Morris Massre is a Realtor with Fortune International Real Estate.
(Part one of an analysis of renting opportunities in Miami)
When you are so caught up in making a quick buck, flipping always seems like the easiest route. These days, however, it’s not so easy. Flips are taking much longer than the good old days and time is money. The money you should be making in a quick flip may be going down the drain waiting for a customer. On the other hand, there is also the appraisal factor.
Who are you going to sell to after you have bought a foreclosure, fixed it up, and put on the market? Certainly not another investor. A primary is going to make an offer, and it may very well be a good one, but that buyer still has to obtain financing – no easy task – and the property still has to appraise, even tougher. So, what is the alternative that is more lucrative in the long run? Renting, of course.
Not everyone is cut out for this sort of thing, mind you, but if you have the guts, time and patience to be a landlord, then you are already ahead of the pack. If you don’t, perhaps it’s either not for you, or you might want to consider hiring a property manager like myself.
The upside to becoming a landlord is what I like to call the “IRS factor.” In this case, the IRS are your friends, believe it or not. The Feds actually reward investors who rent with some very lucrative tax deductions. If you own for more than a year and continue to rent during that time, your capital gains tax is cut in half. Everything else, from maintenance fees and property taxes to insurance and repairs, are all tax deductible and come off the top when filing your returns. So, take pride in the knowledge that although you will have to pay income tax on the rental income, you can level that off with deductions and depreciation. Just beware of the “Passive Loss Rules” from the IRS. To learn more about depreciation and PAL click on this link.
There are a few things you may want to consider before getting into renting, especially if you have no experience as a landlord. For one, it’s not as easy as it looks on television. Renters won’t put up with flaws that a homeowner like yourself might. When something breaks, they expect it to be repaired immediately, as well they should. My philosophy has always been a happy tenant is a paying tenant. Besides, you are writing off the repairs anyway. But always anticipate future repairs. You may go months without so much as a light bulb replacement, but then you get hit with a leaky pipe in the wall that may costs thousands.
You must also be prepared for what I call “down time.” Not all property rents quickly. That time that you spend waiting for the right tenant to come along will cost you. I see it all the time: landlords who are so greedy that they will hold out for that extra $50 for months, rather than take someone who is qualified now. Don’t worry about it. Sometimes you have to trim a little off the top to get what you want in the end. Nobody likes to pay sticker, so be prepared to come down a bit. It won’t kill you.
Morris Massre is a Realtor in South Florida with Fortune International Real Estate. He can be reached at:
agentsunstate@gmail.com
www.myfloridarealty.net
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