Home prices are at an all time low, now is a good time to invest. When the real estate market was hot everyone was investing, now some are trying to get out since there payments are higher than they can afford. You should be able to find some bargains. The interest rates are still low, so you can't find a better combination. If you use a property management company, you won't have to deal with maintenance issues or tenants. All you have to do is invest your money, and see a great return.

Important Factors

Location is crucial. If you are not familiar with the area, you need to do some research. Is the area convenient for shopping and schools as well as the transportation so people can get to work? If you buy in bedroom communities, the houses are cheaper but less attractive, with gas prices so high. Relying on a good realtor who is experienced in investment properties is a good idea. Be sure to get recommendations.

With foreclosures at an all time high, you can find many good deals. The best ones get snapped up right away. Be cautious about homes that have been available too long, it is either overpriced or something else could be wrong with it.

The downside of all the foreclosures is that banks are more cautious about giving out loans with no money down. You should expect to put 20-30 per cent down for rental property. You want to be sure that your monthly payments leave room for profit.

Be sure to take into consideration in fees that you will need to pay the property management company. As with any other property, you need to expect that there will be other maintenance costs. You need to be making enough money on the property to take care of it as well.

When you buy, you may want to purchase a home warranty. This can be especially important for an older property. That way if you have to replace or fix covered items in the first year of purchase and it will have paid for itself. Usually AC is an additional charge so you have to decide if it is worth it or not.

Tax Advantages for Landlords

Landlords deduct mortgage interest costs, property taxes, and insurance costs from their federal tax returns on the schedule E. Furthermore landlords have other tax incentives to stay in business. If you include utility services such as water, heat and/or electricity at no extra cost to tenants, you can deduct these expenses from the income on the property.

Likewise, all operating costs for rental property are tax deductible. These costs include maintenance and repair costs, like repainting or replacing screens, broken fixtures and repair of appliances. Charges for liability insurance and rent loss insurance, if you choose to get them, are also tax deductible.

The IRS allows depreciation deductions for improving rental property. Items that qualify are would be the installation of a security system or sprinkler system, upgrading the bathroom, purchasing appliances. You may decide to construct an addition or build a wall, these would be regarded as improvements not operating expenses. These expenses are then deducted as depreciation over the life of the improvement. There are various depreciation schedules for various items (ie carpets-5 years).

Depreciation Tax Breaks without Improvements

Depreciation costs are those accrued by the normal use of any residential property including rented buildings. The IRS acknowledges that a building wears out over time and allows landlords to deduct some of the depreciation every year for up to 27.5 years. These deductions do not require you to spend anything in order to use the deduction on your tax return. Just calculate the value of the building and the allowable depreciation on that amount. The only time you will spend money for a depreciation deduction is when you make improvements to the property. You will, of course, have to make some of these improvements to keep the property habitable.

Don't Forget Other Costs are Tax Deductible

If you have more than one property you should consider using an accountant for your taxes. An accountant specializing in rental property taxes can help you to accurately take all the deductions offered to property owners. Similarly, the wages of employees hired keep books, care for tenants and make repairs are also deductible operating expenses. You may want to hire a property management company to handle those things; their fees would be a tax deductible expense.

If you buy now, you can buy property inexpensively and later when the real estate market improves you can sell at a profit. In the meantime, you will have all the tax advantages of being a landlord plus the extra income of a rental property. You will enjoy a better income from rental investment than many other investment options out there.

Look at our North Park Affordable Properties in San Diego CA.