How to buy rental property

Investing in rental properties can be easily done with knowledge, guidance and a good mortgage broker or loan officer. On an average, 20 percent of investors will lose money on rental properties due to lack of knowledge and making a hasty decision.

First, choose the kind of property you want to buy. Choose properties where people want to live, close to shopping, decent schools and well-kept neighborhoods. I spoke with Remax Alliance’s Liz Arme, who works with many real-estate investors, for her take on investing in rental properties. She told me the three top ways to make money on real estate investments are:

1. Buy and hold for rental income. 2. Buy, hold and eventually sell. 3. Buy and resell. To be a savvy real estate investor with any of these investment plans, you must be able to understand market conditions, assess how much time and money it will take to rehabilitate properties, and know how to deal with tenants and building maintenance. The most successful real estate investors do their research, plan a timeline and stick to their budget.

Get pre-approved for a mortgage. Financing an investment property is different from residential property in that it requires a larger down payment and typically come with higher interest rates than owner-occupied residences. To obtain a fixed 30-year or 15-year loan, the required down payment is 20 percent of the purchase price. There also are hard money loans were private investors require at least 40 percent of the purchase price. Consider a fixed rate if the economy is particularly unstable at the time of your purchase.

The good news is that more deductions and tax strategies are available for rental real estate than almost any other investment. The key is to know what deductions you’re entitled to take and to keep very detailed records.

I spoke with Kimeth Gardner, CPA with Lichtenstein, Briefman & Glass, CPAs, about the tax advantages of purchasing rental property. He said one benefit of owning rental real estate is the numerous tax breaks. Many investors don’t take advantage of the many deductions that are available for rental property including but not limited to: depreciation; insurance; maintenance and repairs; real estate taxes; mortgage interest and utilities.

Depreciation tool

Depreciation is the biggest tax tool for a landlord because it basically allows you to write off your biggest expense: the purchase price of the rental property, not including the land. These deductions can be taken against potential rental income, allowing up to a $25,000 loss provided that your adjusted gross income is less than $150,000.

Find a good agent

Lastly, make sure you are working with a knowledgeable real-estate agent or attorney when drawing up the necessary papers relevant to the purchase. H. William Scovill, P.A. with Scovill and Scovill, recommends speaking with an attorney about how to hold the title to a property. Title can also be held by a corporation, a partnership or a trust. How title is vested, will determine who may sign documents involving property and future rights of the parties to the transaction, including matters involving real property taxes, income taxes, inheritance and gift taxes, transferability of title and exposure to creditors’ claims.

So do your homework and reap the rewards of owning rental property.

Karen Blondin, of Blondin Mortgage in Sarasota and affiliated with Barron and Associates, can be reached at (941) 376-2051.