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, you 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.

Neda Dabestani-Ryba is a licensed Realtor in Maryland. She is a member of the President’s Circle of Top Real Estate Professionals. She can be reached at (800) 536-3806 or visit her website for more information: http://neda.dabestani.pcragent.com/ Prudential Carruthers REALTORS is an independently owned and operated member of Prudential Real Estate Affiliates, Inc., a Prudential Financial company. Equal Housing Opportunity

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Choosing a neighborhood to purchase a home is much like choosing a pair of shoes – it should be a good fit that will be comfortable for a long time – until you outgrow them or decide to have them resoled. This is an oversimplification, of course, but the idea is similar.

The neighborhood you decide on can make a huge difference in the experience you have with owning real estate. Choose wisely and can look forward to future appreciation in value. Choose poorly and you may be stuck with a home in an area where people are reluctant to purchase. Here are 5 questions to ask when choosing a neighborhood.

1. Is the neighborhood conforming? By this I mean are the home similar to each other in size, style, and age? Real estate property values tend to be more stable in areas where the homes have more similar than different amenities, rather than being a mixture of older and newer, one and two story, ranch style and colonial.
2. Is the neighborhood aesthetically pleasing? Are there tree-lined streets, underground utilities, and good setbacks (distance of the front of the houses from the street)? Is it enjoyable to look at when you are walking or driving down the streets?
3. Is the quality of construction above average or good? What types of roofs do the homes have? Is stucco or wood siding more common? Depending on the neighborhood, sometimes there are neighbors who know who the builder was if they are tract homes, or the architect if they are custom built homes. Try to find out if many of the residents in the neighborhood have an addition of any kind, like a sunroom or family room, or a pool.
4. What kinds of activities are there in the neighborhood? Is there a park or a school close by? Drive and walk around the neighborhood at various times and days. Are there people outside walking or playing with their children or dogs? What is the traffic like?
5. What types of facilities are close to the neighborhood? Is there any type of public transportation? Is it close to parks, shopping, employment centers, and other desirable venues? Is it close to the railroad tracks, an airport, or a factory?

By asking these questions and taking the time to check out the neighborhood, you can make a more informed decision as to whether this would be a desirable neighborhood for you to consider when purchasing a home. Remember that a wise, educated choice today will mean greater profits tomorrow.

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