Info for the New Real Estate Investor

Investing in real estate looks a lot different today than it did just a few years ago.  Real estate is still a solid investment, even since the bubble burst, but most investors go about it in ways they didn’t consider even just five years ago.  “Investing” used to be synonymous with “flipping.”  These days when someone asks his Glen Ridge NJ realtor about buying an investment property, he’s usually thinking about renting it.

Renting is a long-term way to make money from real estate.  It’s not as fast a profit as flipping a home could be, but there is more security in renting.  The market is strengthening but it’s no longer at such a peak that a flipped is a guaranteed sale.  Plus, there are benefits to renting that newly minted landlords may not even be aware of yet.

Tax Deductions
There are a lot of ways to maximize the money you make from renting a home and one of them is to investigate every tax deduction available.  Some are obvious and some may not have occurred to you.  Check with your tax professional to make sure you are getting the full benefits from your rental property.  Here is a sampling of deductions to get the discussion started.

Interest
This one is pretty well-known.  Every homeowner can deduct the interest from their mortgage, whether it’s on a rental property or primary residence.  This is quite often a large deduction.  You can also deduct the interest on loans used to improve the property

Travel
Every time you have drive to fix that faucet, you can deduct your travel expenses.  You can use the standard mileage rate deduction (around 55 cents per mile in 2009) or the actual cost of gas, repairs and so forth.  If your property requires you to travel long distances, you may be able to deduct the cost of hotels, airfare, meals and other related expenses. 

Contractors
The wages you pay to contractors and laborers to make repairs on your properties may also be deductable as a business expense.  You can do this whether the worker is your own employee or an independent contractor.

Depreciation
This is definitely an area to discuss with your accountant, but the depreciation of your rental property is deductable.  It’s a complicated formula that allows you to deduct a certain percentage each year for the first 27 years you own the rental.  This deduction can really improve your bottom line.

If you are thinking about investing in a rental property, look into the different types of deduction you may be able to claim before you call your Montclair NJ realtor.  What you learn may just give you the push you need to get back into the real estate market.