Rental Property

8 Tax Benefits of Owning Rental Property

Purchasing a second home to rent out is a great investment packed with perks. Learn about the tax benefits of owning rental property.


If you currently own rental property or are considering it, you may find that this type of investment could bring you a lot of rewards. Rental property is a great source of passive income. You should be able to use this appreciating asset as leverage in future investments. Rental property can create a positive cash flow, and the rent payments you receive can go toward paying the mortgage payment.

One thing you may not have considered are the tax benefits of owning rental property. If done right, this investment could potentially be the biggest perk of all! Without further ado, let’s explore the top eight tax benefits of owning rental property.

1. Deduct Operating Expenses

There is more involved in managing your rental properties than you may imagine. But most operating expenses that you incur are able to be deducted – saving you money. The IRS provides examples of what types of operating expenses you may deduct. This includes:

  • Mortgage interest
  • Property tax
  • Repairs
  • Maintenance (including lawn, pest control, etc.)
  • Advertising costs
  • Insurance (paid by you, not the tenant)
  • Utilities
  • Property management fees
  • Any materials or supplies you need for your operation
  • Office space
  • Business equipment
  • And more

2. Deduct Mortgage Interest

This won’t help a cash buyer, but if you have taken out a mortgage to purchase your rental property, the interest you pay on that loan is entirely tax-deductible. That is, of course, as long as your loan value stays below $1 million. For those landlords who refinance for a higher loan to add improvements or maintain the property, that mortgage interest can be deducted as well.

3. Pass-Through Tax Deduction

As part of the Tax Cuts and Jobs Act in 2018, landlords qualify for a pass-through tax deduction that is actually an income tax deduction – not a rental deduction. There are two choices:

  1. Deduct up to 20% of their net rental income.
  2. Deduct 2.5% of the initial cost of the rental property and 25% of what was paid to employees.

It is important to note that the pass-through tax deduction is only valid until 2025.

4. Deduct Travel Expenses

Some landlords do a lot of driving to handle their rental properties. This can include rent collection, maintenance and repair, inspection, etc. Anything you need to handle regarding your rental property that doesn’t include an improvement can be deducted as part of your travel expenses. Though, when it comes to overnight travel,  you may catch the eye of the IRS – and may need to provide more info so take caution.

As you drive to your office, your rental properties, your bank, the local hardware store, and others, be sure to keep track of your travel expenses. You can deduct both your actual expenses (such as gas, the maintenance on the vehicle, etc.) and the standard mileage rate as stated by the IRS. Keep in mind that this only applies to those who drive a car, SUV, van, pickup truck, or panel truck.

5. Deduct Professional Services

As a landlord, you likely work with some professionals to keep your rental property investments in tip-top shape. This includes services from those in real estate, your attorney, accountant, financial advisor. It can also include your property management company. You can take this deduction for professional services as long as you are deducting work that took place concerning your rental property.

6. Depreciation Deduction

The depreciation expense that the IRS will let you deduct relates to your rental property. The IRS allows you to depreciate the property over 27.5 years (39 years for commercial property) as a means of recovering the cost of wear and tear. Note that this only refers to the home, not the land.

Any costs added that increase the value, such as a new roof, new windows, or new electrical wiring, may be included in this depreciation calculation. Depreciation can be tricky and it may be best to let your accountant handle the details for you. And, remember – you can deduct the expense of your accountant, too!

7. Ditch the FICA Tax

There is no need to deduct the FICA (payroll) tax, which includes social security and medicare taxes. Typically this would have to be paid by all taxpayers earning income – even those who are self-employed. However, when it comes to rental properties, the money received is not calculated as earned income. And, that means you don’t have to worry about the FICA tax.

8. The Capital Gains Perk

If you decide to sell your rental property for a profit, you may be able to take advantage of capital gains – either short term or long term. Because each impacts you in a different way, let’s take a look. Short-term capital gains occur when you sell a property that you have owned for less than a year. This money that you make on the sale becomes a gain – and it gets counted as income.

So, whatever you make profit-wise, just know that it could bump up your tax bracket when you go to do your taxes – and that’s not always a good thing. However, as a landlord, you can rent out the property and then sell it at least a year past the date of purchase. This will allow you to hang on to more money. The tax rate is much, much lower for long-term gains.

Depending on how much you make in your day job, you may not even owe anything at all! It is always good to talk to a financial advisor before making a move to switch up your portfolio – just to be sure you are doing the smartest thing for your taxes. Well, there you have it – 8 awesome tax benefits of owning rental property.

As you discover just how rewarding it can be (especially when you have a property management team like RPM Evolve), don’t dive straight into owning rental property without having a strategy. Network with experienced professionals and discover the path that will work best for you. That’s the one where you will find the most benefit.

Property Investments

How to Increase Cash Flow on Rental Property

Increasing cash flow on rental property is one of the main priorities of every investor. 

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As an investor with a portfolio of rental properties, you are going to want to take steps to maximize your cash flow at some point. After all, you need to make sure you have sufficient money to cover any expenses – and generate a sustainable income for you. Otherwise, you may find yourself having to pull funds out of your own pocket, or from the income of another property, to handle things like maintenance, repairs, and upgrades – and that’s just not a healthy investment.

At the end of the day, all investors need to understand how to increase cash flow on a rental property?

Cash Flow Basics

Before we move on, it is important that you understand some cash flow basics.

Cash flow is the money left over after you deduct all of your expenses from the income you obtain. In other words, when you receive a rental payment, you will subtract the mortgage payment on the property, insurance, HOA fees, maintenance, repairs, etc. The money that remains is your cash flow.

It goes without saying that you want your cash flow to be a positive number – and the bigger the better. To increase your cash flow, then, you have to either increase your income or reduce your expenses. Let’s look at some ideas to successfully increase cash flow on rental property.

1. Raise the Rent

Raising the rent seems like a logical choice since the more money you charge, the more you make, right? You’ve got to be careful here. Raising your rent too high for the local market can actually leave you in a worse position – with a vacancy. And some income is better than none at all!

Keep your rent comparable to other similar rentals in the area. Consider adding upgrades or value to the property that will allow you to charge at the higher end of the market rents.

2. Furnishing Your Space

When you rent out a furnished home or apartment, you can usually charge a higher rent – potentially even a couple of hundred dollars more. This isn’t always going to be a selling point for new tenants as some will have their own belongings. However, if your property is located in an area that has a lot of transient renters – such as those moving for work or school – you may find it beneficial to your cash flow to furnish the place.

3. Hire a Property Management Team

Property managers know how to best manage properties. They have a network of vendors in the community and have their own maintenance and repair team to keep rentals in healthy shape. Property management companies will handle everything, including finding high-quality tenants. They have processes in place to market properties, screen tenants, lease preparation and signing, handle walk-throughs, routine maintenance, emergency repairs, rent collection, accounting reports, and so much more.

Companies like Real Property Management Evolve handle your rental properties in such an efficient manner that it actually saves you money – and thus increases your cash flow on rental property – even though you have the additional expense of paying for the management.

4. Snowballing

Snowballing is an investment strategy that involves paying off all the debts of your rental properties. And it is done by pooling all of your money and focusing on one property at a time. Once its debts are paid, you move on to the next property. Eventually, all your debts will be paid. As they are, you will see your cash flow increase as it becomes income and is no longer needed for paying expenses owed on a property.

5. Investing with Cash Only

Not every investor is capable of investing in property using cash only. For even the smallest rental, that can mean coming up with a huge chunk of change. But if you do have access to funds that will allow you to make a cash purchase – and avoid taking out a mortgage on the property – you will immediately find yourself in a much better position when it comes to cash flow. Not to mention you’d have a high amount of equity in your home.

6. Buy Affordable Properties

You don’t always have to go for the Class A property. In fact, you may find yourself with higher cash flow if you look for Class C or D properties. These properties are typically less desirable, whether it be because they are older or need a lot of repairs, but can prove to be beneficial for you once you clean them up.

Sometimes up-and-coming neighborhoods or even a house that was left uncared for can be spruced up with a little TLC. And you will be able to charge market rent for the property. Since you got a deal on it when you purchased it, though, that means you will be left with a great level of cash flow.

7. Install Covered Parking

If you have a multi-family property, this usually means residents are expected to park in a large, uncovered parking lot. By building an area of covered parking – and marketing it as preferred parking – you are able to charge additional for each spot. This monthly fee is added to the rent and is paid monthly. Just covering ten spots and charging residents $50.00 per month to rent one can bring in an additional $500 every month. You may be surprised at just how many people will take advantage of such an offering.

Covered parking is just one of many amenities you may add that could bring additional income – primarily for multifamily properties. For instance, consider coin laundry so that residents can do their laundry on-site while you collect the change. Or, if possible, add a fitness area and charge a small monthly fee for usage. You get the idea.

Final Thought

Finding ways to increase cash flow on your rental property isn’t tough, it just takes a few ideas and some action. Whether you want to review the way you initially invest or how you can bank on what you already have going forward, calculate your current cash flow on rental property and see what works best for you.

Property Investments

6 Tips for Building a Multifamily Portfolio

When looking to diversify your real estate investments, one of the ways to do so is by creating a multifamily portfolio. Here are 6 tips to diversify your portfolio successfully.

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There are many different investment options for investors looking to diversify their real estate portfolio. While they all can bring some rewards, the real winner among many seasoned investors seems to be multi-family rental properties.

Whether you are new to investing or are just looking to invest in something new, here are 6 tips for building a multifamily portfolio.

Tip 1: Location, Location, Location

Choosing where you invest in your multi-family rental is just as important – if not more so – than the rental itself. You may want to consider something that is easily accessible to important destinations, such as grocery stores, dining and shopping, medical services, etc. Regardless of who your tenants are, having things handy and close by can make a positive impact on their decision to apply as tenants.

Pay attention to the rental markets, too, so that you are not investing in an area that doesn’t have a very bright future.

Tip 2: Look For Smaller Multifamily Properties

You are an investor and know what you can and cannot handle. But, if you are new to the world of multi-family properties, you may want to consider starting small. Choose properties like a duplex, or quadruplex first. Or maybe even a small building of 8 or 10 units. This is much more manageable to start with and gives you a chance to get your feet wet, so to speak. Diving headfirst into a 150-unit high rise could prove to be too much for your multifamily portfolio.

Tip 3: Consider the Condition of the Property

Not all rental properties are created equal. There is a lot to go wrong with multi-family properties, such as units that may have been subjected to different levels of tenant care, a lot of plumbing, as well as potential maintenance and repair costs.

Be sure to thoroughly assess the property before jumping in or else you may find yourself putting more money into the property than you intended.

Tip 4: Perform a Sensitivity Analysis

A sensitivity analysis is a sort of what-if type of assessment. You look at all the variables that will impact whether or not this is a wise investment. And you want to add the properties to your multifamily portfolio that look as though they will have the least amount of negative impact on your return. For instance, consider looking at the answers to questions such as these:

  • How much rent do I need to charge to make a profit? How long can I go on rent and still make a profit?
  • What will the outlook on the property be if the market goes down? Or, up?
  • What vacancy rate can I have before I begin to lose money?

You can answer these or choose some of your own that matter most to you and your investment strategy.

Tip 5: Be Prepared for Anything

If you expand into a multifamily portfolio, then you are going to need to be prepared for anything. You have many chances for repairs and maintenance needs. You also have multiple units to fill so you may carry a higher vacancy rate for a while. Things like this happen – and they tend to happen more often when you have larger properties. So as you build your multifamily portfolio, by preparing yourself, it will be less of a shock when it does happen.

Tip 6: Hire a Property Management Team

When you invest in multi-family properties, you want to take steps to keep your costs down and your units occupied. You can do that with a property management team. They will work to provide routine maintenance to reduce the incidence of emergency repairs as well as thorough tenant screening services so that you always have high-quality and even long-term tenants.

One of the biggest mistakes investors make is trying to do everything on their own. Handling one or two single-family rental properties is one thing. But handling a multi-family property is an entirely different situation. By choosing a property management team, you free up yourself to continue searching for investment opportunities while you bring in the money from your multi-family property.

Why the Interest in Multifamily Rentals?

Many investors prefer single-family homes for filling their rental portfolios, but that doesn’t mean multi-family housing doesn’t have its perks. More and more investors are looking to diversify their portfolios by adding a multi-family rental property or two. And, then, of course, some have left the SFH in the dust and have solely built multifamily portfolios. So, why the interest? What are the perks?

For starters, these rentals offer a great opportunity to grow and increase your profit. Cash flow is one of the most common reasons investors turn to multi-family rentals. Not only do they typically provide great returns, but you also have the chance to increase rent annually, say 3% – 5%.

They also provide a great source of passive income. Granted, not if you do all the work yourself. But, if you hire a property manager to handle your property for you, you can collect the money while someone else handles every aspect of managing your rental. Plus, you don’t have to worry about taking out multiple loans to purchase multiple properties. This gives you multiple rentals – but only one loan.

Final Thought

Truthfully, we could keep going on and on about the perks of a multifamily portfolio, though it would be wrong to not mention that there are potential downfalls, too, such as the fact that these properties are often much more expensive than single-family rentals and they require more maintenance. However, as we discussed, with an experienced, successful Phoenix property manager like Real Property Management Evolve, this wouldn’t be an issue.

If you are interested in building a multifamily portfolio and believe that it is the right investment strategy for you, then follow these tips – start small, pay attention to the location and the condition of the property, go through the what-ifs, and hire a property manager. In doing so, you may just find multi-family properties to be a rewarding decision for your portfolio.

Property Investments

Understanding Real Estate Investment Loans

Choosing to opt for real estate investment loans can propel you into successful rental property investments, here is what to consider.

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There is no right or wrong way to get your foot in the door as a real estate investor or rental property owner. In fact, real estate investors make their way into the business by taking many different routes. For some, having the funds in hand already can make that first purchase quite simple. After a good investment or two, cash flow starts increasing and it becomes more possible to elevate the size of your portfolio. Others turn to silent financial backers who have the money but may not be too interested in actively pursuing real estate. They will financially help investors get that first property, for instance, with the promise of a decent ROI.

What do you do if you don’t have a wide pool of funds set aside? You can consider real estate investment loans. Here’s what you need to know.

Things to Consider with Real Estate Investment Loans

Real estate investments require a long-term commitment. For quite a while, investors have been able to obtain loans to purchase rental properties if they don’t have enough capital to do so without it. But you have to remember that it could take years to see any notable returns from your investment – especially if you are paying back a loan.

Many banks offer these loans, but the process to obtain them can be tedious. And, they may even require that you offer up collateral – such as your own house – that you could lose should you default on your loan. This may or may not be a risk you are willing to take.

Thankfully there are a few things you can do to make the process of getting real estate investment loans a little more manageable and accessible. Let’s take a look at some of them so you can get started.

1. Know What You Need

You can’t jump into applying for real estate investment loans without having an idea of what you need. Before you go seeking out a bank, know how much money you want to borrow and how you intend to invest it. Look at the bigger picture, both in your goals and your current concrete financial situation.

2. A Letter of Intent (LOI)

A letter of intent is basically a document that will declare your commitment to a loan. It states your intention to pay back the loan (according to the terms) if borrowed. This letter would then be signed and handed to the lender of your choice.

3. Draw Up a Business Plan

You may not think of real estate investing as a business, but it is. And if you intend to take out a loan for your business, then you need to have a plan. Lenders can review this to ensure you have a sound proposal and that the calculated returns are enough to cover the cost of the loan. In your business plan, you will want to address the specific details of the loan, such as how you intend to use it and how you will gain a profit to be able to repay it.

4. Check Your Credit Report

To get real estate investment loans, you are going to need to address any issues with your credit report. That means disputing any inaccuracies or negative information found on your report – in addition to paying off any outstanding debt. Depending on your credit situation, you may want to reach out to a financial professional who can help you clean things up and put you in a more favorable position for lenders.

5. Choosing the Right Lender

Speaking of lenders, you are going to have a lot available to you. Nearly all banks, finance companies, and mortgage companies offer real estate investment loans which put you in the position to choose the right one for you. Shop around and look for those with more flexible terms and lower interest rates.

6. Gather Your Information

Along with information and details about your investment, your business plan, and so forth, you will also need to provide your personal information. The lender will want to know about your income and any assets you may have as well as how you intend to invest the money. Really, what they are trying to determine is whether you are going to be able to pay back the money on time. So gather up every piece of information that can help them see you will be in a position to repay the loan, enlisting the help of your accountant, if necessary.

7. Bring Out the Collateral

There is a chance that your lender, regardless of the institution, is going to require you to have collateral. This needs to be valued enough to cover the cost of the loan. Many investors have used combinations of jewelry, collectible items, homes, cars, and boats to make this happen. If you don’t have enough assets, you may have to seek out alternatives, including a reduced loan amount.

8. Celebrate Your Approval

Once you take the time to make all this happen, it may just be a few weeks before you receive an offer letter from your chosen lender. The application process is over and you can breathe a sigh of relief. But, there is still paperwork to be completed before you can walk away with your money. Complete it in a timely manner and you will be well on your way to building your real estate investment portfolio.

Whether you are new to the world of real estate or you are diversifying your portfolio, you will find that real estate investments loans could be a great asset to your future plans. Though, it is important to make investment decisions based solely on your situation. Not everyone has capital for investments, but nearly everyone has access to loans. All you need to do is follow the steps we’ve provided in ensuring you are ready to apply – and then move forward with obtaining that loan. Once you have the funds in hand, you can proceed with your real estate investment goals.

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