Investing in rental property is a good source of cash flow but not for everybodyCertainly there are advantages of owning real estate and investing in rental property in particular, and that is the positive Cash Flow.
The cash flow is defined as the amount of money made on a piece of property after all bills are paid.
Figuring the cash flow before investing in rental propertyBefore you consider becoming a landlord, make some projections about what you expect your property's monthly income and expenses would be. On the income side, determine the amount of rent you're able to charge. Look at what comparable properties currently are renting for in your local market. Check out the classified ads in your local papers. Speak with some leasing agents at real estate rental companies. On the expense side, you have your monthly mortgage payment (today's interest rates and mortgage calculator), insurance and property taxes. You may end up paying some or all renter's utility bills, such as garbage, water, or gas. Figure that you'll spend about 1% of the property's value per year on maintenance, repairs, and cleaning. Take into consideration other requests from tenants for replacements of items like window screens, faucets, door locks, along with other reasonable requests. Finding good tenants takes time and promotion. If you advertise, estimate at least $100 to $200 in advertising expenses, not to mention the cost of your time in showing the property to prospective tenants. You must also plan to run credit checks on all applications.
Here is how to evaluate rental applications
Estimate the cash flowTotal all the monthly expenses and subtract that number from your estimated monthly income after allowing for some vacancy time. The result is your investment property's cash flow. If you have a negative cash flow, you may actually be close to breaking even when you factor in a rental property tax write-off known as
depreciation.
Residential property is depreciated over 27-1/2 years at a rate of 3.64% of the building value per year. For example, if you buy a residential rental property for $250,000, and $175,000 of that amount is allocated to the building, that allocation means that you can take $6,370 per year as a depreciation tax deduction ($175,000 x .0364). The rental properties are a logical source of investments - but not necessarily for everyone. There are some negatives that need consideration before investing in rental property. Unless you have a strong personality and are willing to evict non-paying tenants from time to time, you need to avoid becoming a landlord. Get first hand info on this subject from my
"Invest and Manage Properties Successfully" e-book
It is not always easy to get money out of the property if you need it.
Other rental housing optionsYou can invest in limited partnerships offered by individuals who purchase and manage duplexes and triplexes, or you can invest with another person. The key factor to keep in mind is that the managing partner has total control over investment in rental property. Go from "Investing in Rental Property" to "Accounting"
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