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The Allure of Getting An Investment Loan, Property

The glut of real estate available, thanks to the avalanche of foreclosures, short sales, REOs and hard-pressed homeowners, have significantly pushed prices of investment properties further down. This is making a lot of real estate investors salivate as experts declare that now is the right time to invest in real estate. You may be among the scores of first-time investors raring to invest in real estate and become a landlord, intending to use rental income to cover for the costs of acquiring and maintaining a property, and hope to have the property’s value go up in the years to come. But is it really a great time to obtain an investment loan and property to rent out? If you are determined to do so, make sure to bulk up your landlord muscle to help you tackle the following hurdles.

The Snags of Obtaining Investment Loan, Property to Become a Landlord in 2011

1. Rising Vacancy Rates

Because of the boatload of people losing their homes and those who cannot afford to buy a home, you may expect more people to be seeking out homes for rent. Think again! Across the country, landlords are hounded by vacancies. This has prodded them to come up with incentives – usually a discount such as a 3-bedroom apartment for the price of a 2-bedroom unit, cheaper security deposit, a month of free rent, just so tenants would sign the lease contract.

The foremost reason why landlords lose tenants in the years between 2002 and 2006 was because these tenants were purchasing their own homes. Fast-forward 2011, the primary reason for losing tenants is defaults leading to skips and evictions. As a result, vacancy rates have shot up egging landlords to compromise, including their criteria for tenants.

2. Lenient Tenant Application Criteria

Owing to the discouraging occupancy rates, landlords are now willing to take in tenants whose qualifications would normally not pass the standards of years ago. Landlords used to turn down would-be tenants who have gone through a bankruptcy, foreclosure, or previous evictions. But now, with so many people having gone through such economic difficulties, they have become a whole new market segment in the rental industry. If you are planning to take in these people, make sure that you require them to at least have a job and bear a decent credit rating. Some landlords are ready to look past the credit score and some even consider prospective tenants who are jobless, but enjoy unemployment benefits.

3. Longer and More Challenging Evictions

The mounting number of foreclosures on rental properties and the increasing number of people losing their jobs have significantly contributed to the increase in the incidence of evictions, leaving the courts and the local law enforcement with a mountain of legal paperwork and evictions to carry out on their respective plates. As a result, evictions are taking longer than before, not to mention that there are a number of sheriffs departments that decline to serve eviction notices.

4. “No Pets Policy” Are Out

Would you rather take in a jobless tenant with no pet or a tenant with a good job and rental history with one or two pets living with him? Most landlords, nowadays, are willing to take in the latter. Besides, this type of tenants are inclined to pay additional fees just to have their pets live with them. They have become another segment in the market and some property managers have already taken action in luring this niche by providing areas for walking dogs and scoopers and bags for tenants to clean up after their pets. However, a wise landlord knows that he is boosting occupancy rates at the expense of the risk of flea infestations, noise and disturbance, and damage due to untoward toileting incidents.

These are some of the setbacks of taking the landlord role these days. It is up to you to weigh these against the benefits of generating rental income and possible property appreciation down the road.

While many are saying that now is the best time to obtain an investment loan and property, you have to acknowledge that there are also new challenges that a landlord could be facing due to the current conditions in the real estate market.

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Give To The IRS What is Due To The IRS – Paying Taxes for Your Rental Income Property

Letting go of 25 to 35 percent of your income to tax is often a painful but compulsory thing to do. You would think of the things you could have bought with the said amount: renovate your multi-door apartment, go on a family vacation, finance another investment, or whatever it is that you want to spend on. However, the tough reality remains that we have to pay the IRS their share but there are many ways to minimize that tax burden. Check back soon for info on how to minimize your rental income tax burden.  So to deal with reality, let us abide by the law and file our income taxes so that our friends from the IRS will not haunt us. If you are a landlord, here are some tips in filing your income tax for your rental income property.

Points To Consider When Paying For Rental Income Property

What To Include in Filing Tax. As a general rule, any amount that you have received as rent or as payment for the use or occupation of property should be included in filing for taxes.

When To Report Income. A cash basis taxpayer is someone who declares income gained from rental income property on the year that he actually or constructively received it, irrespective of when it was gained. Income is received constructively when it becomes obtainable to you, such as when it has already been wired to your bank account.

When To Report An Advance Rent. Any amount that you have received before the period of use or occupancy of the property has arrived is considered advance rent. However, you count it in your rental account on the year you received it without consideration of the period it encompasses or the accounting method that your business employs. For instance, let’s say that you inked a contract for a 5-year lease to rent out your property. In the initial year, your tenant pays you $1,000 as rent for year one, and another $1,000 as rent for year five. The last payment is considered as advance payment, and thus, must be reported on the year that you have received it, which is year one, and not on the year that it covers, which is year five.

Should You Report Security Deposits? Any amount paid to you as security deposit that you plan to reimburse to your tenant at the close of the lease must not be counted in as part of rental income. However, in the event that your tenant breaches contract during any year, you are entitled to keep possession of part or all of it. When this happens, you must include that particular amount in your income in that year. Sometimes a security deposit is employed as final rental; in this case, it is considered as advance rent, and thus, must be counted in as part of your rental income on the year that you receive it.

Should You Count in Rental Payments in Kind? Yes you must, using the fair market value of the property or services used as form of payment in your rental income. You can use as fair market value the agreed or specified price of the services, except if there is proof that it is otherwise. Let’s say that you accept a proposal from your tenant, who happens to be a plumber, that he do the necessary plumbing job in your rental property for a month in exchange for a month of rent. When reporting your rental income for filing taxes, add that one-month rental to your rental income, and add that same amount as maintenance expense for plumbing job for your rental property.

It is every landlord’s obligation to pay taxes for the income he earns from his rental income property, whether from monthly rental payments, advance payments, and other possible forms of income related to the property. You should, thus, get to know what are to be included and when they must be included.

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Landlord Insurance – An Expense Worth It

Every shrewd landlord knows that a landlord insurance is vital to his rental property business. Although it is not a legal requirement, it can save you from several heartaches. It may be an expense on the one hand, but on the other hand, it provides peace of mind and security against any unforeseen damage to your investment property. The trick here is to know how to obtain a substantial coverage at a more affordable rate. This way, you can protect your property investment while protecting your profitability. If you are on the verge of buying a new coverage or renew an old one, consider these three tips to help you get a more affordable policy.

How To Get A More Affordable Landlord Insurance

1. As with purchasing any other big-ticket commodity, you need to shop around to get to know features and get quotes of different landlord insurance products. Expect varied rates from different insurance providers, and the differences can be substantial. You can also conveniently do your window shopping online. Websites of various insurance companies and insurance brokerages can provide you instant quotes online. When comparing various insurance products, make certain that they are offering similar features. You do not want to compare a brand new Mercedes Benz type of insurance to an old rickety Chevy kind.

2. Buy landlord insurance through a broker instead of through an agent of a certain insurance firm. A broker can offer you a wider array of landlord insurance products from various companies from which you can match your specific needs. On the other hand, an agent can offer nothing but the products of his or her company, limiting your choices and making his or her advice more subjective. Ask other investors about insurance brokers they can recommend.

3. Ask for discounts from your insurance broker or agent. These rebates also vary from one insurance company to another. Get to know discounts which you are eligible for. For instance, an insurance carrier may be selling home, car and landlord insurance. If you purchase two or more of these policies, you could be entitled to a multi-policy discount. This will allow you to make as much as 15 percent savings on your premium.

4. Install security features on your investment property you are insuring. Dead-bolt locks, smoke detectors, burglar alarms, CCTV, and the like, are also sort of a form of ‘insurance’ in their own right since they also provide protection against a potential eventuality. They do not just help protect your investment property, they can also help bring down your insurance rate because they reduce the risk for untoward events. Also, the pull of gravity for your insurance rates would even be stronger, bringing them down further, if your property is near a fire hydrant or fire station.

5. Instead of the market value of your property, make its cost of rebuilding the basis for your premiums as they are usually lower than the appraised worth of your rental property. As a result, you can enjoy lower premiums.

Landlord insurance can be considered as an essential expense that no landlord can afford to disregard as it provides protection against untoward events. Although it can reduce your revenue, there are ways to bring down its cost.

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Sleep Well At Night By Getting The Right Investment Property Insurance

How would you respond to the catastrophic news that your multi-unit apartment has sustained severe damage due to a tumultuous windstorm or a fire? Will you say:

“Oh! That’s bad to hear, but everything will be okay since I got it covered.”

“Shucks! Is the insurance I got sufficient to cover against the damage?”

“Oh no! I have not yet gotten insurance. How am I gonna recover from this? ”

You do not want to be uttering the last two statements, right? Sleep well at night knowing that your investment property is appropriately covered for such losses due to unwanted events like fire, windstorm, lightning, explosion, riot, and unwanted business scenarios such as loss of rents, loss of money, and the like, by getting the most appropriate investment property insurance for your real estate. However, newbie real estate investors often have difficulty choosing the right insurance for their building from among the multiple choices. These are discussed below.

Investment Property Insurance Options

1. Basic Form Policy

You can get either a standard fire insurance written either as Basic or Special Form. The Basic Form protects your property from “named perils.” So if the peril is not specified, it is not covered. Fire, windstorm, lightning, riot, aircraft, hail, explosion, smoke and vehicles are the typical named perils.

2. Special Form Policy

The Special Form coverage protects your property against any loss, except when specifically excluded. Examples of losses ruled out in both Basic and Special Form Policies are clean-up for methamphetamine manufacture or mold and mildew. Losses covered must pass as “sudden and accidental”, while those that materialize over a length of time, like leaky pipes that result in dry rot, are not protected since they do not pass as “sudden and accidental.” You can also add extra coverage to your Basic or Special policy. The extras that are typically added are general liability coverage, loss of rents or income, or an extra umbrella insurance to augment the extent of coverage.

3. Business Owners Package

Your third option to protect your rental property is by obtaining a Business Owners Package or BOP. A BOP ties up all obtainable coverage, such as loss of rents, theft of money, fire coverage (for Special Form), or loss of business property owned by the insured, into a single policy. However, not all properties may qualify for a BOP. Majority of insurance providers will not furnish a BOP on a rental property which only has three units or less. Apartment buildings that are more than 30 years old often do not get a BOP. This bundled coverage is reasonably priced, but the coverage is more moderate and is often available only for buildings of good quality. Terrorism insurance can also be part of the package but protection is usually minimal. On the other hand, wrongful termination, employment practices liability, sexual harassment, discrimination and coverage for earthquakes are ruled out from BOP. If you want to be protected from these risks, you can obtain additional insurance.

4. Specialty Markets

Special Markets are also labelled as Specialty Admitted Market, Excess and Surplus Lines, and the London Insurance Market. You can obtain a Special Markets policy to protect property with risks that are usually excluded by standard insurers, like vacant properties, old buildings, chemical storage facilities, restaurants and bars, and high-risk manufacturing. Owing to their high-risk nature and the limited options available, Specialty Markets policy are typically more expensive. Vacant property insurance and builders risk liability insurance (obtained during the rehab phase) typically can be obtained through the mainstream insurers but needs to be paid for in full upfront generally and typically covers a 6 month term.  Look to pay about $600 – $900 on s single family home for builders risk during your rehab phase.

There can be a lot more options for your investment property insurance; the key is to match your needs with sufficient policy so that you can sleep soundly at night.

See our article

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Investment Property Tax Deductions Image by Buyfixandprofit.com

Understanding The Scope of Investment Property Tax Deductions

One of the perks that attract investors to put their money in investment properties is tax incentives. No other investment vehicle offers this much tax advantage that rental property investment can offer. These deductions can significantly mean your profit or loss. However, those new to their role as landlords, and a few old-timers often unwittingly pass up on the opportunity to make tax savings from their property investments because they do not know the extent of the exemptions. Cash in on this exemptions by familiarizing yourself with what are covered in investment property tax deductions. If you own small residential rental property(s), then you can enjoy the following tax deductions:

Investment Property Tax Deductions For Owners of Small Residential Rental Properties

Depreciation. You, as a landlord, can recoup the cost of your property through depreciation. Depreciation counts the decrease of the value of your property over time. The accounting value of your property, as reflected on your financial statements, decreases because of depreciation. However, this does not make a dent to the market value of the property. By depreciating your property quickly, you can offset income and realize tax savings much sooner. At present, the depreciation for residential properties should be uniformly distributed within 27 and a half years, and no more than 39 years for commercial investment properties.

Interest. Interest is usually the most sizable deductible expense of a landlord. This includes interest on credit cards for expenses used in operations of your rental property, and mortgage interest payments on loans you used to fund the property acquisition or renovation. Mortgage loan interest can be deducted to cancel out an equivalent amount of income. This deduction is similar to the interest deduction for a home mortgage.

Maintenance Expenses. The cost of repairs to rental real estate are totally tax deductible as long as the repairs are really needed, standard, and reasonably priced. You can reduce your tax payable if you incur expenses in fixing gutters or floors, repainting, replacing rotten wood housing the water heater, replacing broken windows, fixing leaks and toilets, and many others. This deduction is especially beneficial for owners of old properties that need substantial fixing since the cost of doing these can be hefty. This is a privilege real estate investors can enjoy but mere homeowners cannot, so take advantage of this. However, this does not cover renovations that extend the life or boost the value of the property.

Insurance Premiums. Insurance premiums that cover rental property investments can be exempt from tax. In contrast, insurance premiums for homes are not tax deductible.

Local Travel. As a landlord, you can deduct the expenses you incur when traveling anywhere for your rental property operations, such as when you drive your SUV, van or pickup to your single-family rental property to handle a complaint of a tenant. You can also include here your hotel bills, airfare, meals, and other related expenses if you travel overnight while conducting business such as looking for more properties to add to your rental property protfoflio. Some investors take advantage of these tax breaks by incorporating other plans, such as taking a side trip vacation, with the said business trip. However, be careful and properly document your travel expenses if you plan on doing this since the IRS will examine overnight travels closely. You do not want to attract unnecessary attention of our friends from the bureau.

As a rental property investor, there are more items that you can deduct from your taxable income. However, we limit our discussion to these items to give way to a brief discussion of what could possibly forfeit your prerogative to tax savings.

Be Careful, You Can Forfeit Your Investment Property Tax Deductions

Be careful with the people you take in as tenants. You can possibly lose nearly all your tax deductions if you rent your property to a friend or family member.  There are also strict guidelines to follow when using funds from your self-directed IRA to purchase investment property. Finally make sure to keep a good record of how much time you spend on your real estate business.  If you can qualify as a Real Estate Professional per IRS guidelines this will allow you to deduct 100% of your paper losses against your income.  To qualify as a real estate professional per the IRS you must spend more than 75o hrs materially participating in your real estate business and must spend more than half your professional working hours materially involved in the your real estate business.

It pays for a landlord to know what is covered in investment property tax deductions since this could bring in substantial tax savings that can significantly impact returns.

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Landlord Insurance Image by dvs via Flickr

Like any other insurance, a landlord insurance is a real estate investor’s way of managing risks against uncertain losses. Can you soundly sleep at night if you are unsure of whether or not your 8-plex is insured correctly? If your tenants are compelled to move out due to fire, does your insurance cover such loss-of-rent? Before any untoward event happens and regret shows up, take the time to understand what is (or is not) covered by your insurance policy. Insurance may add to your expenses and takes off some amount from your bottom line. However, it also helps you sleep soundly at night knowing that your property is protected from unforeseen losses.

Here are some points to help you grasp crucial factors to consider when arranging for insurance for your investment properties.

Knowing How Much Liability Protection To Carry

In general, protect your real estate with as much liability protection as you can pay for, or at least a $1,000,000 liability protection for each incident. Your liability protection must proportionally grow with the growth of your portfolio. You may not expect this, but typically, the premium charge to double your protection is just minimal. For a more cost effective approach in hedging for multiple kinds of liability exposure, carry an umbrella policy. This approach covers liability in excess of the customary $1,000,000 or $2,000,000 boundaries.

Distinguishing Actual Cash Value From Replacement Cost

An Actual Cash Value coverage, which costs more, repays you for the depreciated value of your property, while a Replacement Cost policy shoulders the cost for replacing your property and possessions with materials of the same sort and quality at prevailing prices. Besides distinguishing ACV from Replacement Cost, get a good grasp of coinsurance penalty and its relevance to your investments. There is no one ideal coverage; it varies from one property to another, from one investor to another. What is important is that you understand these options so that you can wisely choose the ones that would make you feel secure. After all, that is what insurance is for.

Protection From Loss-of-Rents

You can mitigate losses due to absence of rental income if for some reason your tenants are compelled to evacuate your units, such as when your property was razed by fire or other untoward occurrence covered by your policy, through a business income coverage. There are policies which may be bound by a 12-month time limit or other lengths of time, while some require a certain level of purchase in your coverage for this option to be in effect.

Protect Other Structures and Personal Property

Most policies may not include garages, sheds, barns, outbuildings, and other detached structures, while some do. Make sure that they are covered, as well as items like air conditioning systems, refrigerators, and stoves.

Protection From Changes in Building Code

When wrecked property is restored, you may need to add some amount to update features and satisfy certain regulations. Although old properties can be exempt from new regulations, repairs checked by the local government agencies may need to be updated. Examples of features that need updates are handicap accessibility and hard-wired smoke detectors. To protect your business from these additional expenses, make sure that your policy has the Ordinance and Law endorsement, especially if your multi-unit property is relatively old.

Hedging From Flood, Water Backup and Earthquake

Losses from these occurrences are typically not covered, although you can buy these through endorsements. Find out how you can claim each indemnity from your insurance provider of choice. This information can help you wisely decide on whether to take on any of these coverages.  Sewer back-up and sump pump failure is highly recommended for most areas.

Blanket Policy Versus Separate Policies

Your premium decreases as your deductibles increase. So if you own more than one property, consider taking on a blanket or package policy. In this policy, your deductible applies per occurrence rather than per location if your properties are under separate policies. Although premium rates for blanket policy may be higher than standard policies, it is a more cost effective way of protecting more than one property as compared to buying two separate policies.

Protecting The Property Entity

Besides your real estate, it is crucial that you hedge the property entity holding your properties. Do not skip appropriate coverage just to evade the “due-on-sale” clause. The first-named insured, or the main recipient of policy benefits, must be the entity holding the property(s). There are cases, though, when additional insured and loss-payee endorsements may be enough, but in general, make it a point to be the first-named on the insurance policy.

No matter the clause, endorsements and conditions you want in your insurance coverage, it is vital to arrange it with an insurance broker whom you can rely on and who is well-versed in real estate investing. Look for someone who is happy to help you understand the protection you need for your specific case. Some agents happily do that even if they are not selling the policy themselves because they are captive agents. Insurance can add to your expenses, but you need it to hedge your real estate from uncertain losses. So take the time to learn how it works, and purchase it before the need for it arises.

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Entrusting Real Estate To Investment Property Managers

With your investment property acquired and ready for occupancy, all you need is a company to manage it so that your little cash machine can start streaming money into your bank account in your absence. However, entrusting your investment to another company is not easy. The choice of a property manager can mean your profit or your loss. With the numerous investment property managers available, the selection process is not made any easier. For this reason, it is important that you set certain criteria based on what you need.

Criteria for Choosing Investment Property Managers

Marketing Flair and Knowledge of the Local Market. One of the primary responsibilities of your property manager is marketing your property to prospective tenants. The company can do this more effectively if they know what the market needs. They can recommend clever but cost effective ways on how to make the property more attractive to would-be tenants, allowing you to raise rental fees, and minimize vacancies, hence, boosting ROI. In contrast, a lack of knowledge can lead to vacancies. If this goes for a long time, it will negatively affect your returns.

Accounting Proficiency. As an investor, figures are important to you. Of course you would want a property management company that knows how to properly compute the revenues and expenses of your property so that they can take care of the books for you. It would be great if they can make reports and other documents, such as ledgers and invoice copies, readily accessible online at anytime without the need to ask the property manager. So that when tax filing time comes, you have your income and cash flows handy.

Number of Properties Under Their Care. This is a gauge of how experienced these investment property managers are. The more properties that they have managed, the more expertise they have. You can tell how effective they are at their tasks through the number of properties that they handle and the number of years that these properties have been under their wing. Dissatisfied investors would move on to another property manager.

Property Management Specialization. The scope of property management is extensive. This includes property maintenance, market knowledge, laws on housing, accounting, etc. Property managers must have established relationships with vendors and must have people ready to respond to queries and emergencies. That is why, it is important that they specialize in this business. Otherwise, if it is just a secondary endeavor to a company’s main business, then their expertise, resources and concentration may just not suffice.

Capability To Accept Electronic Payment. A capability to accept electronic payments can lure tenants with impressive credit ratings. The payment process is simplified for both tenant and property management, hence, encouraging on time payments.

Capability to Pay Investor Through Direct Deposit. A capability to pay you through direct deposit ensures that you get to use or keep your money in your bank account instead of in the property management company’s account. Beware of property managers who attempt at retaining revenues in their account for as long as they can to earn the interest. Be aware that the process of collecting and preparing the monthly statements for your property would only take eight days or less. A direct deposit of the revenues also ensures lesser errors than when it goes through the paper system.

Licensed Real Estate Agent. In most states, the property manager you hire should be a licensed real estate broker for the company to be operating legally.  The trust accounts and files of licensed real estate agents are typically audited by the states respective Real Estate Commission.

Street Tip: Managing your Investment Property Manager. Entrusting the hard work you put into developing your rental property asset(s) to an outside company should not be taken lightly.  Always check references and develop a way for your tenants to give you feedback on your property manager’s performance.  I learned this the hard way when a quiet tenant of three years that had never missed a payment, all of a sudden didn’t want to renew the lease on her nice home.  She told me that dealing with my property management company was a nightmare when it came to timely repairs being completed right the first time around. I convinced her to stay by offering to have some free improvements made to her property.  6 months later the property management company went out of business for stealing money – should have known.  The bottom line is to make sure you have a system in place for your tenants to report poor performance by your property manager to you, the owner.

Turning over your real estate to investment property managers means that you entrust the profitability of your investments to them. Hence, make sure that you hire one which has the track record, knowledge and expertise of the different aspects in property management, including the use of technology to make performance of tasks more efficient.

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Legal Entity To Hold Real Estate Image by lhl via Flickr

Real estate investing is not all bed of roses. The challenges of running a real estate business is not limited to just the actual finding of a good investment property and conveniently collecting monthly rental income or handsomely earning a good profit by creatively selling it. Investing in real estate also entails cost and risk management. The form of legal entity that supports your investment properties plays a vital role in minimizing these costs and risks. Investors and tax and legal experts differ in their standpoint when it comes to deciding on whether a Corporation, LLC, Trust, or other types can best own investment properties. This divergence will continue simply because no one particular form can be considered the best for every investor. Your choice of a type of legal entity hinges on many factors including your personal circumstances and your strategy and affairs as a real estate investor. Let us look at particular factors that can influence your choice.

6 Important Factors To Consider When Deciding On A Legal Entity To Carry Your Investment Property

Type of Property To Acquire: Single family homes, multi-unit apartment buildings, commercial, office space, and so on.

Holding Period of Real Estate: Wholesale, buy-fix-and-flip, rent out and hold, etc.

Form of Income To Be Received: Rents, Profits From Sale, Commissions, and so on.

Estimated Monthly and Yearly Income For The Succeeding Years.

Exit Strategy For The Property: Sale, seller financing, lease option, pass on to next generation, and so on.

Other Investments and Forms of Income Vis-a-Vis Your Tax Situation: Non-real estate income, Salary, Stocks, Bonds, CD’s, Etc.

Your particular details of the above-mentioned factors can help determine whether to take on a Corporation, LLC or Trust. Many experts recommend an LLC for real estate. Although it can be a great choice, there are cases where taking this form can incur greater taxes as compared to a Trust or a Corporation. When deciding on the right structure of your entity, keep in mind five key results that it must be able to achieve for you.

5 Crucial Results Your Legal Entity Must Be Able To Attain:

Keep down taxes to allow greater overall ROI. The IRS and State agencies extend certain tax benefits for specific types of legal entities.

Allows your (property owner’s) privacy.

Curtails the intricacy and cost of holding the legal entity.

Gives maximum asset protection versus possible legal actions and creditors.

Provides sufficient leeway and a broad range of alternatives in managing and controlling the property.

Having studied your situation and known what results to obtain from the right legal entity, you are now in a better position to select the entity structure suited for you. Consider the following guide in making your choice.

Guide In Choosing The Right Legal Entity For Your Real Estate

1. Consult a competent real estate and asset protection lawyer to legally advise and assist you in establishing the most appropriate form of entity for your investment property(s). Discuss with him your analysis of your situation and what you want to get out of the entity.

2. At the same time, also discuss your analysis with a capable tax advisor who can aid you in formulating a game plan in deciding on the most fitting entity type for your investment property, this time from a tax standpoint.

3. Based on the advice of both attorney and tax advisor, establish the entity structure you have chosen to be most sensible for your property investments. Enlist them in your team so that they can work hand in hand in devising the most appropriate strategy and entity type for you.

Many real estate investors go the extra mile in research, analysis, due diligence, and many other measures to ensure ROI and success in the business. Pouring over your situation to determine the type of legal entity to support your property investments is one of these measures to construct your real estate business on a solid foundation.  New investors are sometimes so eager to dive in and start making money, they overlook this crucial aspect of running a real estate investment business.  Yes, it does cost more upfront, but if you don’t have the money to form the proper legal entity for your business you shouldn’t be investing in real estate anyway.  Bottom line, do NOT invest in real estate without understanding your liability exposure and tax consequences first.  As mentioned above, this is different for home flippers versus those holding properties for long term cash flow.

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The Lure of Buying Investment Properties

Fed up with the mercurial temperament of the stock market? Multitudes of people have instead been drawn to buying investment properties that can provide cash flow for years to come in the form of rental income. The many landlords enjoying semi-retirement funded by their steady streams of income from their rental properties indicate the bankable rewards of investing in the real estate. However, it also has its share of hurdles that any investor must be aware of and brace for.

The Setbacks of Buying Investment Properties

Vacancies and Funding Mortgage Payments From Somewhere Else

The promised steady stream of income from your rental property may not be as steady as you may have hoped for because there will be times when you will experience vacancies. Buying investment properties entails regularly paying the mortgage even when rental income dries up. During times of vacancies, mortgage payments will eat away at your cash flow, hence, you may need to finance these payments from other sources of income. Vacancies may occur when maintenance work needs to be done or when a tenant goes and you cannot immediately find a replacement. There are also areas where an oversupply of rental properties is giving landlords a hard time renting out. So before buying investment properties, make sure that these are not located in such areas. A Tenant’s Notice of Intention to Vacate attached to the Lease Agreement when you admit in a tenant is a way to avoid this hurdle.

Problem Tenants, Every Landlord’s Incubus

Okay, your rental property may be fully occupied, but who are the occupants? Beware of problem tenants who can wreak havoc to your property or to your cash flow as they may refuse to pay. A thorough background check, by calling previous and current landlords, or even by visiting the current place they are renting, before admitting them as tenants is a helpful way to steer clear of them. Also ask for security deposit, an amount which you can keep and use to fund the repair in case the angelic tenant grows horns and destroys your property.

Maintenance Costs That May Cost Too Much

When buying investment properties, consider the age of the building and the maintenance costs that goes along with it. The selling prices of older buildings may make you salivate and gung-ho to acquire, but always remember that the cost of its upkeep will whittle away at your cash flow.

Taxes and Other Costs

You have to pay for capital gains tax on the appreciation of your property and you are expected to pay for it once you sell it. Also consider in your finances the other costs incurred when selling or buying investment properties.

Less Liquid Than Stocks

When you grow tired of playing the landlord role and would want to sell your property, this may not be as easy to liquidate as compared to stocks which you can conveniently sell the next day. It may take many months for you to find a buyer if you are not inclined to selling it below its market value.

When buying investment properties, you do not just buy the prospect of reaping in substantial cash flow, but the possible problems that may go with real estate investing, as well. By anticipating them and proactively preparing for ways to mitigate them will help put your steady stream of income on an even keel.

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What Are Section 8 Tenants?

These are low-income families who qualify to avail of the Section 8 housing assistance provided by the US Department of Housing and Urban Development. They are given Section 8 vouchers as tokens to their entitlement to such subsidy. Many of these Section 8 Tenants are single mothers with children while a handful of them are grandmothers with grandchildren.

Why Accommodate Section 8 Tenants?

Ensure Timely Rental Payments

The government will pay for at least 60 percent of the rent, but if your rental fee is rather low then a 100 percent subsidy may be provided for the tenant. Your rental fee must be between 90 and 110 percent of the local Fair Market Rent determined by the housing authority. With Section 8 tenants, monthly rental collection becomes a duck soup because the government will just transfer the due to your specified account monthly. Also, if the tenant has a share of the rental, do not worry as most Section 8 voucher holders are keen on settling dues on time because they do not want to tarnish their records and squander this housing benefit.

Protect Your Property From Vandalism

If you have been in the business for some time, you may have encountered difficult tenants who damage the rental property to get back at you for serving them overdue notice. The security deposit cannot really secure your property as these tenants owe you rent for how months already. However, by accommodating Section 8 tenants, you can give them the heads up that you will report them to the housing authority should they damage your property so that they get booted out of the assistance program.

Lower Turn-Over and Shorter periods of Vacancies

Since most Section 8 tenants are single moms with children, these moms would surely prefer to stay put in a pleasant community especially if the kids have started school already. Moreover, as a Section 8 landlord, you would be required to set the rental period for a year. This translates to long-term tenants. And long-term tenants  could mean lesser vacancies and responsible tenants who would take care of your property because it will be their home for quite some time. Additionally, supply of Section 8 homes are short, hence, you can immediately find a replacement for a leaving tenant shortening the period of vacancy.

Get Satisfaction from Helping the less Fortunate

Besides enjoying property security, the assurance of timely monthly payments and lesser vacancies by dodging the bugbears of many landlords, housing Section 8 tenants may also give you that satisfying feeling no amount of rental income could beat when you are able to be of service to others especially the less privileged. However, you do not want your rental property to be branded as a welfare building, so also keep in mind to maintain a good mix of Section 8 and compliant non-Section 8 tenants.

The market of Section 8 tenants is one unsaturated niche that rental property landlords should consider because accommodating them could mean effortlessly receiving timely payments, security for your property and lower turn over and vacancy rates.

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