September 3, 2021

Rental properties can offer real estate investors both long and short term profit opportunities. In the short term, there is the opportunity to charge rent that will cover the cost of the mortgage, expenses, and taxes while also hopefully producing a steady stream of positive income returns.  Longer term, you will eventually sell the property and earn profits from the equity it has built up overtime. The question is, when is it the best time for you to sell your property to see the best results investment wise?  Unfortunately, there isn’t a clear answer for knowing if and when it is time to sell a rental property. There are however, a number of key indicators to consider that are often personal to each individual investor’s situation.  Below we will look at some of the main reasons it could be time to sell a rental property and move on to other investment strategies.

It’s Not Making A Profit

Like all investments, there’s no guarantee a rental property will bring in a profit for you. For various reasons, some rental properties will never produce a profit, and others will stop earning a return over time. Tracking the money coming in as it compares to expenses over time will help you understand your situation.  If the rental property income is in the red for several consecutive months, it could be time to put the house back on the market. As with all investments, there are ups and downs, and it is completely normal for any property to be vacant from time to time.  That said, if you find yourself with a high rate of tenant turnover, are unable to charge enough rent to yield a decent profit, or can’t simply cover your monthly expenses, it could be time to post the “For Sale” sign and list the property.

It Has Appreciated

It is very important that you follow the local real estate rental markets in your area to know when it’s the best time to list your property for sell. For the best results, you should look to sell a property when the income from the sale in the short term will exceed the long-term rental income you would make otherwise.  To figure out which option is most likely to give you the best results, you should calculate your return on equity by dividing your annual profit in rent by your accrued equity.  If you learn your property is appreciating at a rate faster than your rental profits, it might be time to sell.

There Are Other Investment Opportunities

Even if a rental property is earning a solid return, there are still times when other opportunities may present themselves. Maybe there is a property in an up-and-coming neighborhood, or maybe you come across one that is in higher demand for renters. Whatever the reason, selling your current rental property can free you up to pursue other more lucrative opportunities.

You’ve Had It With Real Estate Investing

It takes considerable time and effort to manage a rental property. On top of maintaining the property, you are also responsible for securing tenants who will pay on time and if they don’t, you are then responsible for evicting them. You are responsible for any related expenses, including taxes and unexpected repairs.  If you are no longer able or driven to keep up with all of the responsibilities as a landlord, it’s time to move on. You should, however, avoid selling your property within one year of purchasing it avoid having to pay a short-term capital gains tax which taxed in a much higher bracket.  Homes which are sold after one year are considered long-term capital gains and are taxed at a much lower rate. The difference in that tax rate could save you thousands of dollars once everything is said and done.

Things Are Too Tight Financially

With all of the ups and downs that come in this life, there may come a time where you find yourself in need of a significant amount of money right now and don’t have time to wait on the potential profits on an investment long term. Obviously, before you sell your home for a quick buck, you’ll want to make sure this is the best decision for you and your financial goals. Depending on the situation, it could make more sense to simply take out a loan to cover these unexpected expenses instead of selling off the entire property.

Ultimately, when it comes to whether or not you should sell a rental property, the choice is up to you. Real estate is typically though of as a buy and hold investment. Historically speaking, your property should appreciate over time.  By monitoring the real estate rental market and your properties overall performance, you will be well set up to receive the best bang for your buck and come out on top whenever you decide the time is right for you to move on to other investment opportunities.

August 27, 2021

Budgeting finances is far from easy and sometimes mistakes are inevitable.  There are certain errors that can be especially costly to your personal finances if you are not careful. Unless there are no other options, you should always avoid borrowing money unless you are getting a very low rate and you are investing the funds towards something that will improve your financial situation long term. If you do feel you must take out a loan, consider exploring more affordable options, like lower interest personal loans versus quicker high-interest options.  Below we will look at a few big money mistakes you definitely want to avoid.

Living Above Your Means

If you are spending more than you bring in each month, you’ll never be able to get ahead financially. It will be nearly impossible for you to save money for emergencies or for your retirement. To the contrary, you’ll end up having to borrow money just to fund your comfort level and will ultimately end up further and further behind financially. To avoid this, it’s wise to make sure you keep overall spending well below what you earn. In an ideal situation, it’s best to keep expenses to no more than 80% of your monthly income and put the rest away in savings.

Not Having A Budget

If you don’t have a budget created that you can stick to the chances are high that you will not spend your money as wise as possible.  In fact, you may allocate too much towards the frivolous since you’re not tracking how much you’re actually spending on extras. This can lead to shortchanging other areas when it comes to accomplishing the goals you want to achieve financially.  Creating and following a budget doesn’t have to be difficult.  There are a lot of different budgeting tools and resources out there and it’s important to find one that works best for you. The most important thing ultimately is to pick an option that works for your needs and then stick to it.  This way you will be spending your money in a way that’s aligned with your overall goals and values.

Taking High Interest Debt

Borrowing money sometimes makes sense financially. For example, taking out a low interest loan to start a business that helps you increase your overall income would be a wise decision.  High-interest debt such as payday loans, however, can be really difficult to pay back and should be avoided at all cost. If you’re taking out this type of loan or carrying a balance on a credit card with a high rate, you are throwing away a lot of your future income to interest. This can make living within your budget almost impossible.  It’s best to avoid taking out debt unless you are getting a very low rate and you are borrowing for something that will improve your financial situation in the long-haul. If you do need to borrow, consider pursuing more affordable options, such as personal loans over high-interest options.

Buying A House You Can’t Afford

In most situations, securing a home mortgage means taking on debt that will take decades to pay back.  If you stretch your budget too thin just to buy a house that’s at the top of your price range, the large monthly payments you are agreeing to could affect your ability to do anything else with your money during the decades when you’re paying back your loan. You could be setting yourself up financially to be at higher risk of foreclosure and/or stressed out all the time just to make end meet each month. A higher-priced home also comes with higher home expenses, including costlier utilities and property taxes, which can seriously impact your financial situation.

The good news is that most of these financial mistakes are avoidable and can be fixed over time if you’ve already made them. For example, refinancing and combining all of your debt into one payment could help you to deal with high interest loans. Another option might be to downsize to a smaller home if your monthly mortgage payment is too much of a burden. The most important thing financially is to realize that doing any of the above common money mistakes could cost you your financial security in the long term and you should do whatever is necessary to avoid them down the road for your financial well being.

August 20, 2021

For those attempting to grow their wealth long term, save for retirement, or achieve a greater level of financial freedom, real estate, whether residential or commercial, offers strong potential to get ahead financially.  Real estate is a great way to diversify your financial portfolio and can offer solid tax benefits, but when it comes to investing in residential versus commercial properties, knowing which strategies are right for your goals can be a real challenge.  If you’re committed to long-term growth with potentially higher returns, the benefits of commercial real estate may be a great fit for you.

Like any investment, real estate comes with its own set of rewards and risks, and commercial real estate differs significantly from residential in its strategies and financing methods.  Understanding the below pros and cons of commercial real estate will hopefully help guide you to decide if it’s a potential good fit for your investment strategy.

What is Commercial Real Estate?

Commercial real estate is a property with five or more units used specifically for business or to generate income. This may include multifamily housing, hotels, offices, retail space, restaurants, industrial warehouses, healthcare facilities, or multi-use spaces.  While in a residential property, it is families or individuals which are the typical tenants; in commercial properties, it is businesses and corporations. It is worth noting that depending on their location, commercial properties may be subject to more complex zoning ordinances than residential units.

Commercial Real Estate Pros

Commercial real estate offers investors a specific set of benefits and opportunities that differ from residential properties. Does that make commercial real estate a better investment? It depends on what you’re looking to achieve, but consider the following advantages to commercial real estate:

Tax Benefits

Commercial real estate is entitled to certain tax breaks that can drastically reduce the tax burden for commercial properties. These tax breaks may include deductions for mortgage interest, depreciation, and non-mortgage-related expenses such as maintenance, renovations, or applicable association fees.  Additionally, you may be able to avoid capital gains tax when you sell your commercial property if you reinvest those profits into another building or asset. It is worth consulting with a tax professional to assist you in navigating the finer points of using an exchange strategy.

Desirable Tenants

Owners of residential properties often invest a considerable amount of time and effort in vetting high quality tenants who can be trusted to care for the property.  Commercial tenants are businesses or corporations who have a vested interest in maintaining a professional public image and are thus more likely to take the care and maintenance of the property seriously to protect their business and their brand overall. The relationship between a business leasing commercial space and the property owner tends to be a more professional type of relationship.

Commercial Real Estate Cons

Professional Services Required

Managing one or more commercial properties each with multiple tenants is similar to running a small business. There’s more to manage, more maintenance, and more public safety concerns. A professional management company is likely needed in order to stay on top of issues and keep things running smoothly.

Zoning

Commercial zoning has multiple categories, and regulations tend to be more complex than residential zoning requirements. A solid understanding of local zoning ordinances is needed in order to remain compliant with local laws.

Bigger Upfront Investment

More upfront capital is required to purchase a commercial property, and with it comes bigger maintenance and upkeep costs. Replacing the roof or the HVAC system of commercial property for example is far more costly than the same repairs on a residential property. Having a capital reserve and contingency fund is a must when you own a commercial property.

Getting Started With Commercial Real Estate

Investors who have done their homework and are ready to try the commercial real estate waters should first make sure they find a knowledgeable real estate agent who is experienced in commercial real estate.  While the upfront cash investment can be out of reach for some investors, there are some more passive options to investing in commercial real estate without purchasing an entire property.  Peer-to-peer real estate allows you to pool your money with other investors and affords the ability to open a portfolio with a much smaller initial investment.  Similarly, “Real Estate Investment Trusts” describe a company that invests in a portfolio of real estate projects and distributes earnings to its shareholders. There are several types of REITs: publicly traded, publicly non-traded, and private, each with its own set of requirements. While REITs are a hands-off way to invest in commercial properties, investors usually have less control over the types of properties they are invested in or when they can access their money.

While the high-risk/high-reward nature of commercial real estate might not be right for all investors, remaining open to considering new property types expands your options and could help you reach your long term financial goals.

August 13, 2021

Before entering into a new relationship with someone, it is not uncommon to ask yourself a series of questions first. Does this person’s values align with mine? Etc. It is no different when making a serious financial commitment like borrowing money from a potential new lender. There are some important questions you should always ask yourself and questions to ask the potential future lender before agreeing to anything in writing.  Below we will discuss several questions you should ask yourself before acquiring a new loan.

How Is Your Credit?

Make sure you have reviewed and understand your credit history as well as your credit score. The better your credit score, the lower the interest rate you will likely qualify for. Interest rate matters. If, for example, you were to borrow $25,000 for 60 months, the difference between how much you could pay with an excellent credit score and how much you might pay with a fair score, could be night and day. While a 100-point difference in credit score may not seem huge, it can be costly. With a fair score, your monthly payment could be hundreds of dollars higher, and you might end up paying thousands more for the loan over five years. Before taking out a loan, try to increase your credit score if you feel it is not where it needs to be. While it will take some time and effort, it is likely to pay off in a big way.

What’s Your Actual Budget?

The fact that you’re approved for a loan doesn’t mean you can actually afford it, particularly if you have lots of financial obligations that don’t show up on your credit report. For example, if you’re paying for your children’s education, monthly memberships, vacations, and several different hobbies, you may have trouble repaying the loan as agreed.  Even if you’ve been approved for a personal loan, take a hard look at your budget, including how much you spend on the things you enjoy each month. That way, you can make sure you can easily afford the monthly payments. In doing so, you may find you need to cut certain expenses in order to make way for a new financial obligation.

Is A Loan The Best Long Term Option?

We often spend money on things which provide great experiences and memories but no financial return. A great meal at a fancy new restaurant may be worth the price in terms of experience, but in terms of finances, you won’t likely see a return on this type of investment.  On the other hand, If you’re considering taking out a loan to remodel your bathroom or to install some new landscaping features, you could recoup your entire investment and then some. Before contacting a loan lender, determine whether or not you will likely see a return on your investment.  Now that you have a better idea of what you’re looking for in a loan, here are some more questions to inquire about with potential lenders:

What’s The Best Interest Rate Offered?

As the above scenario shows, monthly interest payments matter. A difference of 1%-2% can save you a lot of money long term. This is why it’s important to get comparative quotes from several lenders before settling on one.  The great thing about most loan lenders is that they will typically only run a “soft” credit check before letting you know if you qualify for a loan, and if so, what your interest rate will be. A soft check does not impact your credit score. It’s only when you decide to proceed with a loan that the lender runs a “hard” credit check that may ding your credit score a bit. Don’t worry, though. As long as you make regular payments on the loan, your credit score should rebound relatively quickly.

Is A Secured Loan Better?

Say you are interested in making several upgrades to your home to add to its overall value. If you’re trying to get the lowest possible interest rate, it pays to determine how much that rate would be if you opted for a secured loan rather than an unsecured loan. Most personal loans are unsecured, meaning you don’t put anything of value up as collateral.  On the other hand, a secured loan requires you to put up some form of collateral like a home or car in return for a lower interest rate. As long as its value is enough to pay off the loan if you fail to make the required payments, a lender may be interested.  Although a secured loan is likely to save you money, it’s worth remembering that If you don’t make payments as agreed, the lender has the legal right to repossess the collateral, sell it, and recoup their losses.

Are There Extra Charges?

With an excellent credit score there is no reason to pay for extras like an origination fee or an early payoff penalty. If your credit score makes you appealing to potential lenders, make sure to ask about fees. The difference between making a financial decision that works for you and one you may grow to regret is in asking questions before signing your name to a contract. Use the above guide to help make the right decision before you move forward on your next loan.

August 6, 2021

If you’re considering securing a loan, you should always make sure you are getting the best deal possible from whichever lender you finally choose. Obviously, there are no free rides when it comes to borrowing money, but the lower the overall cost of a loan, the quicker it will be to get out of debt.  That said, finding the right loan isn’t always as simple as it seems because there’s a lot to think about when deciding which lender to borrow from. To help insure you choose the right loan for your particular needs, follow the below tips when comparing loan offers.

Get Several Quotes

All kinds of lenders offer loans including online-only lenders, banks, and credit unions.  There can be major differences from one lender to another when it comes to interest rates, repayment guidelines, fees, and how long it takes to close a loan, so it’s important to get multiple quotes when shopping around for a loan.  You should try to get quotes from at least three lenders, but preferably more if you have the time, so you don’t miss out on a better loan offer.  It’s important to compare different kinds of lenders too.  Online banks, for example, often have lower rates and qualifying requirements than traditional banks because they require less overhead to run their business.

Avoid Hard Credit Inquiries

When you are shopping around for financing, some institutions will cause a hard credit inquiry to be placed on your credit report. Too many of these hard inquiries can hurt your credit score and can stay on your credit report for up to three years.  Luckily, many lenders will pre-approve you for a loan and disclose their rates and terms before placing a hard inquiry onto your record. In these instances, the companies will ask you to provide your Social Security number and some other basic information, and then perform a soft inquiry to find out what interest rate you’ll qualify for. You can then decide if you want to move forward with that lender and have them place a hard inquiry on your report.  Lenders that make it easy to comparison shop with soft inquiries allow you to protect your credit score while finding the best deals available on financing.

Compare Apples To Apples

When comparing loan rates from multiple lenders, it is important to make sure the type of terms are similar, not just the scheduled payments.  If, for example, one lender offers lower monthly payments but a longer repayment schedule, you may end up owing more in total for the loan than you would for a loan with higher monthly payments due to the added interest you’ll end up paying.  Always consider whether both lenders are offering fixed-rate loans.  Variable loan rates generally have a lower starting interest rate versus fixed-rate loans. These loans may seem like a sweeter deal because of the lower rate being offered, however, you’ll be increasing your risk with a variable-rate loan because the interest rate could rise during repayment. When rates increase, total loan costs go up in addition to the monthly payments.  That said, sometimes a variable-rate loan can make more sense, especially if you plan to pay the loan off early and can afford higher payments for a short period of time. Always make sure you compare loans with the same type of interest rate structure so you can get the best deal regardless of which type of loan you end up taking out.

Compare Total Costs

You always want to keep borrowing costs as low as possible, so it is common sense to go with whichever loan offers the lowest total overall costs including interest rates and fees.  When comparing rates, it’s critical to compare the APR not just the interest rate. The APR includes any added fees to show you what the total rate is that you will pay per year for borrowing money.  A lender should be able to tell you the total interest you’ll pay over the life of the loan, which is affected by your payment timeline and how often interest compounds.  Clearly understanding the total interest you’ll pay can help you pick the loan that will cost you the least in the end.  This way is a better bet than focusing just on monthly payments or annual interest rate, which can show a misleading picture if one loan has a longer loan repayment term or has more fees versus another.

Read The Fine Print

Always read the fine print for any loan you consider to find out all of the hidden details that could result in added costs.  For example, some lenders charge prepayment penalties meaning that if you decide to pay your loan off early, you could end up paying more for the loan than you might for a comparable loan without a prepayment fee. Some variable-rate lenders may adjust rates more frequently than others, which increases the likelihood of rates rising during the repayment term.  You need a complete understanding of the loans fine print terms to understand all of the risks and potential charges you could incur in order to make a fully informed choice about which lender is actually best for your situation.

Taking the time to compare loan offers is important, as some lenders offer significantly better deals than others. You don’t want to pay more to borrow than you need to, so make sure you follow the tips above when you shop around for your next loan.

July 23, 2021

Diversifying where you put your investment funds is a critical part of whether or not you will be financially successful long term. It is far too risky to potentially suffer the losses that can come from putting all your eggs in one basket.  These losses can happen in an instant and leave you with nothing. This is why it is much smarter to invest some funds in the stock market and some in real estate.  That way, you will help increase your chances of higher earnings and fewer losses across the board.  A lot of investors avoid real estate investments because they are intimidated or believe the misconception that you need a lot of money up front to invest. Luckily, neither scenario is true. Below are a few great reasons why real estate investing is a smart move.

Better Leverage

There aren’t very many investments options which allow you to invest in assets worth much more in value than you may have to invest. For example, $10,000 invested in the stock market will usually just get you $10,000 worth of stock. Real estate, on the other hand, can allow you to put down a small percentage of the properties cost and invest in the entire thing. For example, investors often secure a property worth $100,000; and only have to put down $10,000. It is not hard to find a lender to finance the rest as long as your income and credit are within good standings. This means you can invest just 10% of the property’s value and work towards owning it. As you make the monthly payments, you’ll secure more of the investment, increasing the rate of return and also gain from the property’s appreciation over time.

Better Appreciation

On that note, it is important to understand that real estate appreciates naturally most of the time. Typically, real estate appreciates 3% – 5% annually without you doing much besides maintaining the property. If you wish to go beyond that rate of appreciation, you can usually increase the rate by making even minor improvements and repairs.  That said, not ever improvement will increase a property’s value, so it’s smart to hire a licensed appraiser or real estate agent to find out the best renovations to maximize the appreciation.  Keep in mind, the renovations don’t have to be major.  Of course, adding a room will typically add more value than simple cosmetic improvements, but even minor enhancements can drastically affect a property’s value.

Tax Benefits

Real estate investors can take advantage of many tax write-offs. As a business owner, you can often write off the following expenses:  The interest paid on the loan, origination points, maintenance expenses, depreciation, property taxes, homeowner’s insurance, and HOA dues.  It is wise to consult with a tax expert before assuming you can write expenses off, but know that investing in real estate has many advantages. When you invest in stocks, you can only write off the capital losses if you need to sell the asset for less than you paid for it.

Steady Cash Flow

If you buy and hold a property, you can earn monthly cash flow by renting it out, and this increases the returns from owning real estate since you aren’t relying only on the appreciation but the monthly rental income.  It can feel overwhelming to buy an investment property, find a reliable tenant, and manage the property, but there are many available companies and resources out there to assist you along the way.

Financial Security

There’s a lot of financial uncertainty when you invest all of your funds in the stock market. As we all learned during covid, it can change in the blink of an eye. When you invest in real estate, on the other hand, you have an appreciating asset. It may go through ups and downs along the way, but a property’s value will usually return to overall gains if you hold onto it long enough.

Like all investments, there are pros and cons to investing in real estate. Understanding the risks can help you make the right investment choice for your needs. You may find that you still want to invest, but knowing the negatives can help guide you to smarter decisions that will protect you long-term.  Real estate is a great way to diversify your investment portfolio. When you invest some of your funds in real estate you can offset other high-risk investments like the stock market. In addition, if you invest in rental homes, you can enjoy the cash flow while the home appreciates, giving you significant gains when the time comes for you to retire.

July 16, 2021

When investing in real estate there may be a better option for financing besides using a traditional loan every time. While it is true that traditional loans have been used to successfully secure many types of real estate investments, obtaining a traditional real estate loan comes with a lot of challenges. There are tons of boxes investors must check for a traditional lending institution to agree to fund their loans. Luckily, these challenges do not mean that investors who do not qualify for a traditional loan should give up on trying to invest in the real estate market. To the contrary, many investors do not even bother to go through the traditional loan process to fund their real estate investments. If you’re curious to learn what investors do when they need quick financing at affordable rates, the answer to your next investment funding could be in securing a hard money loan.

What Are Hard Money Loans?

Hard money loans are investment loans given by individual investors or companies who lend money to investors that are secured by the asset they are lending money on. The asset itself is used as collateral to reduce the risk for both the lender and the loanee.  Hard money loans are great for fast financing where investors need to purchase a fixer upper, quickly remodel the property and then sell it at a profit.  Most of the time, hard money loans are short-term loans lasting from 1 to 3 years. With the shorter loan terms, they also carry higher interest rates than traditional financing options like primary mortgages.  If you are considering whether or not a hard money loan is the right fit for you, here are three benefits you should consider before making a decision.

Processing Times

Traditional lenders usually take around 28 days to process and complete funding for a loan which is often way too long for fix and flip investors. If things are going well within those 28 days, investors could secure a hard money loan, purchase a property, and begin renovations.  For that reason, hard money loans have become a very attractive alternative to traditional bank loans.

High Approval Odds

One of the biggest challenges facing real estate investors today is simply being approved for a loan from a traditional lender like a bank or government agency. Lenders almost always evaluate the applicant’s credit status and annual income before deciding whether they will approve the loan.  A lot of times, banks will only provide a portion of the full loan amount, leaving the loanee with little to no choice but to find another way to fund the remaining balance of the loan in need.  Hard money lenders, on the other hand, don’t typically consider the investor’s credit or their income. The main requirement for determining approval for a hard money loan is whether or not the loan amount is equivalent to the collateral on the property value being purchased.

Flexible Repayment

You usually will have more flexibility when negotiating the loan terms for a hard money loan since they are funded by private investors as opposed to large financial institutions. You can usually customize the repayment options to suit your financial position which in return makes hard money loans very convenient, especially for someone who’s just getting started in the real estate business.

As an investor, you often have very few options with little turnaround time to secure the financing you need to purchase a property. A hard money loan can be a great fit because they do not typically come with all of the red tapes that come with traditional bank financing.  If you decide to fund your next real estate investment using a hard money lender, try to avoid making and quick decisions. Make sure you evaluate the terms of the agreement, any fees that may be included, and what interest rates will be involved, so you can make a wise decision that is best suited for your needs.

July 9, 2021

If you are a real estate investor, there are a lot more financial numbers to keep track of besides just the rental income you generate. If you only keep track of income, you’d be responsible for a larger tax bill at the end of each year than you anticipated. Tracking expenses helps ensure that the investment is profitable overall. It also allows you to deduct as many of your costs as possible, which decreases tax liability and increases the bottom line. If you are curious of the best ways to track rental property expenses, use the below guide to help you keep track of everything.

What To Track?

Writing your rental property expenses down and proving them are two different things. It’s important to keep a careful log, but let’s first look at what you need to prove your expenses, especially if you’re planning on writing them off.

Leases – Keep all current and past leases for several years. You don’t want to be blindsided by surprise when something pops up unexpectedly from a prior years’ tax returns.

Proof Of Rent Collected – Make sure to keep proof of all the rent you’ve collected. If you collect rent digitally, track it. If you collect checks, make a copy of the check.

Copies Of Bills – Keep copies of all bills you pay connected with running the property, including tax bills, utility bills, and insurance bills.

Mortgage Papers – Keep all mortgage statements and proof of payments if you have a mortgage out on the property.

Legal Fees – Keep a receipt and make copies of any legal fees you incur in connection with the property.

Sale Papers – You must report the profits on your tax return if you sell any investment property. Understanding capital gains and how you can offset them is critical, and purchase contracts are an essential part of this equation. You should also make sure any expenses you pay in connection with the property are reasonable for the area. You should never attempt to increase what you pay and should always have keep good records for proof.

Best Ways To Track Expenses?

Similar to personal finances, these is not one right or wrong way to track rental property expenses. There are many ways to accomplish the same end goal so it’s ok to do whatever works best for your specific needs. The best approach is one that allows you to keep track of things in real time. It’s important to keep on top of expenses to ensure you file your taxes properly and get all the deductions you are entitled to.  Below we will look at some best ways to track rental property expenses.

Accounting Software

Luckily, in 2021 there are many accounting software programs to help you track your rental income. Programs like QuickBooks and TurboTax all provide solid options for real estate investors.  Do your research and figure out which one you understand the most and will use consistently as they all have costs associated with them. Many options have a free trial, so you can try before you buy. Take advantage of these free trials so you don’t pay for a program that doesn’t work for your needs.  The right program for you will vary based on the number of properties you have, your total expenses, and the complexity of all your other business needs.

Property Management Software

Property management software is a specific product meant just for real estate investors. They can help you track rental income, automatically track income and expenses, and keep track of all your real estate investment properties in one place. Most of these programs also offer a free trial so you can see how they work and determine if they’re a good fit for your business needs. Next we will look at some common expenses to be aware of.

Common Expenses

Tracking your real estate investment expenses is critical. Here are the most common rental expenses most investors pay: Mortgage costs, closing costs, inspection fees, appraisal fees, real estate commissions, marketing and screening costs, maintenance costs, repair costs, materials, as well as any legal costs. Most real estate investors have fixed and variable rental property expenses.

Fixed expenses include:

Mortgage payments, utility fees, trash fees, property taxes, home insurance, property management fees, as well as any required HOA fees. Other fees you may have include the costs to find a new tenant, maintenance and repairs, vacancy costs and major improvements.

What’s Considered Rental Income?

Rental income includes all of the following in addition to the rent you receive:

Security Deposits – You are required to claim any security deposits earned if it’s not returnable at the end of the lease. If your lease includes a clause to return the security deposit, it’s not income, but the difference is taxable if you do not return the entire sum. If you collect the first and last month’s rent when you accept a lease, that’s also income that needs to be tracked.

Other Tips To Track Expenses

As you can see above, there is a ton that goes into preparing taxes when you own rental property. Everything you spend or collect matters and makes a huge difference in the amount of taxes you owe at tax time.  To make sure you accurately track your rental property expenses, consider the following:

Keep your business bank account separate. It’s challenging to differentiate between personal and business income and expenses when you keep them all together. It’s wise to open a separate bank account and conduct all business from that account. Keep track of all receipts. Its smart to scan copies of them and store them on our computer or phone to always have a record on file.  Regardless of what system you decide is best for you, figure out a system and subscribe to the software that suits your needs the most. Take the help above to maximize your tax write-offs by staying organized as a real estate investor.

July 2, 2021

As a first-time investor, you might be hesitant to commit to your first investment. It can be quite stressful to think about putting all your eggs in one basket, especially when first starting out. There are many factors to consider before investing in a property, and it’s critical to take your time and research before you jump right in.  It’s wise to start off slow before taking a giant leap and betting your entire life savings. To assist, here are some smart strategies for first-time investors to get started with investing in real estate.

Passive Investing

Many first-time investors often invest as a passive investor for their first deal. This approach allows a more experienced investor to lead up the investment and then report back to their shareholders. This helps new investors understand the ins and outs of how a property performs and low points that can affect performance on returns without having to carry the entire wait of the investment on their shoulders to begin.

Limit Your Individual Risk

It’s wise to start small by partnering up with an experienced investor so you can hopefully limit your financial risk. Everyone has to start somewhere and many first-time investors jump into things alone and experience fatigue or end up over extended without the proper experience. It’s much smarter to start out with a seasoned investor and consider hiring them to coach you or partner up on a deal.  This way you have the opportunity to observe their process and possible team up with them on a solid deal.

Real Estate Investment Trusts

Another smart strategy to consider when starting out is to look into something easy and relatively low-risk like a Real Estate Investment Trust.  These trusts help take the daily management off the table but you can still get an overview of the types of returns to expect as well as the markets for real estate in certain geographies. These trust help form the basis of knowledge you can utilize to grow your investments into more focused and viable investments in the future.

Find A One-Year Tenant

It’s smart to find a property in a good neighborhood and find a tenant that is willing to commit for at least one year from the start of their lease. This will give you the opportunity to have immediate cash coming in as well as secure your cash flow once the lease expires.

Turn Your Primary Home Into A Rental Property

If you’re not ready to give up the security of your own home to invest in a rental property, consider starting out by hanging onto it and turning it into a rental property. You will already be more familiar with the property, aware of its current condition, monthly expenses and any necessary repairs; it can become a great starting point for beginning  your rental portfolio.

Set A Small Budget and Get Started

It’s wise to start with a small budget. It is a challenge to start small in real estate investing, the processes and burdens of owning investment real estate are very similar if not more difficult for smaller properties. Smaller properties often require more personal attention and care from the individual investor while larger properties can garner that attention and care from professional property managers. If you have been wanting to invest but are too shy or worried it will be a giant mistake, simply budget an amount you don’t mind losing and take the ride. Once you’ve made it to the other side, you will better understand if you want to ride again or cut your losses and try some other form of financial investment.

June 25, 2021

When debating whether or not to buy an investment property, condos can be an appealing option, especially if it’s your first investment. They often cost less than single-family homes and can be simpler to maintain.  Whether or not they’re a good investment, however, depends on a variable of different factors. Here’s what you need to know about investing in condos:

Condo Appreciation

Most of the time, condos appreciate at a slower rate than single-family homes. For example, the average sales price of a condo was up nearly 10% last year, however, the average sales price of a single-family homes was up over 15% during the same period. That said, condos will still likely increase in value over time. Some factors to consider when predicting appreciation include: Location, walkability, amenities, population, demand for low-maintenance housing, as well as how well the property is maintained.

Pros To Condo Investing

Investing in condos can be a wise choice, especially in an expensive part of the country. Condos often cost less than single-family homes and most of the time you do not have to worry about maintenance or repairs. Here are some of the main advantages to buying a condo:

They’re Cost Effective

One of the main draws of owning a condo is their price tags. The average sales price of a condo is currently around $300k nationwide, while the average price of a single-family home is currently around $350k across the country. Since the number of available homes for sale are currently quite low and prices are continuing to increase, many investors are looking to condos as an appealing, cost-effective option.

They Offer More Amenities

For those interested in communal living, condos offer attractive amenities. Many condo communities include picnic areas, gyms, saunas, pools, and other community centers. These attractive amenities can make it easier to find renters for a condo or guests to rent out the condo short term on one of the many vacation rental sites online.

Fewer Repairs and Upkeep

Most condo fees are relatively low once you factor in that you aren’t responsible for all of the maintenance and repairs. With a single-family home, you’ll be on the hook for maintaining the roof, patio, gutters, paint, and every other part of your house. With condos, however, you pay your regular fee and the homeowners association takes care of the external upkeep including snow removal, yard work, and other exterior maintenance. This can make things much simpler for a first time investor.

Appreciates and Provides Cash Flow

A condo can provide immediate cash flow, whether you decide to rent it out or post it online as a vacation rental property.  While receiving this cash flow, the condo also appreciates in value over time, increasing your equity overall.

Cons To Condo Investing

While convenient and typically cheaper than single-family homes, condos come with their own set of drawbacks. HOA fees and rental restrictions are just a few negatives you might be concerned of as an investor or first time condo owner. Here are some of the main drawbacks to purchasing a condo:

Association fees

Depending on the location, condo association fees can be anywhere from a few hundred dollars a month to a thousand dollars and beyond. Additionally, large monthly condo fees increase your payment, diminishing your overall return on investment. It’s important to learn as much as you can about the condo’s HOA before you buy a rental property there. Request to see the HOA’s finances and make sure they have adequate cash reserves for unexpected expenses. If the HOA doesn’t have an adequate reserve fund, it might have to increase dues or impose special assessments to cover certain renovations or replenish that empty reserve down the road, which will ultimately cost you more money.

Rental Restrictions

Not every condo community allows you to rent out the condo, especially in the short term as a vacation rental online. If you plan on renting out your unit, be sure to understand the limitations the community has in place prior to purchasing a property.

Association Restrictions

In addition to rental restrictions, a condo community may have other restrictions to consider. It is not uncommon for a communities homeowner’s association to limit the types of modifications you can make to the unit or the number of pets you can own. For some investors, these restrictions can be a deal breaker.

Difficulty Financing

It can be harder to get financing for a condo than with a single family home. Condo mortgage rates tend to be higher than rates for single-family homes, and the lender might have other conditions, like expecting a certain amount of the units in a community to be owner-occupied before offering you pre-approval. When shopping around for condo financing, you might need to show a high level of financial health and provide a larger down payment to be approved. You might also be required to show additional documentation about the condo community before a bank will agree to consider you for a loan.  All of this additional red tape can be time consuming and slow down approval, so be prepared to allow additional time during the closing process for a condo.

Are Condos A Smart Move?

Before investing in a condo, carefully evaluate your specific financial situation as well as your long term investment goals, and weigh all of the pros and cons. If you are considering investing in condos, make sure that you’re choosing a location that’s likely to provide a good rate of appreciation in a desired market.  You should also consider how much time you plan to spend on maintenance and general upkeep as well. As long as you are prepared to keep up with all of the required fees and any restrictions that may prevent you from renting out the property, investing in a condo can be a very wise financial move.