Previous ArticleNext Article
You might pay the mortgage, utilities, property tax and property management fees, but are you paying yourself as an investment property owner? Studies are conducted every year by the Small Business Administration and what business owners pay themselves often fluctuates. It is easy to get caught up in controlling and managing your investment property. There is a lot to learn and unfortunately there is no guaranteed salary as an investor. Now that the recent tax year is over, it's time to consider what you pay yourself when you add in all of the work that you do each year. Every successful investor makes time to distribute pay to those that help him or her, but an educated few get the opportunity to share in their own investment wealth.
There are many ways that you can be delivered compensation when you own a property. Saving all of your receipts for repairs, studying tax codes and working out ways to gradually increase your rent can all help contribute to your wealth. Distributing monthly, quarterly or annual payments is one of your rights as a property owner. Part of setting your rate of pay is planning in advance for taxes. Not every investor takes an immediate salary and can work off of deferred earnings depening on their business structure. The IRS gives some tax breaks to C, S and other types of corporations where property owners take salaries on a deferral basis.
Running an investment property, regardless of hiring a property management firm, is a lot of work. It takes time from your friends, family and other associates when you are overseeing all details. It is easy to drag yourself down and lose sight of your future goals especially if you are not paying yourself a salary. Several entreprenual magazines have published studies that explained how entrepreneurs should be paid like a normal employee after expenses. The value of work completed is a contribution to the company as a whole and not attributed to the owner. Owners that pay themselves large salaries can often find that they run into a future financial problem with no way to correct it.
A new trend that has appeared in recent years is property owners that refuse a salary upfront, but use the uninvested money to purchase additional properties. This is how many real estate moguls have built empires in real estate. Reinvesting of funds is not a new concept, but the amount of money that your real estate company earns can easily be doubled if you own two properties. Paying yourself through a salary or reinvested funds is possible if your current property is profitable after each taxable year.
Average Profit Percentages for Property OwnersThe average percentages year after year for property owner salaries ranges between 5 percent and as high as 20 percent. This is income after federal, state and local taxes are paid off the top of monthly rental income. Whatever payment method you choose when paying yourself as an investment property owner, keep in mind that you can add to your weath by putting your money in short-term stocks, CDs or other smaller securities that can be converted to cash at year's end. This is any easy way to receive a bonus payment for your hard work.