Landlords and dentists have something in common: People generally like to avoid them as much as possible. But the dentist and the investment property owner have the last laugh – all the way to the bank!
But careful planning and a tried-and-true system are required for the landlord to make bank. If you’re thinking of investing in property in Southern Maryland, keep reading.
Choose the right type of residential income property
Now that you’ve decided you want to invest in Southern Maryland rental property, you need to determine what kind of property you want. If you want just one tenant, look at single-family homes, townhouses, or condos. If you don’t mind dealing with multiple tenants (or hiring someone to manage it for you), a multi-unit property like a duplex, triplex, or apartment building might be right for you.
Each type has benefits and drawbacks. The income for multi-unit properties can be higher, but you’ll be dealing with more than one tenant – and their problems – which can become a time suck.
Consider the tax benefits of an income property
Because tax laws change, you’ll want to talk with your account to figure out just what tax benefits you’ll see. Basic rental investment property-related tax deductions include:
Interest: You can deduct mortgage interest and credit card interest, as long as the card is used solely for your landlord expenses.
Depreciation: As a landlord, you’ll recover the cost of your income-producing property through yearly tax deductions ― deducting some of the cost each year on your tax returns.
Repairs and Maintenance: Deductible maintenance expenses include plumbing and other system repairs, replacing a malfunctioning appliance, repairing broken locks and windows, and other routine repair and maintenance costs.
Travel: The cost of local and long-distance travel to deal with your income property are deductible.
Insurance: The cost of most insurance premiums, including Private Mortgage Insurance (PMI), are deductible.
Legal and Professional Services: Fees paid to an accountant, attorney, investment advisor, property manager, and other professionals are operating expenses, so they are deductible on your tax return.
Know the disadvantages of becoming a landlord
First-time investors may not know what they are getting into. The life of a landlord is full of pitfalls, including:
- Operating expenses may take up to 45 percent of your gross rent receipts. This is important information when considering cash flow on a particular property.
- Mortgages for investors typically carry higher interest rates and higher down payment requirements than those for owner-occupied homes
- Vacancy rates are low now, but that may not always be the case. Will you be able to cover the monthly mortgage during vacancies?
- Evictions are a nasty fact of life for landlords. It’s a lengthy, expensive, and emotionally draining process.
- Maintenance emergencies happen and for some reason they tend to occur at the least convenient time.
- It may cost more to insure the property than it would if it were owner-occupied.
What to look for in investment property
Remember the old real estate mantra “location, location, location”? That matters as much, if not more, when you’re considering buying a rental property. Tenants look at properties in their price range in their preferred location. Some families, if they can afford it, prefer to live near the best schools. Your first consideration is to find a property in a location that potential tenants consider attractive.
If you’re buying a property to use as a vacation rental, think about your ideal tenants and what will appeal to them. Singles and families will have locations and amenities that matter most to them. The tax treatment for vacation rentals is different from other rental properties, so talk with your accountant before purchasing a vacation rental.
Once you’ve find the right property in the right place, hire a professional home inspector. If you decide to purchase the home, be ready to take care of anything that comes up in the home inspection. You want to make sure the home is in safe and habitable condition.
Last, it’s just as important to know when to sell your income property as it is to know when you buy. When the property costs more to own than you’re making, it’s time to sell. In the meantime, reasonably priced rentals are in short supply because rents keep rising. Now is the ideal time to get into the landlord business!
Waldorf MD Homes for Sale and Real Estate Services in Southern Maryland. You now have a search engine to help you with your Southern Maryland home search! And I’m ready to provide you with a custom home valuation if you’re considering selling your home. Let’s connect to discuss how I can help you. Contact Kimberly Bean at 301-440-1309