Investing in real estate continues to be one of the best ways to build wealth and reduce taxes. Real estate investment allows for the ability to supplement an existing income at a steady pace, or even have real estate properties as a main source of income. The additional stream of revenue coming from renting out a property can be a nice monthly cash flow, with a good chance that this cash flow can even be tax-free or at a reduced rate.
The most common way investors make money in real estate is through simple appreciation: the value of the property increases during ownership and the investor is able to make a profit through selling or refinancing.
Your tenant pays the mortgage and pays down your debt. The owner is able to offset their mortgage payments with the rent received each month (maybe even earn a profit), with the tenant paying off the mortgage.
Home improvements can also spur appreciation. Rehabs such as adding in new features, upgrading existing ones, and remodeling certain parts of the house are just some of the ways a property owner may try to increase the value of a home. Make sure your cost to upgrade is lower than the value created. Many of these techniques have been fine-tuned to bring high returns by property flippers who specialize in adding value to a home in a short time.
Convert expenses to valid tax deductions. Don't forget that rental real estate is a business! Travel expenses to check on your properties and payments to people who manage your properties can be expenses that reduce your income and increase the tax benefits when it comes to using the cash flow of the property, including home repairs in the year which they are incurred. Depreciation is spread out over several years and is a non-cash event the reduces taxable income.
Interest is often a landlord's single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property.
Overall, real estate is a great option for any investor, no matter their level of experience. There are multiple ways to earn quick profits through wholesaling and flipping, or it can be a steady stream of cash flows, or even some combination thereof. There are a number of tax benefits and deductions stemming from owning a rental property and all related expenses for upkeep and maintenance.
Here are some links that can help:
Top Ten Tax Deductions for Landlords
Tax Deductions For Rental Property Owners
Tax Traps for New Real Estate Investors
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