Risks And Gains Involved In Rental Properties Management

If there is ever a time to invest in real estate business and probably become a landlord, it is now when the US real estate has just started to recover from the whooping 489 billion dollars loss incurred between January to November 2009; a significant reduction from the previous 3.6 trillion dollars loss in the previous year. The consequences of this reduction means that properties will be priced lower giving investors the opportunity to buy at a lower price to sell at a higher price.

The concept of properties management is embedded in the lowers price versus higher price condition. What is property management and how does it concern you. If you are a prospective tenant hoping to become a landlord or landlady one day this means a lot to you. On the other hand if you are a prospective investor eying the possibilities of engaging in buying and selling of properties, or renting one, how to manage your property business concerns you too.

In the property business sphere there are two broad players and they are the rental prospectors and the acquisition prospectors. No matter the category you belong, the knowledge of hired assets management is a must. What are the benefits or gains of going into rental property management?

What is rental property management?

Rental has to do with the act of leasing properties to another for use. Of course, to be in the position to rent assets, one must be a property owner and that means at one time in one’s life, properties was acquired, which enables the implementation of the leasing business effectively. You cannot lease what you do not have, can you? So, to the person putting up properties for rent and the one renting it, the knowledge of rental properties control is very important.

Real estate business like any other business can either make or mar you if you don’t have the right information. For those already considering going into the rental business, before you do, how much of the risks and gains involved in this business do you know?

Risks and gains involve in rental properties

One of the risks involved in rental property business is long-standing situation. Imagine what will happen if after acquiring a property for rental purposes, renters don’t just show up. The solution to this situation will be to base your business in locations where the population is growing consistently. Another idea is to focus on apartment with multiple family structures.

Tax reduction and increase can affect property rental business adversely and favorably. Depreciation and repair problems, natural disasters, change in government policies, etc. These are some of the risk factors that can affect the renting of properties adversely; next is the benefits.

Gains of rental properties management

Investing in properties, if done properly, can convert to a great source of income and that is because it is a long-term investment. This fact is actually the reason why many investors and upcoming ones are turning to leasing properties. This business provides one the opportunity of preparing for their retirement age.

All in all, the best way to deal with risks and possible problems that could arise from dealing in rental properties is to understand how to manage your rental properties business.

Ten Tips For Buying Rental Properties

Buying rental properties is a good way to increase your assets. However, choosing the right rental property will be challenging. Here are a few things to check for prior to buying rental property.

1. Location – Most people don’t want to live in the boon docks. The location of your rental property will determine how easy it will be to rent. If you have a lot of vehicle traffic, you may receive a greater response from a sign at the location than you will from a newspaper add.

Tenants want to live in nice neighborhoods close to all the amenities. They want to be close to the schools, stores, recreational locations, hospitals, and work.

I haven’t met anyone who wants to live in an undesirable neighborhood or drive 15 minutes for a gallon of milk.

2. Numbers – When buying rental property you want to check the numbers. Make sure you have all the expenses associated with that property and make sure it still has a positive cash flow.

Take into consideration the maintenance issues, any utilities not covered by tenant and amortize the cost of the big projects like furnace replacement, new roofing, siding or landscaping.

These projects only happen once every 15-20 years but you may be coming in to this in the 10th year of that cycle. Remember to calculate your expenses high and your income low. This can save you some surprises down the road.

Expect the unit to be empty at least one month per year due to turn over. You will have to repaint and clean the carpets the first 2 weeks, then advertise and show the next 2 weeks. You should only count on 11 months of rent per year.

3. Lower Maintenance Buildings – You want to avoid homes that will require expensive routine maintenance. Some examples would be homes that have cedar-shake shingles or siding, wood sided buildings, wood frame windows, brick driveways, cedar decks, etc.

Try to look down the road and determine the future maintenance needs. Remember the lower the maintenance the less headaches and larger profits.

4. Higher Home Prices – Check in towns with higher home prices, because this increases the demand for rental property. Look for the ugly house on the block that has a lower price, enabling you to purchase within the margins.

After some interior and exterior paint, a little light landscaping and new curtains, viola’, a house that will get premium rent because of the class of neighborhood.

If people can not afford to buy a home in this class they will have to rent. This will create a demand for rental property.

5. Below Market Rent prices – When buying rental property, look for rental property which has rent prices that are below current market rents. This will allow you to raise the rent and increase the value of the property. As per above, this may just need a little fluff to enable raising the rental price.

Rental property market value is determined by the amount of income received by the rental property. However keep in mind, if the rental property has renters when you purchase it, they may not like it when you raise the rent. Also check to see what type of lease is in place. The lease goes with the sale.

If the current renter is paying a substandard price and has 1 1/2 years left on the lease it could turn out to be a losing proposition.

There is only one way to cut a lease short as a new owner. You must remodel the place. Check with the local housing commission to see what the minimum cost requirements of remodeling are for immediate eviction of current lease holders. It is usually as little as $10,000.00 in remodeling cost to get a remodeling eviction. By the way, you didn’t hear this from me!

6. Good Rental History – Whenever buying rental properties, you must check the rental history. Check to see on average how long tenants are staying and do they pay their rent on time. Some areas of town are naturally quick turnover times. Near airports, loud bars or nightclubs, near military bases, etc.

7. Complies with Zoning and Fire Codes – Make sure you check to see if there are inspections required by local officials for rental properties and does this property pass those inspections. You never know the real reason the current owner is selling the property.

It may need extensive repairs to pass the inspections. A quick red flag would be if the electricity has been turned off for over 90 days. They will usually require an inspection before restoring power, especially if it is a known rental.

8. Less Than Twenty Years Old – This is self explanatory, if you restrict your selection to buildings that are less than twenty years old, you will limit the chances that the building will have any building code or maintenance problems.

The building could be near the maintenance cycle for roof, paint and possibly furnace but the structure will be sound and not needing upgraded windows, siding or cement repair.

9. Out of State Owners or Managers – When buying rental property, look for properties that are owned by out of state owners. It is hard to manage rental property from out of state and when these come up for sale, the owners are usually more concerned with selling quickly than getting top dollar.

In order to rent a place quickly you must live near by so you can show it at the caller’s request. Often times they will ask to see it in the next 20 minutes or so. Cater to their requests and show it quick. Most renters need a place within the next week or so and will not wait to see your place until next week because you are busy.

Most times they will make a decision before tomarrow when it would be more convenient for you to show it. This has happen to us to many times.

Never give out the address for drive bys. Prospective renters will ask for the address to do a drive by and just look at the place. Don’t waste your time with these folks. Insist on showing it in the next 30 minutes or you will not give out the address as a courtesy to the neighbors.

10. Neighborhood is stable or improving – obviously avoid neighborhoods that are declining, look at the writing on the walls and stay out. Although these may look good due to the low purchase price, they are very difficult to collect the rents.

By finding neighborhoods that are stable or improving, it will be easier to rent the property and you will be able to increase the rent. The general consensus is, the better the neighborhood the higher the purchase price and the higher the rent prices, therefore the margin for profit is greater. The poorer the neighborhood the lower the purchase price and lower the rent prices reducing the profit margins.

Do not be afraid to buy nicer places for rental properties. The people that can afford $1000.00 a month are more likely to be able to come up with the rent on time versus someone that can only afford $350.00 a month. One little upset in the latter case and you will not get your rent on time, if at all. There is far greater stability in renting high end places versus being a slumlord!

Copyright (c) 2007 Brian Ankner All Rights Reserved

Rental Properties Offer Tax Deductions

Rental properties are becoming one of the rising options for people who cannot either afford a home amidst fluctuating home prices in most real estate markets, or those who choose to wait until the ripe time comes for a healthier real estate industry condition. Whatever purpose rental homes serve, the landlords are the actual ones affected by compounded responsibilities. One of the main concerns for landlords is having to pay for multiple taxes.

A thing most landlords forget in assessing taxes to be paid for is their deductibles. And this unfortunate event is caused by non-information of the available tax deductions they could actually take advantage of. It is little known fact that rental properties are the real estate investments that could be rewarded with many tax benefits.

Tax deductions for landlords and owners of rental properties could be constituted of just about any expense regarded for the improvement, management and conservation of the properties. Just like any other owners claim for their respective businesses, landlords must always remember to treat their properties as commodities that offer services to many consumers that are tenants in this case. Here are some top tax deductions landlords should take note of in filing tax statements:

Property interests

These expenses could be one of the major tax deductions a landlord could claim. Landlords should take note of the interest payments they take out for all their rental properties. Payments on interests for mortgage, loans and credit cards are only a few of the common examples landlords could include as tax deductibles. However, the payments should all be proven utilized for the improvement of the rental property or employing a rental activity.

Property repairs and improvements

Rental properties are usually susceptible to frequent repairs as tenants vary regularly, especially for short-term contracts. In any case, the landlords could list down all the repairs and improvements done for the rental home. These are fully deductible in the fiscal year the repairs have been doled out. Some of the major repairs feasible for tax deductions are repainting jobs, fixing interiors like walls or insulation boards, refurbishing pipes, leaks, gutters, floors, replacement of broken windows, doors and fixtures, maintenance of landscaping and other utilities.

Depreciation of property and items in it

The actual cost of the rental property of any type – a home or apartment building, could not be deducted in the year this has been currently paid for. On the other hand, the deductions could be in the form of the depreciated value of the property; wherein a portion of the property cost could be deducted as it has been in the landlord’s full ownership over several years.

The landlord could also deduct the costs of the furniture and fixtures in depreciated value, included in the rental property. These may include washing machines, gas range or oven, refrigerators, among others.

Travel expenses with regards to rental activity

It may seem an “over claim” if landlords even include these. However, landlords are actually entitled to claim such because these are part of expenses delegated for the business. Especially for landlords who are away from the rental properties, these could entail many tax deductions. If the landlord’s vehicle, of any type, model or size, there are ways to deduct vehicle expenses vis-à-vis rental activity, like going to rental property as some complaints need to be settled.

Here are the options:

Deduct actual expenses for the travel – gasoline, maintenance and repairs for the vehicle.

Use the standard mileage rate. The rates are: 55 cents per mile for 2009; 58.5 cents per mile for July 1, 2008 to the end of 2008; 50.5 cents per mile from the start of 2008 to June 30, 2008. To be able to qualify for this method, the landlord must use this method immediately the vehicle has been used for the rental business activities. This method could not be used when there is already an existing claim for accelerated depreciation deductions or Section 179 deduction for the vehicle.

Other expenses like hotel bills, airfare, meals and other travel costs going to long distance rental properties could be considered as tax deductibles. Proper paperwork must accompany authenticity of these expenses like receipts or bill statements.

Other expenses that are deductibles are compensations for employees, contractors and legal services, office maintenance, insurance payments, losses due to casualty and theft. All these expenses could be deducted from taxes as long as these are acquired for the rental property services and activities, along with proper certifications.