How to Create a Truly Passive Rental Income

Rental properties are an income-crating investment that will help with reaching goals of financial independence. With enough, you can quit your job and spend time with your family, travel, volunteer, or work at a not-super-high-paying job that you like. But, do they create truly passive income?

Well, the answer is not every month.  Sometimes, it can take a while to find the right tenants, and there might be maintenance issues, property emergencies, and also some repairs, and you may get bad tenants, and in that case, it’s definitely not the most passive income.

So how do you maximize the passiveness of your rentals? Well, read on to find out.

First of all, more cash flow means better options.  Your march towards being passive starts before you even get a property.  You must only invest in properties with a stronger cash flow because good cash flow comes with the option of getting a property manager that handles it.  If you advertise vacancies, screen the tenants, sign the leases, get the rent, and handle repairs, and you can get that handled by someone else if you can afford it.  A 1000/month rental that only nets 200 dollars in cash flow won’t cut it, and your entire cash flow would go towards the manager, so you won’t’ have repair costs, accounting costs, vacancies, and the like.

It means a whole lot more if you have your work invested upfront, and a more difficult hunt to get properties with an amazing cash flow. Be sure to calculate the estimated annual repair costs and the capital expenses, the vacancy rates, property management, and accounting fees, and other overlooked costs. If the property has good cash flow, then go for it.

Also, avoid the slums. The low-end housing often means low-end tenants, and they will be difficult, time-sucking, won’t pay rent on time, if at all, and you’ll have to deal with them in court, and they won’t be treating your property right.  Affordable housing might seem like a good idea, but you’ll be branded by others as a “slumlord.” Do you want that?  Nope.  Instead, go towards middle-class housing where you want the rental income passive instead of being a mess.

Finally, screen your previous tenants, and make sure you really screen them. they’re a by-product of leasing tenants who are good, and they pay their rent every month. Finding good ones does mean getting a little extreme, whether it be credit reports, criminal checks, also run eviction history reports, and call up their employer or direct supervisor, to find out what type of people they are.  You should, if they exaggerate their income, not least to them. If they lie about the little stuff, they can’t be trusted with the bigger issues.  Do spend time screening your tenants.

Being a good landlord involves doing the right thing, and if you want to create a truly passive income that will help you, this is the way to do it.

The Top Tools to Take Advantage of When it comes to Tax Season in Real Estate

Do you want to take advantage of all the tax savings that are available to investors underneath the new tax reform?  Here, we’ll talk about some tax strategies that you should consider in this current year.

First, look at overlooked deductions. As investors, we are good at deducting our rental related expenses including interest, taxes, and management fees. Many often overlook the legitimate deductions not specific to the property, such as the business related expenses, the business travel costs, meals, education expenses, membership costs, and even the real estate books.  These can help you save huge tax dollars, so don’t’ forget them!

You should also look at the fact that interest deduction was taken away from the related HELOC on primary homes, so if you took out a primary home HELOC and used the money for investments, you can still deduct the interest out, especially against the rental or flip incomes.  You should talk with the tax advisor and make sure that you do track and deduct these expenses. 

Another pitfall that happens underneath this new tax reform is the limit that can be deducted for property taxes and mortgage interest on the main homes. These limitations don’t apply to investments, so if you’re a landlord or a flipper, you can still fully deduct the interest and taxes from the investment properties.

The new tax reform did provide a bonus depreciation in 2019, which means that if you’re an investor that’s buying furniture, appliances, laptops, equipment, or other assets, you can write this off 100% of the costs immediately, rather than just taking depreciation over the years.  Bonus depreciation can be used with or without a legal entity, and it can be used with new or used types of assets. 

There is also the tax free treatment that is new for wholesalers, flippers, real estate brokers, and syndicators, and even real estate agents might be eligible for a 20% tax-free treatment that comes with this new reform, which means that if you have an eligible taxable income that is 100 dollars, the 20 dollars on that is completely tax free, so you only have to pay on the remaining 80 or so.

Finally, look at safe harbor zones.  You may wonder what landlords and investors in the short-term rentals might be different from those doing the BRRRR strategy.  Those do also have the ability to be 20% tax free.  The safe harbor rules are there for them to take advantage of, so definitely check out to see if you qualify for that, and act accordingly.

When it comes to taxes, you definitely want to take advantage of these in the realm of real estate, and look into as well what you’re getting out of each of these. It will make a world of a difference in the overall future of the real estate market that you have, and some other aspects as well too.

Key Strategies and Benefits for Real Estate Investors

When you’re looking to invest in real estate, there are some things that you can do that will benefit you in the long run.  Here, we’ll highlight what those are, and why they matter to you as an investor in real estate.

The first thing is to look at the tax-strategies or a real-estate focused CPA, and hire these on.  The best thing about these people, is they know how to save you money, up to hundreds of thousands of dollars since they will take advantage of the tax-filing approaches that you may not even know actually exist.  It will help with you saving some serious cash.

You should also be a direct investor in real estate, where you’ll get a K1, and in essence that allows you to maximize both the deductions and the income that you have.  It will help save you more money.  You should also utilize the cost segregation studies that are there, to help with accelerating the depreciation, so you can write off more in a much shorter period of time.  You also should classify the deductible expenses so you can maximize the write-off as well.  You should also consider returning capital to you and the investors rather than distributing the form. This will help to prevent taxes and the increase deductions that might come with this.

At some point, you should refinance tax-free and reinvest the proceeds, which will help with maximizing the income so you can grow your wealth a whole lot more. 

Take advantage of the 1031 exchange, which means that exchanging a property for a like-kind property and deferring the capital gains tax.  This will help with building more deductions for you.

You should also avoid passive loss limitations by becoming a qualified real estate professional, so you can maximize the passive losses in the current year, so you don’t have to carry them forward, and that in turn will save you money.

Using retirement options, including the self-directed IRAS, the Roth IRAs, the Solo 401 (k)s, and other life policies will actually help to operate and help to gain income in a tax-free manner.

You always can reset the basis at death, which means that by passing the real estate to heirs at death, they don’t pay zero capital gains tax, and it can ultimately save you money. This is something that you should consider if you’re going to be in this for the long haul.

Real estate tax season can be a bit of a nightmare for some, and it can be very confusing to understand. Luckily, there is a lot that you can learn, and as you can see here, you can truly benefit from taxes, and as a real estate investor, truly get the benefits that you want to so that you too can get a better, more rewarding understanding, and really take advantage of the tax season so that you end up not losing out on as much too.

Should Pets Be Allowed in Rentals

This is a common question most owners have. They want to get tenants, but the big issue is pets. Pets can tear up carpets, ruin walls, and can be a bit of a mess. However, there are benefits to having these, and here, we’ll talk about them.

First and foremost, most pets aren’t destructive, especially the young ones. When you’re getting prospective tenants, you should look at the references and interviews so that the person has an idea of how they take care of the pet and property. You should also in the agreement have a picture of a pet, veterinary information, and there is no history of animal violence. You should also have a pet deposit with the monthly pet rent possibly as well.

If you have a fenced yard on the property, do consider accepting pets.  It would be difficult as well for domesticated animals to harm the tile floors, but in places with wood floors, don’t really allow dogs.  Just cause you to allow pets on one place doesn’t mean it’s okay across the board, and if none of the properties are good for animals, that can happen.

Also, keep in mind that many pet owners love their animals. they’re part of the family, and they’re willing to pay more and a security deposit plus pet rent to house them. Most will follow through with the payments, and they are responsible with their pets. Most people are, and there are pet owners that know how to preserve the condition of properties, and if you are considering doing this, you can actually offer a refundable pet deposit. There is no incentive to stop an animal from damaging if the person pays a non-refundable pet deposit immediately. But, if there are a few hundred dollars that are there it’s safe to assume that renters would put more effort into the pet-related damage before they move out, or adjust the behavior of the pet.

Now, if pets do end up causing damage, obviously the pet owners won’t get their deposits back.  Usually, they are the ones that go nose blind on the animals, and if there was anything wrong with the place, usually they’ll be covered.

Now, if you have puppies on the place, I do suggest making the pet deposit a little bit larger, because let’s face it puppies are hellions and they can chew on carpets and the banisters, and they love to chew and mark up items. This is something that you should keep in mind when you’re choosing pet owners.

At the end of it, you choose the type of pet owner that you want in your place. Look for the responsible, the ones that will keep the place nice, and will have control over their pets. I do prefer cats to dogs myself, but again, this is up to you as a landlord. Choosing the right types of pets for the place is important, and it can save you many headaches too.

Tips and Tricks for Home Staging

Home staging is something that can be super impactful for buyers, and it gets buyers to help envision that they’re living there.  You want to cultivate this feeling since it generates emotion, and it can make you feel more accomplished too. Home staging doesn’t. include putting family photographs there, soccer schedules, toiletries, laundry, shoes, the pillow, junk mail, or whatever.  You want to put caulk, tackle, or pint everywhere.

You want to make sure that you stage the living room, kitchen, and the master bath.  The living room can include a big couch that is comfy with generic can make it so that the buyers do envision taking a load off in there.

Then, look at the kitchen. Clean the countertops, replace older appliances, and give your cabinets the extra touch it needs with new fixtures and fresh paint, in order to appeal to the buyer’s sense of positioning atmospheric details n there. Bowls of fresh fruit, cookbooks, placemats, flowers, or even the smell of cookies coming out.  You can give them cookies as they walk through for that extra thoughtful touch.

Finally, tackle the master bathroom. Get rid of dingy towels and put fluffy white towels in a wicker basket, and some spa-worthy products.  Lighting some unscented candles or hanging a plush bathrobe is important.  Think about possibly upgrading with faucets, towel racks, lighting, and even some mirrors. Make sure to replace the shower curtain and scrub all about.

Some tips to consider are to make sure that you look at the way your home looks, and make it look appealing. Hang either clean or new drapes, hang a mirror in the living room along with the front hall, consider putting up some pictures or paintings, replace the outdated light fixtures, lighten the load on bookshelves with trinkets and books, leave some of the late-issue magazo=ines on the table, put a few plants in so you can liven up the place, include putting practical appliances on the countertop in order to make it look like it’s able to be used, and finally, consider putting accent colors into the home, such as in the form of the vase, blanket, or even a picture frame. Consider putting together a few nice little actions to help spruce the place up, and to help liven it so that it looks good and feels homey.

When it comes to putting your home together, one of the key ways to sell it isn’t through just talking the talk, but also through home staging. it’s effective, it’s simple, and it gets the job done, so definitely consider doing this if you feel like you need to put together some wonderful items that will help you with putting a means to envision everything there.  When home staging, look to make sure that you can envision everything that is happening, or even improve all of the different means to help make it look better and more rewarding than you ever thought.

The Best infrastructure to have Before you Buy the First Property

Having the correct infrastructure means that you have a team, know who the property or real estate manager is, know what maintenance you have, but also is the kind of accounting structure, bookkeeping, or even legalities that you might have.  There are different ways to segment those, and here, we’ll talk about some of the important elements you need before you begin.

You need to know the best place to stat. The more that you get consumed by legal structure, depreciation and accounting, and various strategies and markets, the more you’ll be in circles.  You need to get online and immerse in everything real-estate related, and you need to choose a strategy that fits you best. Once you do, scratch that from both legal and accounting, and understand that every attorney and accountant have their own means of perceiving the tax code and law. Not all of them are correct and not all are wrong, but you need multiple opinions. Once you get the same answer, you can proceed, and make sure to set up influential relationships along the way.

Next, you need to learn from your mistakes. here’s the thing, if you don’t have this all in place, it will bite you in the butt years later, and it’s a nightmare, and you should make sure that, if you notice a mistake, you immediately make sure that you know what you did wrong, and do make sure that you don’t regret, but instead start to fix the mistakes that you have. If you don’t, you’re going to regret not beginning this.

You need to make sure that you do have everything in, and make sure that you immerse yourself in everything related to real estate, whether it be strategies, scratching the surface at what you can do from legal and accounting perspectives, create relationships with the right people, and begin.

You shouldn’t sit on your butt procrastinating either. that’s not going to get you anywhere. If you just let things go by the wayside, never work to change this, and overall don’t take the time to really learn, you’re never going to get better. you’re never going to change anything, so if you know what’s good for you, you take some time and learn about the best means to put together the best infrastructure possible, and the best means to create the life that you want to have.

And this, in turn, will help you. Building your real estate business isn’t just knowing the right people, or contacting a property manager, you need to make sure that you understand all of the aspects, and really get to learn this.  you’ll be able to, from here, create a better, more rewarding result from this, and help you prevent the aspects of making mistakes again. you’ll be able to, from this and this alone, create a wonderful and remunerative action that allows you to generate a lot of success too.

Five Ways to Buy a House with Bad Credit

One question commonly asked is if you can get a house with bad credit. While the average score is 669-699 depending on which credit report does get used, the numbers still steadily rise, and a lot of people have less than 600. this means that many are unable to obtain a mortgage, which makes buying a house or any investing a task. So can you? Yes, you can do it, but it’s best if you don’t’ do it right away.

Bad credit happens because of medical bills, or identity theft, or maybe the person lost their job and had to miss payments. The recession in 2007 left millions in this position, but some are caused by stupidity, especially with credit cards. Lots of times, people obsess over luxuries and have caused many people to lose good credit and wind up in bad spots. If you’re in the poor range, you should look to see if it’s a symptom of a bigger issue. If it’s a symptom of selfishness, greed, impatience, or other bad habits, it’s definitely something to watch and look into. If it was suddenly boosted way more with paying off debts, sometimes these same people fall into debt, so you need to look at how you handle money, and if you can’t, investing is probably not for you.

There are loans you can get, with some of the credit scores being about 580 or higher, but you may need to pay a bit more on the downpayment.

If you’re still wanting to do this with bad credit and know how to manage this, first you can try partnerships, which help to fill the void. It helps benefit others in a mutual sense. However, be careful, since the wrong person can ruin you.

Seller financing is another option. This is where the seller finances the property, rather than making you get a loan. They allow you to make monthly payments until it’s paid off, or the terms of the loan ends. Sellers will not ask for a credit score, but it can be used to own the property free and clear, without a mortgage. It’s a win-win for everyone.

You should also look at hard money lenders, which are those that lend money at higher interest rates. They can be high, with less than two year terms, and they charge large fees, but they’re great for flippers that want to get in and out of it, and they don’t look at credit scores.

Private money lenders are another. They are not pros, but rather they want to diversify their loans, and it can be pretty much anyone. You need a relationship though.

Finally, consider wholesaling, which is finding deals, putting them under a contract, then flipping to a higher amount, without using their own money. But, it is a job, and it’s hard.

It is possible to finance a place without credit, but it definitely is not the ideal path for you.

What is Leverage

Leverage is a really cool concept to use with your investments, and it’s an important concept that can be used to help change your business. Understanding where your cash flow comes in is quite important, so understanding this is definitely a big part of leverage.

There are three key pieces of data to consider here. First, you’ve got the cap rate of investment, which is 10% generally.  Then, you want to look at the loan constant, which is the ratio in finance to signify the relationship between the loan and loan payments. Before calculators and computers, this was a constant that was used to determine the monthly payments for was used to take the total loan payments and dividing it by the principal balance on there.  You should from here use this to determine leverage.

Leverage is used to indicate the return that you’re getting or losing out on on the capital that you’re borrowing for the loan. Leverage is defined as your cap rate minus the loan constant.

With this, you can essentially determine the cash flow of any situation, and if you need this for learning about any property or loan, this is something that you should consider learning.

So let’s take for example that you want to get a property with no loan, and you can use the cap rate to determine the NOI, which is the same as the cash flow if there is no loan. Which is essentially the price times the cap, if you’re getting a property for say 900,000 dollars, and the cap rate is 10$, then the NOI is going to be 90 grand essentially.

But what if you don’t realize that the cap rate applies to any cash you contribute, even if it’s not the full, the same rules apply.  Essentially, what this means is that if you put down say 500 grand on a property, not the full 900, and you then use the cap rate, then you’ll get the 50,000 on that as the cash flow.

Leverage also applies to borrowed funds, and they are either working for you or against you. When borrowed, it’s called positive leverage if it generates extra cash. With positive, borrowing money increases returns, whereas when it doesn’t create cash flow, it’s negative leverage, and decreases returns. So how do you know? Well, you can calculate the leverage value at this point. =if the value is positive, you’ll get positive leverage, if it’s negative, you’ve got leverage.

The cap rate tells you how much it’s earning, the loan constant tells you how much borrowed funds are, and how much it’s generating for the lender.  If the cap rate is higher than the loan constant, the lender isn’t taking all the returns, and essentially, the extra is what you get from this.  you’ll notice this, so you want to make sure that you look at the leverage of this before you begin. it’s important and can determine a lot of loan values.

How to Prepare for Rental Property closings

Real estate investors don’t talk enough about what you need to do in order to be prepared for closings on rentals. Some go smoothly, others awfully. There are a few things that you’ll want to be prepared for, and here, we’ll discuss that.

First, you should have the titles and legal instances of this all put together. If you know that there is a lien that hasn’t been touched on or talked about, this can be a huge issue for you. There are times when people don’t look at title companies, and instead, they just continue, find an old lien, and then they’re hit, and if you don’t have insurance, this is a problem. So get all of your legal eggs into a basket, and you’ll be much better off.

Then there are tenants.  Tenants are a big part of this, for they can make or break the situation. If you have good tenants, you should be fine, but if you have no tenants, you may end up bringing any old person, in, and in turn, that can end up creating a big issue for you in the future. If you’re looking to fix that mess, then you should definitely have it done before you close.

Know your loans. If you’re not ready for this, you’ll be in hot water. You should look at the mortgage payment, what it entails, and anything regarding that. Having an idea on your loans will allow for you to have a better, more rewarding instance.

Finally, look at your insurance.  Insurance is another big part, and if you don’t have insurance on the home, you don’t have renter’s insurance for tenants or the like, this is a huge issue.  You should have this all in place, because not having that there can mean curtains for your business. This is how people get into legal trouble when getting into closing, and it’s how you’ll end up having to pay a lot out of pocket.

So, if you’re someone who is trying their best to ensure that they get everything sorted out before you close, then it’s best that you sit down, and you make a checklist on this, especially before you buy your rentals. By doing this, you’ll be able to easily create a better atmosphere for renting out your properties, and in turn, you’ll be able to sort this out quite easily. it’s quite easy, and you’ll be much better off.

Working on this is integral, and you need to, with every step of the way, ensure that you have this in place. There are far too many times people have done this, and you’ll be able to, with this, create a better, more rewarding scenario for your business, and in turn, create a wonderful result from it as well. Do this, and you’ll be able to create a better and happier rental situation for yourself, and for others that you have as well for you too.

How to Reduce Your housing Expense

House hacking is a concept we try to go for, but it can help you buy a single family home with a low downpayment, live, and then rent out the rest of it. The goal is to reduce or eliminate the housing cost, and by doing this, you can increase the money you’re saving, creating a solid financial foundation to tackle new investment chances. So, now that you have an idea of it, there are three levels. Level 1 entails having the tenants cover the portion of your rent, having it cover all of your monthly, and then the third generating cash flow.

So how can you achieve the first? Well, a mortgage payment is kind of a way of life, since many stay in a house for a short period of time.  Every month you’re writing checks period. But, if you were shelling out half of what you normally would, you can reduce your housing expense a lot.  Sometimes, moving some weights and such out of your guest room can bring another in, and then from there, you’re essentially a house hacker. Even if it’s only a little bit of money, it pays off.

Then there is level 2, which involves more planning and intent, and really this can be bringing in a home that has an extra bedroom, and you can, for example, rent out a couple of extra bedrooms. Having a finished basement that you rent out can completely cover your housing costs. Adding the third period to the unfinished basement, along with renting out the extra bedroom, you can completely cover the costs of housing payment.  You can theoretically do this anywhere, you’re just going to have to make a few sacrifices here and there.

Finally, there is generating cash flow on top of it, paying for your payment and that.  It is possible.  You can use low downpayment conventional loans for a duplex, triplex, or quadplex, and from there, you live in one unit, rent out the rest, and from there, you can cover the entirety of your mortgage.  You can literally cover everything, and have a few hundred dollars every single month.

You can do that with roommates, and then renting out houses and rent out a part of the rooms that are in this.

Now reaching level 3 is quite hard. it’s not for everyone either. If you’re cool with roommates, then this might work, but if you like your privacy, this may not be idea. It does create a different life, and you will need to sacrifice a few things. House hacking is powerful, and everyone should try it since it can ultimately impact the financial situation that you have, even if you didn’t even realize that you can do this.

House hacking is pretty important for the success and ability of your business, and for those who are looking to truly master this, it does take some time and effort, but you’ll be able to easily.