentals, all the other investors start coming out of the woodwork,” said Sean Hoppe, a landlord in Pottsville, Pa., who owns 11 properties. “Through investor meetings, networking, etc., I can find out what is for sale.”
You also can try approaching landlords directly to see if they’re willing to sell, by calling the numbers listed on rental ads in the classifieds, by cruising neighborhoods looking for “for rent” signs or by talking to any landlords you know personally.
That’s how Bob, who asked that his last name not be used, bought his rental property near Albany, N.Y. The landlord of the three-unit building where Bob had rented for 15 years was tired of the hassles and ready to sell.
“We love (the area) and jumped at the chance to buy it,” Bob said.
So far, Bob and his wife have been pleased with their purchase. They raised rents and required security deposits, which caused the property’s less desirable tenants to leave. He also has a backup plan for the building in case he starts to feel like the prior owner.
“If being a landlord got to be too big a hassle,” Bob said, “we would just get rid of the tenants and make it our own place.”
Get your finances in shape
The better your credit, and the less credit card and other consumer debt you have, the better your prospects for getting a decent loan, Callahan said. Lenders usually require bigger down payments, higher interest rates and generally stronger finances when you’re buying rental property. That’s because they know people are more likely to default on investment property than they are on their own homes.
Landlords say it also pays to have a substantial cash reserve left over after buying a property.

www.revver.com/video/879681/refinancing-online/
www.revver.com/video/879797/refinance-solutions-fha/
www.revver.com/video/879806/adjustable-rate-mortgages/

Bookmark to: