As entrepreneurs find success with their primary business ventures, many search for the proper investments for their profits. Being an Attorney reviewing thousands of clients' situations and tax returns each year, I am convinced that more entrepreneurs should consider rental real estate as an important part of their portfolio.
You might not accept this idea of owning a rental property and having tenants, due to the time and skills it may take to manage a rental portfolio. That's why I urge you to continue reading as these points will definitely change your mind.
The Use Of Leverage
Real estate is one of the few investment vehicles where using the bank's money couldn't be easier. The ability to make a down payment, leverage your capital and thus increase your overall return on investment is incredible.
The Tax Write-Offs Against Your Other Income
Having a rental property affords investors with another incredible opportunity to convert personal expenses to potentially valid business deductions. Also, depending on your classification as an Active Investor or Real Estate Professional and your income level, there is a good chance that your rental property will give you an average of tax deductions that you can use against your other income. With that said, this is something you will want to discuss with your tax professional before investing so that your expectations are realistic.
Here are some strategies I have learned and applied over the years that can help you find the best rental property for you in your situation.
Buy Local If You Can
Let me repeat the words “if you can.” That’s the key. Don’t get hyper-focused on buying local so you can “check on the property.” It’s okay if you don’t buy local. It’s far more important to buy quality rental properties, rather than local. But, if you are lucky, and you truly live in an area where there are good returns and rental markets, where the return on investment is legitimate without having to own it outright or put down a fortune then consider yourself lucky.
Learn To Manage Your Property Manager
Unless you are a full-time real estate investor and one tough cookie, get a property manager! If you don’t have the temperament to be tough and start eviction proceedings three days after a tenant is late, have a personal intervention with yourself. You may not have the time, skills or system to be your own property manager, even if the property is local. Be a realist. Your time could be better spent looking for other rentals, doing the books and earning income with your day job or operational business.
Remember, You Are Buying Numbers
Too many investors get emotional about their purchase and can even envision themselves living in the rental property they are analysing. This is a terrible mistake. In these situations, the investor often over improves the property, investing far too much time or capital and blows their return on investment out of the water. You aren’t buying a property — you are buying “numbers.” Consider: What do your dollars get you in dollars and cents? Not, what cute neighbourhood or yard do they get you?
The far majority of us will never get rich overnight. It takes long-term investing and a diverse portfolio to build true wealth. Bottom line, these are the key themes, strategies and approaches to real estate that my successful clients use. Don’t underestimate the power of real estate on your tax return in your portfolio of wealth.