How do I make money with an investment property?

I'm looking at 425k property with a $2600 mortgage and about $700 in monthly expenses (HOA,Taxes,Insurance)

The current renters are paying $2800 a month.

With write offs is there anyway to break even or make a profit in the next few years? If I make 50k per year will I be able to write off anything from this property to reduce my taxable income?

thanks

Thanks for the answers so far. Please let me add I'm not asking if this is a GOOD investment. The question pertains to the tax benefits and how close to breaking even I can come.

I already know I want the property, I just need to know how much I would be losing per month.

I鈥檝e owned 40 or 50 investment properties and the only time I consistently made money was if I started with what I could rent the property for and worked backwards. Why would you do this when you already have a tenant? Because sooner or later they will move out and you will have a vacant property you need to rent. So, before you buy, take a dispassionate look at the property.

Some questions on any rental property you are considering:

In a given area, you can determine what a property will rent for. In Las Vegas (I am a realtor), you can spend $250,000 for a property or $350,000 and, depending on the area and such, they will both rent for about $1200/month. What is the typical rental rate for similar rental properties in the area where this property is located?

What are the typical vacancy rates for similar properties in the area? If the typical time to rent is four months, will you be able to make the payments during this period?

Acquisition costs 鈥?Purchasing a property has certain costs. In Las Vegas, typically it will cost you between 2.5% and 3% of the purchase price to close. Also, since you are buying the home as an investment property, the mortgage rate will be higher than if you were going to live in the home.

Other monthly fees 鈥?Will you have to maintain the yard or do you expect the tenant to do this? You mentioned HOA fees, taxes and insurance so you are aware of these other costs.

Maintenance costs 鈥?you have to plan on some maintenance costs. This is where you can get killed. I鈥檝e had properties that stayed rented but I had the wrong lease agreement and ended up paying for excessive maintenance which turned a (on paper) profitable property into a significant loss.

Tax situation - Once again, I am a realtor, not a tax expert so only take the following as guidelines. The $2,600 monthly rent is income to you. The mortgage, taxes, insurance, maintenance, advertising for tenants, etc are expenses that are tax deductable. Another big deduction is depreciation. I believe (you need to verify this) that the IRS allows you to depreciate the home over 27.5 years. Thus, if you purchase the home for $425,000, you can deduct $425,000/27.5 years or $15,454 per year from your taxable income. What I have just said is an over simplification and may not fully apply In your state. You need to talk to a tax expert in your state.

So, you can shield a lot of income with a real estate investment. However, when you sell the property, the IRS will want it all back, unless you do a 1031 exchange. I will not go into it here but check the bottom of this webpage on my website: http://www.iselllvhomes.com/investmentpr... for a brief summary of what a 1031 exchange is.

How much does getting input from subject experts cost? Depending on how much time you are willing to spend on the internet researching, I would say between $100 and $200 dollars total. This is a small price to pay for what could be a huge loss.

Real estate investment has always been a path to wealth but you need to look before you leap.


Eric Fernwood
Eric@ISellLVHomes.com
http://www.iselllvhomes.com/

keep looking,,
I see several rental properties available in my area that are returning around 15% to 16%

It doesn't look like a good investment at all. Don't jump onto the buy to let bandwagon just because every one else did it before you.

A rise in interest rates, an unforseen capital expense, void periods etc may cause you untold difficulties.

You might be better off buying yourself a bigger home - that way you get the benefit of any capital appreciation without the hassle factor.

The time to buy investment property is when capital values are going up, interest rates are falling and you need to buy in an up and coming area to maximise your returns.

Typically with an investment property you want to be sitting on about 70%-80% LTV (loan to value). So for this property you would want the appraised value to be about 525k-550k. Also go on to the MLS and look at all of the actives in the subdivision and make sure that the houses are actually selling, and also that there are no other homes for a better price. And yes any loss or interest you incur is tax deductible.

i write off all my expenses on "rental income"
everything is a write off......repairs, taxes, insurance, etc..
so your making $200 from the rental and paying that to reduce your taxes, insurance etc..the other $300 is out of your pocket..and income...
to me.........your doing great..a $425k property and paying $300 a month......yep......sounds good to me..
I would do it........especially since you have another income source...
yep you can write off all repairs and upgrades..so example..carport to covered garage..improves the property and you can write it off as an expense..
sounds good to me..