Many see real estate as a seemingly effortless way to generate a second income. Renting though is complex than buying a property and hanging a “for rent” sign. Viewed as a long-term investment, it is important to weigh your options with attorneys and accountants to make sure you are aware of regulations and tax implications of generating this income.
Real estate offers big advantages to those willing to invest. More reliable than stock markets real estate is a tangible asset, by which many draw profitable incomes from. Rent payments will cover mortgage payments and in time secure ownership of the home with virtually no cost to you. All expenses of owning the property are tax deductable, and surplus money acts as a second income to the investor in monthly increments. This of course is the ideal situation, and investors must be prepared for bumps down the road.
Most of the unpredictability of renting lies in your choice of tenant. Background checks offer strong reference, but the future is hard to predict. Landlords can run into financial trouble if they have a hard time filling the unit, or are constantly fixing repairs and damages. Properties may also be hard to sell if investments run sour.
Rents may sound like an easy monthly income, but many find trouble at tax time. Rent is calculated into your total income and as such you are responsible for tax payments on your earnings. Depending on your current tax bracket (or your new tax bracket from rent income) this can be very expensive. This is a good time for you to make friends with an accountant. Knowing how your mortgage rate, your income, and the combined rents will be calculated can help you make important decisions regarding your future.
What You Need To Know
All expenses associate with renting are tax deductable, this includes property tax, mortgage interest as well as repairs, insurance, heat and hydro. Rent prices therefore must be reflective of this number to gain profit from your investment.
Becoming a landlord offers many challenges, but home ownership is a tangible asset which appreciates each year. If you can find a balance between effort and earning as well as profit and taxes real estate can secure a future for you, in a ways few other investments can.