Buying investment property sure has its perks. A cash flowing monthly income, a great property in a populated neighborhood and the ability to call yourself a landlord. Apart from all of these good things, there are some expenses that are just unavoidable. Things like repairs, property taxes and capital gains really bite into your profits as a real estate investor.
Hiring a property manager might be the most misunderstood activity that an investor can make. These professionals don't just take your money. They are a complete operations center for all things that go on in your absence away from your investment property. This service comes at a cost, but you can learn how to pay next to nothing for property management and still reap the benefits that these professionals give you each year.
The process of collecting rent, finding and vacating tenants and handling all repairs takes a lot of work. The price of property management fees varies widely. Regardless of how much you pay each month or each year, you can reduce the total amount that you have spent. Because you operate a business as an investor, the expense the you pay for property management fees can be a tax deduction. This means the entire amount of money that you pay a company to manage your day-to-day activities can reduce your taxable income. This is very easy way retain more of your profits from monthly rental income each year. Knowing what you can and cannot expense will help make you a better real estate investor.
The expenses that you calculate for property management must be carefully placed onto IRS 1040 Schedule E. This form is used to report your income or loss in part due to your investment property. The formation of your business ownership makes do difference with Schedule E. Sole proprietors, partnerships and S corporation business structures use the same Schedule E to file. On this form, you will also expense other costs and fees that you have paid in relation to your investment property. When you add up all of your annual expenses, you could be left with a hefty amount that can reduce any tax that might be assessed on your earnings. This is how the pros retain a lot of their earned income.
You can make trips on a basis that you select each year to visit your out of state investment property. Part of your trip could include meeting with your property management company in person. The same passive income rules for tax deductions will apply to overnight trips to visit your investment property. Keeping an accurate record of all of your transactions during your trip can help you to deduct these as an expense. The very same 1040 Schedule E form can be used to deduct these expenses. You can have world class property managers managing your property every day of the year and pay little to no money for it. That is one of the biggest benefits of owning an out of state investment property.