A majority of Los Angeles Hard Money Lenders will tell you that an income property is a property purchased or developed to earn income. Keep in mind that if there are many advantages of purchasing real estate, there are also significant risk factors to consider.
Here are five reasons why an income property can be a lucrative.
You Are the Boss of the Income Property
Most Los Angeles Hard Money Lenders will tell you that when you opt to invest in an income property, you eventually become your own boss. You decide what property to invest in, what tenant you will rent for, how much you will charge in rent and how you may manage and maintain the property as a complete.
In the average 9 to 5 work, you are at the mercy of the wishes of your supervisor and the company infrastructure in general, such as adhering to a dress code. As your own boss, you can wake up at 1-1 a.m. and wear your Kermit the Frog tie in the event that you so choose.
A stock or mutual finance is another example. Although you can decide what stock or mutual fund to invest in, you are still allowing someone else to manage and control your money.
Potential Appreciation of a Very Leveraged Asset
Los Angeles Hard Money Lenders say that leverage, in layman’s terms, means that you simply invest a relatively small amount of one’s own money and borrow the rest, usually 4 to twenty days longer, from a Los Angeles Hard Money Lender.
If you purchase a property with significantly far more money than equity, the expense is said to be “highly leveraged”
Rental Income Is Money On Your Pocket
Assuming that you are investing within an income property to occupy it with tenants, you’re going to be able to get rental income.
Say you have an individual tenant. You charge that tenant $1,100 a month in rent. Your PITI mortgage payment is $700 a month or two. So, subtracting $700 out of $1100 will leave you with $400 to go in your pocket each month.
From this $1,100, you might want to assume about 5 percent in monthly maintenance expenses and a 5 percent at vacancy costs. Therefore, you can place $110 to a designated bank account each month to deal with maintenance issues and potential vacancy expenses.
After all is said and done, you will have about $290 each month going directly to a own pocket.
Your Tenants Will Amortize Your Mortgage for You Personally
A majority of Los Angeles Hard Money Lenders will tell you that the absolute most popular sort of loan is a 30-year fixed rate mortgage. It has an interest rate that may remain the same for the whole 30-year term of the loan.
In the beginning of the loan, significantly far additional money is paid in attention than to principal, however by a year 1-5, it is close to a 50/50 split up.
Therefore, the more time you hold the property, the more of the loan principal your own tenants are paying and the more wealth you are creating for yourself.
Say you have a $90,000 bank loan with a monthly mortgage payment of $500. In year one, approximately $385 of this payment will go towards paying the interest, while $115 will proceed towards paying down the principal on the loan.
Huge Tax Write Offs for Income Property
As a rental property proprietor, you are entitled to enormous tax deductions. You can write off attention in your mortgage or on any credit cards used to make purchases for the property.
You can write off your insurance coverage, maintenance repairs, travel expenses, any legal and professional fees, and even your property taxes. You can view a broader list at Nolo.com
On top of all these deductions, the federal government also allows you to depreciate the purchase price of your property based over a set depreciation schedule, also if your property is actually appreciating in value.
Using our above example, you receive $3,480 in rental income for the year ($290 each month * 12 months). In the event you made this money at a regular occupation or at the stock market, you’d lose a significant portion of it to pay income taxes.
However, by owning a rental property you can offset the $3,480 income with the depreciation expense for the property, so becoming able to cut back or entirely eliminate the amount of taxes you have to pay with this rental income.
Our Los Angeles Hard Money Lender suggest you speak to an accountant to determine all your precise tax write-offs.
Most Los Angeles Hard Money Lenders will tell you that being an income property operator is a very big commitment, however, if handled correctly, that huge devotion can deliver equally large financial rewards.