How
to Make Money in Real Estate Investing
Lower
Your Taxes
Tax
incentives for real estate investors can often make the difference
in your tax rates. Deductions for rental property can often
be used to offset wage income. Tax breaks can often enable
investors to turn a loss into a profit.
For
which items can investors get tax breaks? You could claim
deductions for actual costs you incur for financing, managing and
operating the rental property. This includes mortgage interest
payments, real estate taxes, insurance, maintenance, repairs,
property management fees, travel, advertising, and utilities
(assuming the tenant doesn't pay them). These expenses can be
subtracted from your adjusted gross income when determining your
personal income taxes. Of course, these deductions cannot exceed
the amount of real estate income you receive. In addition to
deductions for operating costs, can also receive breaks for
depreciation. Buildings naturally deteriorate over time, and these
"losses" can be deducted regardless of the actual market
value of the property. Because depreciation is a non-cash expense
-- you are not actually spending any money -- the tax code can get
a bit tricky. For more information about depreciation and various
tax alternatives, ask your tax advisor about Section 1031 of the
U.S. Tax Code.
Have
a Positive Cash Flow
There
are two kinds of positive cash flows: pre-tax and after-tax. A
pre-tax positive cash flow occurs when income received is greater
than expenses incurred. This sort of situation is difficult to
find, but they are usually a strong and safe investment. An
after-tax positive cash flow may have expenses that outweigh
collected income, but various tax breaks allow for a positive cash
flow. This is more common, but it is generally not as strong or
safe as a pre-tax positive cash flow.
Regardless
of what kind of real estate you choose to invest in, timely
collections from your tenants is absolutely necessary. A positive
cash flow -- whether it be pre-tax or after-tax -- requires rental
income.
Be
sure to find quality tenants; a thorough credit and employment
check is probably a good idea.
Use
Leverage
One
of the most important factors in determining a solid investment is
the amount of equity you are purchasing. Equity is the difference
between the actual worth of the property and the balanced owed on
the mortgage.
Benefit
from Growing Equity
While
investing in real estate is relatively complex, it is often worth
the extra work. When compared to other financial investments, like
bonds or CD's, the return on investment for real estate purchases
can often be greater.
The
key to real estate investing is equity. Determine an amount of
equity that you want to achieve. When you reach your goal, it's
time to sell or refinance. Determining the proper amount of equity
may require the assistance of a real estate professional.
Thanks
for visiting! Let me know if I can help you!
About the author: the
author of this article is not known. Article reprinted courtesy of
Total Real Estate Solutions http://www.totalrealestatesolutions.com
Your
Hawaii Real Estate Specialist
Oleg Potemkin (RA) Hawaii Realty
Associates, LLC
4211 Waialae Avenue, Suite 1020,
Honolulu, Hawaii 96816 USA
Tel: (808) 398-9987 Fax:(808)
538-8081 E-mail: Oleg@Hawaii-Realty.com
