So, you have an interest in real estate and want to understand exactly how owning investment real estate can benefit your bottom line. Congratulations on taking the first steps.
Before I start, keep in mind that I am not a CPA. The numbers/assumptions below have been simplified to make the ideas easier to understand, so you are advised to run any questions by your trusted tax professional or CPA prior to any property purchase. Tax law changes often, and there are many criteria that investors have to meet to benefit from the many tax benefits of investment property ownership. I am using the following example for illustrative purposes only.
Assumptions (for simplicity):
Your annual gross income is $50,000 Your federal income tax is a flat 25% and your state income tax is a flat 10% You purchase a modest $100,000 single-family home for rental purposes of which $10,000 is the value of the land. Your monthly principal and interest mortgage payment on the rental home is $550, of which $450 is mortgage interest Your property taxes are $600 per year (i.e. $50 per month) Your insurance is $300 per year (i.e. $25 per month) You rent the home for $950 per month You pay a property manager $75 per month to manage the property for you and handle all tenant issues so that you don’t have to spend time on these. You hold the property for 5 years Appreciation in your area averages 3% per year
Your financial benefits of investment property ownership are many and can include cashflow, interest and depreciation deductions, principal payoff and appreciation. We’ll walk through each of these benefits below.
Cashflow
Cashflow is the difference between the rents you receive on a property minus the mortgage and other expenses you pay out. On this property you will receive cashflow in the amount of $950 -($550+$50+$35+75) = $240 each month. This passive income is real money in your pocket. So, to start you just gave yourself a $2880 annual raise just by purchasing this investment property. (It’s nice not having to ask your boss for a raise, isn’t it?)
Interest and Depreciation Deductions
Rental property owners can write off the amount of interest they pay on loans used to acquire or improve rental property. The IRS also requires real estate investors to depreciate their investment property. Depreciation is a “paper loss” that is required to account for estimated wear, tear and obsolescence. The value of the land that your rental home sits on, however, is not depreciable (as land rarely loses its value). In our example, residential investment property is depreciated over 27.5 years on a straight-line basis (your CPA can advise you on other methods of depreciation).
The value that you can depreciate is $100,000-$10,000 = $90,000
Therefore the annual depreciation deduction that you can take is $90,000/27.5=$3272.73
and the annual interest deduction you can take is (450*12)= $5400
So, without the rental property, you would have paid $50,000*(10%+25%) = $17,500 in taxes.
And with the rental property, you will only pay ($50,000-$3272.72-$5400)*(10%+25%) = $14,464.55 in taxes.
So, the rental property saved you an additional $3,035.45 in income taxes! (And this doesn’t take into account additional tax deductions for insurance, property management fees paid, property taxes and any allowable improvements/repairs made to the property). Imagine that; Uncle Sam requires you to pay less in income taxes as a rental property owner!
Principal Payoff
Over the 5 years that you own this property, your tenant’s monthly rent payments are paying off the mortgage for you. At the end of year 5, you should owe approximately $92,300 on your mortgage; down from your $100,000 purchase price. This is an additional $7,700 in value for you! How does it feel to make money while you sleep?
Appreciation
History has shown that over time, real estate appreciates. Appreciation rates vary by location so check with your local real estate expert (me!) for historic rates in your area. Don’t bother asking about future rates as no one has a crystal ball. (And if they give you an answer run the other way…FAST!) Just know that the historic trend over time from the early 20th century forward has been favorable. For this example, our conservative assumption of a 3% annual appreciation rate, when compounded over 5 years, gives your property a value of $115,927.40 at the end of year 5. This is an additional $15,927 in value that you didn’t have to lift a finger to earn!
Overall, your financial benefits after 5 years of ownership total:
drumroll please…
($2880 *5)+($3035*5)+($7,700 )+($15,927 )= $53,202!!! And this is from only one property. Imagine the power of these benefits with a small portfolio of properties. This is how real estate can propel you to early retirement. It doesn’t take outrageous amounts of money or huge investments. Just a slow and steady real estate investment plan that you consistently act on over time. If you’re not sure where to start, feel free to contact our office and we can work with you to create an investment plan that will work for you.
How NOT to waste $30 per day for the rest of your life
The numbers above are the very reason why many investors hold investment property in their portfolios. The $53,202 above equates to just under $30 per day for just one small property owned. ($29.15 to be exact). So, if you’re on the fence about investing in real estate and need a bit more time to mull it over, be sure to add up the 30 bucks you’re missing out on each night that you go to sleep without action! On the other hand, if you’re an action-taker and want to start earning your $30 “sleeping money” every night, get the ball rolling today, and buy rental property!
Financial Benefits of Owning Investment Real Estate – Earn Money While You Sleep
Pine Bedroom Furniture
Bedroom furniture has so much variety today that we really do not know how to choose the ideal furniture for the home. One of the best alternatives that you have is pine bedroom-furniture and it is one of the best choices to make while choosing your bedroom fixture.
Pine is not very expensive and is long lasting too. It is not very hard, but it does not stain very easily and is easy to make furniture with. Pine furniture exudes a class that many other kinds of wood do not have. Country pine-furniture has a nice fragrance and so if you adorn your bedroom with it, you will feel like you are walking into a wooden cabin deep in the forest. Even though country pine is quite expensive, it is worth the price you pay for it as it is extremely durable.
The main piece of pine bedroom furniture that you can purchase is the bed after which you can get yourself a pine wardrobe. Pine-wood is very flexible but not very easy to maintain as it falls a victim to scratches easily. You just have to search for the ideal one which will suit your needs.
Another main advantage of pine furniture is that it is not as heavy as oak and thus a lot of people choose it for its convenience of being easily movable. Moreover pine furniture is very solid which will stand your wear and tear.
Solid pine bedroom-furniture looks very snug and you feel really attracted to it. Most American homes have fixtures made of this wood. Its normal and light shade which is rich in grain and knotting is apt for any type of contemporary fittings.
When solid pine is crafted into bedroom furniture like wardrobes, head boards and chests, the wood really look excellent. When pine is painted white or stained lightly and then converted into bedroom-furniture, the whole room becomes radiantly beautiful and fresh. But even if it is painted in a dark shade the bedroom will feel extremely snug and warm.
Actually pine bedroom furniture was earlier meant for people who were not able to afford more luxurious kinds of furniture. However gradually it became so popular that it is not so cheap any more. Pine wood has been nick named as workman’s wood as creating pine-furniture is a great pastime for a lot of workers as it is extremely pliable and easy to transform into anything you want.
House Plants and the Atrium Garden
Although making architectural news today, the atrium house dates back to the Romans, who found a retreat from hot summers in the central courtyard of their homes to the atrium.
Today’s atrium house differs greatly in many ways from its Roman antecedents. But, like those ancient dwellings, it offers a private garden world to those who dwell in crowded urban and suburban centers.
In all but very warm climates, the modern atrium is ordinarily roofed and lighted by skylights, clerestory windows, or a plastic bubble. Each of these can provide for ventilation during warm weather, with vents that can be opened when necessary.
The atrium need not be placed at the exact center of the house. However, it should be positioned so that the main living rooms can share in the delights of a garden that winter cannot touch, a constantly green vista in all the months of the year.
Plants Suited To The Atrium
More than in other forms of indoor gardens, plantings of an atrium should be chosen with due consideration for local climate. In warm regions, you can grow almost anything in an atrium that will grow outdoors. On the other hand, in colder growing zones, the atrium would, in all likelihood, be operated as a cool greenhouse (night temperature in the 50s, day temperatures in the 60s), thus ruling out heat lovers such as the amaryllis, and slowing down growth of house plants preferring warmer house temperatures.
But choices are still vast. Such broadleaf evergreens as camellias, azaleas, and gardenias make excellent choices, and all can be kept to desirable heights with pruning. Grass is not a good choice for ground cover, since it requires mowing. But periwinkle, pachysandra, ajuga, dichondra, ivy, and many others make a green carpet that takes little attention other than watering.
A good-looking, minimum-care, atrium garden is easy to grow if the gardener relies on smaller shrubs and trees (not deciduous varieties, which require a period of cold and dormancy), ground cover, and foliage plants. As with outdoor gardens, it is easy to have splashes of seasonal color with container-grown flowering plants that are easy to lift and replace when period of bloom has ended.
Simplify watering chores a great deal by adding a water outlet to which a garden hose can be connected. An atrium garden also needs floor drains for excess water. A path of brick, flagstone, or gravel offers easy access to all of the planted areas.
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