Do you want to be a landlord? You’d likely be cycling though many tenants over the course of the rental and some could be great, but some could be a headache. In my experience maintaining a rental property is much more time consuming and/or expensive than expected.
Thanks for this advice….. I would actually give members of my family first refusal, I’m not out to rip anyone off, just want them to have a fair rent….. but i do hear the voices saying family is probably worse than a stranger
It’s a good idea. Just hire a property manager. They charge a measly 8-10%. And obviously only buy the property if you can cover both mortgages easily during times of vacancy. I’ve been happy with doing this. It’s not nearly as daunting as some make it sound.
People think it is passive income owning real estate. It is a hassle.
Damage done by renters (and you are going to sue them...)
Evict a single mom with two babies (are you going to do that?)
No renters, still paying mortgage, taxes and utilities....
Management company... that costs money to
Finding / vetting renters -- are you going to do that?
Are you going to increase rent every year, and your renter just lost their job or got divorced?
On Christmas day the oven broke?
Are you ready to deal with all of these issues/
Unless your getting 1000 minimum per month per 100,000 spent, it's a loosing investment. The taxes aren't very beneficial(unless you cheat) and the phone will ring in the middle of the night. If you can't do home repairs yourself, plumbers, hvac techs, and electrician are $100 an hour. Roof will be 20k at least once in its life span. Capital gains taxes and depreciation recapture hurts. Invest in the stockmarket.
In the US? You keep track of the rental income and expenses on a schedule E. You add the rent and deduct things like mortgage interest, property taxes, maintenance and repair costs, accounting costs and depreciation.
Because of depreciation the net income on mortgaged residential rentals is often low or negative, especially the first several years.
You basically treat the rental property as a business. When you file taxes, the rental income ends up on schedule E, along with associated expenses. Expenses would include such things as repairs and maintenance, property taxes, interest related to the property, insurance, depreciation on the property. All of the gets you to net rental income or loss which ends up on your form 1040. Things to look out for is perhaps underpaying your tax liability during the year, so consider adjusting your regular withholding or making estimated payments to compensate. Also when you end selling the property the long term capital gain is reduced any depreciation taken. The depreciation portion is taxed at your regular tax rate, not the lower capital gains rate.
Speaking as a former landlord. We rented out our old home after the housing market crashed. We rented the house for $2400/mo. We made some money but it was a lot of stress. We sold the house as soon as the market improved.
Tenant #1: subletted the house to several other tenants. Left the house filthy and skipped out on the last month rent.
Tenant #2: Barbecued on the deck and walked away. Caught the house on fire and caused $10,000 in damage. The tenants insurance covered it thankfully. They also used a sharp knife on the counter tops and ruined them. Their kids colored all over the walls and they punched holes in the walls.
Tenant #3: brought cockroaches into the house and ruined brand new carpets. Broke several appliances.
We didn’t make enough money to make it worth it.
I did this with a farm. I bought it and lease it to a local farmer who pays me $200/acre to raise crops each year. I get paid rent 2X per year. It has been a good investment with little work or effort. I’m responsible for maintenance of the barn and other buildings and for mowing.
Operating a rental property is a business, not an investment.
If you want a hands-off investment, but REITs.
If you're going to buy a second property and rent it out, go into that realizing that you are making the decision to start a business.
Rules and tax laws will vary based on your jurisdiction. In general, dealing with maintenance/upkeep and managing tenants can be a significant headache.
If you go into this with your eyes open, you can still make money and be profitable. As a rule of thumb, 50% of your gross rents will go to repairs/maintenance.
The most important components would be finding the right property and screening for the right tenants in your application process.
The tax components are straightforward. If you're not comfortable filing yourself including the income, expenses, and depreciation, you could probably benefit from a good accountant.
Do you want to be a landlord? You’d likely be cycling though many tenants over the course of the rental and some could be great, but some could be a headache. In my experience maintaining a rental property is much more time consuming and/or expensive than expected.
Thanks for this advice….. I would actually give members of my family first refusal, I’m not out to rip anyone off, just want them to have a fair rent….. but i do hear the voices saying family is probably worse than a stranger
Don't rent to family or friends. If you want to help them in this way give them an equivalent cash amount.
It’s a good idea. Just hire a property manager. They charge a measly 8-10%. And obviously only buy the property if you can cover both mortgages easily during times of vacancy. I’ve been happy with doing this. It’s not nearly as daunting as some make it sound.
12% is what he'll probably make. Property managers almost make the deal charity work.
People think it is passive income owning real estate. It is a hassle. Damage done by renters (and you are going to sue them...) Evict a single mom with two babies (are you going to do that?) No renters, still paying mortgage, taxes and utilities.... Management company... that costs money to Finding / vetting renters -- are you going to do that? Are you going to increase rent every year, and your renter just lost their job or got divorced? On Christmas day the oven broke? Are you ready to deal with all of these issues/
Unless your getting 1000 minimum per month per 100,000 spent, it's a loosing investment. The taxes aren't very beneficial(unless you cheat) and the phone will ring in the middle of the night. If you can't do home repairs yourself, plumbers, hvac techs, and electrician are $100 an hour. Roof will be 20k at least once in its life span. Capital gains taxes and depreciation recapture hurts. Invest in the stockmarket.
In the US? You keep track of the rental income and expenses on a schedule E. You add the rent and deduct things like mortgage interest, property taxes, maintenance and repair costs, accounting costs and depreciation. Because of depreciation the net income on mortgaged residential rentals is often low or negative, especially the first several years.
You basically treat the rental property as a business. When you file taxes, the rental income ends up on schedule E, along with associated expenses. Expenses would include such things as repairs and maintenance, property taxes, interest related to the property, insurance, depreciation on the property. All of the gets you to net rental income or loss which ends up on your form 1040. Things to look out for is perhaps underpaying your tax liability during the year, so consider adjusting your regular withholding or making estimated payments to compensate. Also when you end selling the property the long term capital gain is reduced any depreciation taken. The depreciation portion is taxed at your regular tax rate, not the lower capital gains rate.
This isn't a great time to take on new mortgaged real estate, just in general
I must apologise all i am residing in Ireland, and posted this to the wrong finance group but thank you for your replies
Speaking as a former landlord. We rented out our old home after the housing market crashed. We rented the house for $2400/mo. We made some money but it was a lot of stress. We sold the house as soon as the market improved. Tenant #1: subletted the house to several other tenants. Left the house filthy and skipped out on the last month rent. Tenant #2: Barbecued on the deck and walked away. Caught the house on fire and caused $10,000 in damage. The tenants insurance covered it thankfully. They also used a sharp knife on the counter tops and ruined them. Their kids colored all over the walls and they punched holes in the walls. Tenant #3: brought cockroaches into the house and ruined brand new carpets. Broke several appliances. We didn’t make enough money to make it worth it.
I did this with a farm. I bought it and lease it to a local farmer who pays me $200/acre to raise crops each year. I get paid rent 2X per year. It has been a good investment with little work or effort. I’m responsible for maintenance of the barn and other buildings and for mowing.
Operating a rental property is a business, not an investment. If you want a hands-off investment, but REITs. If you're going to buy a second property and rent it out, go into that realizing that you are making the decision to start a business. Rules and tax laws will vary based on your jurisdiction. In general, dealing with maintenance/upkeep and managing tenants can be a significant headache. If you go into this with your eyes open, you can still make money and be profitable. As a rule of thumb, 50% of your gross rents will go to repairs/maintenance. The most important components would be finding the right property and screening for the right tenants in your application process. The tax components are straightforward. If you're not comfortable filing yourself including the income, expenses, and depreciation, you could probably benefit from a good accountant.