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5 Ways Landlords can Maximize Profit from Rentals

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Recent developments in the real estate industry are proving to be a mixed bag for landlords.

Vacancy rates are increasing for the first time since 2009 as the number of empty properties grows. Although they only rose by 0.1 percent in the last quarter, it’s concerning because empty units are one of the largest drains on profit that landlords face.

The good news is that increased supply isn’t putting a damper on rent amounts, which continue to rise as newly built homes and apartments tend to command a premium.

But savvy landlords know that they need to act now to future-proof their profits against the potential for losses from higher vacancy and home-ownership rates as the economy recovers.

Here are five ways that landlords can maximize profit from their rental properties:

1. Increase the Rent, but be Competitive

If you price your unit too low, you’ll fill it quickly, but might miss out on thousands of dollars in rent. You need to ensure that you’re correctly calculating the cost vs. revenue on each property.

Location is the greatest influencer of price, but an excellent condition and updated decor also helps to maximize rental income.

In summary, start advertising 4-6 weeks out from lease end, and try to get the most you can for the rental. Check Craigslist and Zillow and New Star Realty for current market rent rates.

2. Work Smarter, Not Harder

Technology offers modern landlords opportunities to significantly reduce their property management overhead. One particularly useful platform is Cozy, which provides simple end-to-end rental management software for landlords and tenants.

Cozy reduces the amount of time you need to spend collecting applications, screening tenants, and collecting rent. Not only are tools like Cozy a better overall experience, it allows both the landlord and tenant to “set it, and forget it,” thereby making rent collection automatic.

You could also try uploading videos of your properties to YouTube or Vimeo and having your application link to those videos, year after year.

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3. Take Advantage of All Tax Breaks

This is a no-brainer, as writing down every possible allowable expense reduces taxable profits and therefore your tax bill.

Landlords can claim all the maintenance and repair costs on their properties. Keeping your properties in excellent condition makes it much easier to find tenants and allows you to charge higher rents, too, making this a win-win situation.

You can also deduct mortgage interest as well as the costs you incurred buying your properties. You can’t deduct the latter all in one year, so you need to do it through annual depreciation, as property is classed as an asset like vehicles or machinery. Unlike other assets though, provided you did your homework when buying, your rental units should increase in value over time.

Other deductible expenses include insurance, business-related travel, contractors and the expenses of a home office, if you have one.

4. Target Your Ideal Tenant

Getting the perfect tenants for your property is a triple financial bonus; you’ll be able to set a higher rent and if they’re suitable they are less likely to leave, saving you costs associated with vacant units and tenant turnover.

Find out what your ideal tenant is likely to want, in terms of fixtures and fittings and décor, and give it to them.

This sounds simple but just make sure you do you research first: if your best tenant is a professional twenty-something then they’re likely to want different facilities and interior design than retirees or a family with young children.

Location is key too. Someone renting a luxury apartment in Los Angeles is quite likely to have different needs, expectations and tastes from someone renting a modest family home in Philadelphia.

Be realistic about how attractive your apartment is to potential tenants. Unless the neighborhood is rapidly improving, a rental property in a low-income area is unlikely to attract affluent tenants, no matter how well it’s decorated.

5. Install Solar Panels, Rent Storage Space, or Sell Ads

Take advantage of “green” tax incentives and rebates by installing solar panels on residential properties while they’re still available. Although at first glance it might seem that these benefit homeowners more than landlords, this is not necessarily the case. Once you’ve installed the solar panels, you can sell back excess energy to the grid, opening up another income stream from your property.

Your tenants will benefit from lower energy bills and as prices are predicted to keep rising, this is an advantage that could become even more attractive over time. This can be factored into the rent, allowing you to make a bigger rental income even as your tenant pays less overall.

If you have extra storage space, you could increase your profits by renting it to non-tenants. Further, there may be local businesses willing to buy advertising space. A simple banner hung on an exterior wall or side fence might bring in hundreds of dollars a month.

Credit to Guest Author – Ella Jameson

After graduating from university with a degree in English Literature, Ella worked as an editor and copywriter for several years before becoming a journalist.

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9 Tax Deductions Every Real Estate Agent Should Know

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Closing a real estate sale requires a big investment of your time and money. Whether expenses are business, personal, or something in between can be unclear — leading to missed deductions and overpayment of taxes.

This is key knowledge regardless of who’s doing your taxes. Understanding which expenses are allowed will help you deduct with confidence and avoid overpaying on your quarterly and year-end taxes, no matter where you are in your career.

1. Vehicle Mileage or Expense

You spend your days driving between properties and appointments. How do you determine whether to go with the standard mileage deduction or track all your auto-related expenses? If you drive 10,000 miles or more per year for your real estate business, you will most likely get the greatest tax benefit by taking the standard mileage deduction.

The IRS requires you to keep a detailed log in order to claim this deduction, which includes date, time, mileage and purpose of the trip. Mileage tracking apps can streamline this process, automatically capturing trip date, length, and time of day for easy categorization.

If you are a lower mileage driver, or have especially high car payments, the actual cost method may yield a higher deduction. The two methods can be compared in more detail in this article.

2. Marketing and Advertising

To be a success and scale their business in a predictable way, most real estate professionals invest heavily in marketing and advertising. Remember that you can deduct not only the direct cost of promotions such as business cards, flyers, signs, ads, and promos but also the production costs, such as writing and design fees, whether the materials are produced by an agency or part-time hire.

Digital and online advertising costs are quickly becoming the greatest area of spending. This includes website design and hosting fees, search engine marketing, pay per click advertising, video production, and any other IT-related costs. Be sure to track all these business expenses.

3. Home Office Deduction

Do you have a dedicated area of your home for work? If so, you’re eligible for a home office deduction even if you also have office space at your broker’s office — unless you’re deducting desk fees already (see more below). Like the vehicle deduction, the home office deduction offers an option: the regular method or a simplified method. Most self-employed people find that the simplified method maximizes their deduction. However, if you have a particularly large home office, or live in a very high-cost area, the regular method — in which you track actual expenses — may yield the highest deduction.

4. Desk Fees

Whether you are hanging your license under a national franchise or with an independent broker, your desk fees are deductible. Note, however, that if you are taking a deduction for brokerage desk fees, you will not be able to claim the home office deduction.

5. Office Supplies and Equipment

Regardless of which office deduction you take, you can claim other office-related expenses, such as stationery, photocopies, and any other consumables needed to run your business. Other large purchases that can be expensed in full – or depreciated over a number of years –include furniture, fax machines, copiers, computers, or you telephone and associated bill.

If you have a dedicated landline telephone for business, you can fully deduct this expense. Increasingly, agents are using a cell phone for both business and personal use. If you do, you are eligible to deduct only the business percentage of that expense.

6. Meals and Entertainment

There are two situations in which you can deduct meals as a business expense: when you are travelling on business and when you are dining with clients or with other professionals for the purpose of conducting business or generating referral business. In either case, you can deduct 50 percent of your total expense, which includes tax and tip for the meal. In the case of business entertainment, you are allowed to take the meal deduction only if business was discussed during the meal, or immediately before or after.

In the case of events that are provided to the general public, such as a well-advertised open house, you are able to deduct 100 percent of the cost of refreshments and food.

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7. Fees, Licenses, Memberships and Insurance

Annual fees are a common costs of doing business and are deductible. In real estate, that means your state license renewal, professional memberships, and MLS dues. An important caveat with regard to professional memberships: The portion of your membership dues attributable to lobbying and political advocacy is not deductible.  General business insurance and Errors and Omissions (E&O) insurance are both fully deductible business expenses. Additionally, you can deduct real estate taxes necessary for your business, but not self-employment taxes.

8. Professional Development and Travel

Given rapid industry change, continuing education is a great way to stay competitive. It’s also a requirement in most states. Many real estate professionals pursue professional development through classes, trade shows, conferences, or coaching. If you need to travel to attend an event or meet with a coach you may be able to deduct those transportation and/or accommodation costs.

9. Software and Business Tools

Any software needed to run your business is fully deductible – including lead generation subscription services such as customer-relationship management (CRM) software. Products such as QuickBooks Self-Employed not only help you automatically track your expenses and mileage, but may be fully deducted as well.

 

Credit to QuickBooks Self-Employed

QuickBooks Self-Employed helps real estate professionals like you keep more of what you earn. Categorize business expenses with a single swipe and let our mobile app track your mileage while you drive. When it’s time to file your taxes, QuickBooks Self-Employed integrates seamlessly with TurboTax and your accountant. With your business income and expenses in one place, you’ll always know where your business stands.

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8 Tax Breaks for Homeowners

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Mortgage interest

You can deduct all of the mortgage interest (not principal) payments you make on your home, up to a $1-million loan for a couple filing jointly. This applies to your home equity line of credit (on a loan up $100,000) and second mortgage as well.

If you own a second home, such as a vacation cottage or mobile home, you can deduct the mortgage interest for it as well, so long as you reside there for the longer of 14 days per year or 10 percent of the time it is rented out.

Mortgage points and insurance

In addition to the mortgage interest, you can also deduct the points you pay on your mortgage for your main home in the year you pay them, as well as points paid for a home equity loan. Points paid for refinancing your home mortgage generally have to be amortized over the length of the loan.

You can also deduct any premiums paid for private mortgage insurance (PMI) on your loan if you earned less than $109,000 in 2015 and the policy was taken out after 2006.

Property taxes

As strange as it sounds, you can deduct taxes on your taxes! Your property taxes are a deductible expense. Keep your property tax bills and proof of payment.

Home office

If you have some sort of home-based business, you may be entitled to a home office deduction on your taxes. There are several hoops to jump through to qualify for the deduction, the two biggest being that your home must be your primary place of business, and that you use the office space only for work. (The IRS spells out the rules for claiming the home office deduction in Publication 587.)

There are two ways to calculate your deduction. Under the simplified option, you can deduct $5 per square foot of your home office’s area, up to a maximum 300 square feet.

The more complex (but often more advantageous) option involves dividing the square footage of your office by the total square footage of your home; this yields the “business percentage” of your home. You then multiply allowable home costs — namely mortgage interest and utilities — by the business percentage to arrive at the deductible amounts.

Energy credits

If you implemented energy-efficient improvements to your home, you can get a credit of up to 10 percent of the cost of those improvements, to a maximum of $500. This covers expenses like new windows and doors, insulation, and high-efficiency heating and cooling systems. You could also get a credit for 30 percent of the cost of renewable energy systems, like solar power.

There could also be state tax credits for these items as well which you can stack on top of your federal credit.

Medical home improvements

If you have a medical condition that necessitates home improvements, such as adding a stair lift because you have arthritis or an air filter because your spouse suffers from allergies, you may be able to write off some of these costs as part of your medical deduction.

However, you can deduct only that portion of your medical costs that exceed 10 percent of your adjusted gross income (7.5 percent if you are 65 or older).

And in most cases, you can deduct only the difference between the cost of the equipment and the increase in value to the home from this improvement. Some improvements (such widening doorways to accommodate a wheelchair) add no marketable value to the home but are fully deductible if you meet certain income requirements.

Home sales

If you sold your home in the last year, you could be eligible for some tax savings resulting from that transaction. The costs of your real estate agent’s fees, advertising, and title insurance are deductible expenses. You can also deduct improvements you made to the home in order to sell it, but only if you have a taxable capital gain from the sale.

Home damages

If your home was damaged by weather, fire, theft, or another disaster, you’ve suffered a casualty loss, a portion of which may be deductible. If your loss was greater than 10 percent of your income and was not covered by insurance, you can deduct the loss. You’ll need to be able to document the value of what was lost, however.

 

Credit to Brette Sember

Brette Sember is a former attorney and author of more than 40 books, including The Divorce Organizer & Planner, The Complete Divorce, and How to Parent with Your Ex. She writes often about law, parenting, food, travel, health, and more. Brette also writes for AvvoStories

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