Managing and buying rental property in Venice can be challenging yet lucrative. Knowing the positive cash flow formula to constantly produce income after expenses is every Landlords goal. Not many people want to own property and pay to own it. Therefore, it is important to know every benefit and financial aspect of the investment property you will be purchasing before the final signature is made.
What Types of Rental Property Are Out There?
They’re a few property styles out there to be aware of. First, is the single family residential home. This property is zoned for 1 home address to rent out. Individual rooms can be rented out; however, this property is considered as a one unit property.
The second type of property to rent out is called a Duplex. These are two units sharing the same property but with different home addresses. This allows the landlord to collect rent on two properties for around the price of one property. The third and fourth type of property is called a triplex and quadplex. A triplex is a 3 unit building, while a quadplex consists of 4 units.
Anymore units than a quadplex will lead into a zone called Multi-family housing which may require more documents and paperwork. Today, we will be focusing on buying rental property with a single family home layout and the benefits it may provide.
How to Buy Rental Property
Buying rental property in Venice Florida is a little different than buying a home to live in. Moreover, the benefits of owning rental property, compared to other forms of investments, are great.
When financing a rental property, most banks will require a higher down payment of around 20% if using the property for investment purposes. That means if a home is worth $150k, then you will likely need at least $30k dollars to close on the property. Seems like a lot of upfront cash, but remember buying real estate is similar to buying a business. Many advantages and disadvantages come in the form of owning a business, risk and reward is what it comes down to.
Cash Flow from Rental Property
One major benefit to renting out your house or rental property is the potential for almost instant cash flow. Once a tenant is in place, monthly checks will be delivered and over the course of the year it can add up to a significant amount. Of course, budget correctly to make sure expenses are less than income. Spend less than you earn, and keep or invest the rest (after taxes) to continue building the real estate portfolio.
Defer taxes on real estate appreciation gains by issuing a 1031 exchange. This is one way how many investors make quite a bit of paper gains quickly. It is the possibility of deferring all profit taxes on the sale of real estate indefinitely. This is only possibly if they follow the IRS policies of finding another property of similar value to purchase by a specific time frame. Changes to this can be made anytime. And if not followed to the “T” then you may have to pay all taxes at once or face penalties. So it is another risk and reward scenario.
Buying Rental Properties & Make Money
How do you make money? Deliver value. By providing housing, you are delivering value to the tenant. They picked you over all others. Provide the best value to receive the most value back. Sure, by treating tenants as another number can be done legally, but to receive the most amount of money, look for tenants who are long term and treat them with the highest respect as they are making you money.
Without tenants in place this process is void. Many people think tenants are not of value to landlords and landlords can just find another tenant, well what if you don’t find one in 4 months? Who will pay the monthly taxes or mortgage? It is more cost effective to keep and win over the tenants you have, than to constantly find new ones to take their place year after year.
Making Money with Rentals
Making money with rental properties is fast paced and can be done with the potential to see large returns. With that, however, comes large risks, the potential to lose even more than all your original invested amount. Renting out your house, or an investment property, is a process that really needs to be well thought out. What kind of returns are you looking for? Is real estate rentals the best place to put the money? Are my properties legal compliant? All questions that should be looked at before making the plunge.
Other Benefits to Owning Rental Properties
A couple other benefits to owning rental real estate are writing off property taxes, mortgage interest, repairs, and depreciation. And the last benefit of owning rental properties is the fact you are. Yup, just by owning rental property, that is a benefit itself. Kind of like the game monopoly where you want to own every property. Owning any rental real estate is a great example of how assets can return your investment plus more through cash flow and appreciation.
Call Jeramie deBerard, Realtor®