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Property Investments Rental Property

Real Estate Property Valuation: How to Value Your Investments

When you want to invest in real estate, you want to make sure that you pay the right price. Determining what that price is is known as real estate property valuation – and it is a critical step in deciding whether or not to invest. By simply looking at the specs of a property, you are only looking at the surface.

For instance, you can see two seemingly similar properties you are interested in. But while they look the same on the surface, valuations can prove they are very different. Suppose you are interested in investing in rental properties. If that’s the case, you need to understand how to value your investments – both in your portfolio and in the ones you’re looking to purchase.

Understanding Real Estate Property Valuation

The different values placed on a home, such as an assessor’s value, market value, and sale price, are all great in giving you an idea about the property when it comes to determining how you handle this property investment – or if you even invest at all. But, these numbers don’t give you an accurate indication of a property’s value.

To get that, you need to understand real estate property valuation. Define property valuation; is the process used to determine the actual economic value of a real estate investment. When purchasing a new property, the price you pay for that property is just the price, not the value. It isn’t necessarily priced so high because it is such a fantastic value, nor is it priced low because it doesn’t have any value.

Market prices predict sales prices. So a home in one area may sell for $600,000, and a house built the same year with comparable specs in another place may sell for $200,000. Is one any more valuable than the other? Not likely. Some sellers need to sell fast, so they price their property to sell, not because it has a lower value. In general, many factors go into determining a home’s value, such as:

  • Age and condition of the property.
  • Size of the property (incredibly usable space).
  • Location and local market conditions.
  • Neighborhood comps.
  • Economic indicators and interest rates.

As an investor, it is essential to know how to properly evaluate your property to always know you are making a sound investment. We’ve got three ways to help you do just that.

The Sales Comparison Approach

This is an excellent valuation option when it comes to single-family homes. You can look at local comps, analyze a few of them, and estimate the property’s market value. These homes need to be in the same neighborhood and of the same size and age and have recently sold. You would then adjust your property based on the research.

Yes, they are comparable, but if your SFH has a newly upgraded kitchen or a new air conditioner and the others do not, you need to adjust the number accordingly. Keep in mind that no two properties are alike, so there should always be some adjustment to the property.

The Income Approach

The income approach is made using a simple calculation when it comes to multi-family properties such as duplexes, apartment buildings, and other properties that generate revenue. You divide the net operating income (NOI) by the capitalization rate. The NOI is your revenue minus your expenses. Estimating this before investing in a property can be done easily, as highlighted below:

  • What’s the gross potential income would be at 0% vacancy.
  • Estimate the adequate gross income by estimating the costs of vacancy based on other like-properties nearby.
  • Your property expenses, both variable and fixed.
  • Calculate the NOI by subtracting the estimated costs from the estimated gross income.

And your capitalization rate is found by dividing your NOI by the property’s current market value and then multiplying by 100 to get a percentage. For many property investors, this cap rate is determined using the information from comps of properties recently sold in the area. And the market value is the NOI divided by the cap rate.

The Cost Approach

This is a great option to use for those properties that aren’t big generators of income and are not as easy to sell, for instance, hospitals, schools, and churches. The cost approach helps determine the value of a property as the land cost and the construction cost needed to replace the property.

Use the sales comparison approach to help you determine the value of the land alone as if it were a vacant piece of property. Then you will want to calculate the value of the building you want to build. The easiest way to do this is to determine the cost of building something new per square foot based on local comp properties – and then multiply it by the square footage of the building. 

Importance of Real Estate Property Valuation

Every investor has strategies for determining their next steps. But it usually always involves doing some real estate property valuation before they invest and checking those properties that they currently own to make sure it is still valuable. While the calculations remain the same for anyone who uses them, how the results are viewed will vary based on the investor. For example, determining the value of one property may cause an investor to lose interest, while it may cause another to put down an offer.

For those with multiple rental properties, having a property management team like RPM Evolve can help free up your time to focus on making sound investment decisions. After all, finding a strategy that works for you when building your real estate portfolio involves total focus and no distractions. So, as you move forward, which real estate property valuation method will you use?

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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.

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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.

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Rental Property

5 Important Tips For Advertising Rental Properties Online

Advertising rental properties online is an essential aspect of finding quality tenants, but it can also be extremely time consuming and stressful. These 5 tips can improve your success rate and help to fill vacancies quickly.

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You have a property that you would like to rent out to high-quality, prospective tenants. So, you got to work creating an ad that listed what you feel are the most important aspects of the property – and you listed it online.

What happened? Did you get any response from the ad? Were you bombarded with inquiries from potential renters that do not meet even your most basic requirements?

Here’s the thing – you can’t just throw some words together about the property and expect to get the result you want. There is a method to creating a successful property listing. Those who have been advertising rental properties for years will tell you that doing things right can be highly effective – especially when it comes to online property marketing platforms.

So, what does it mean to do things right in the online marketing world? Let’s take a look at five of the most important tips before you list your next property.

1. Know Who is in Your Target Market

To get a response when advertising rental properties, you have to capture their attention. But, not just any attention. You want to make sure you are capturing the attention of the right people. What would your ideal tenant look like? Someone who would love a home with a high walkability factor? A person who would love the extra office space in the home to work from home? Someone who would benefit from the accessible transportation or close highways? This is your rental property so you know the benefits that will stand out and you know what your future tenants may want to take advantage of in the area. Focus on those things.

If you don’t want to find yourself in hot water with fair housing laws, you should keep in mind not to speak of specific demographic groups or who you feel would make a good fit for the property.

Before you can capture the attention of the right people, you must know who you are marketing to. Take some time to get a better understanding of your target market before you waste time (and money) on advertising.

2. Choose Your Words Carefully

There are a lot of rental properties listed. When someone is scanning through property after property, they are going to catch a few words here and there until something catches their eye. It’s that heading or even the first few words of the first sentence that will either get them enticed for more – or keep scrolling.

Choose words or phrases that will capture this attention. Make sure you aren’t using the same heading that 80% of the other ads are using. For example, think of some phrases that are overused in listings, such as:

  • Close to good schools
  • Nearby dining and shopping
  • Close to downtown
  • Parks and recreation within walking distance

Sure, these are all great things that many people are seeking. But guess what? Many other properties offer the same. Decide what sets your property apart from the rest and go with it. Does it have a pool? Extra space for a home office? Maybe it has solar energy panels? Describe your property with the traits that will stick out and capture attention of high-quality tenants.

3. Photos, Photos, and More Photos

Photos have always been important. People want to be able to see what a property looks like and if it is even worth their time looking into it further. Anyone can post a listing about a beautiful 4-bedroom home near great schools and walking distance to downtown. However, without photos, there is no way to prove it even has indoor plumbing!

Even more so now that we are still dealing with the COVID pandemic, photos allow potential rentals to determine their level of interest in your property – and save time and social contact with everyone involved. If they like what they see, they can reach out to you, if they don’t, they will keep searching. Time is a precious commodity so the more details you can offer, the more appreciative your prospective tenants will be.

Work with a photographer or do some research online to learn about key aspects used by professional property manages for taking good photos of rental property to show off all the goods. In addition, consider using virtual walk-through videos to give an even more in-depth perspective of what the property looks like.

4. Use Social Media

When advertising rental properties online, it’s important to utilize multiple platforms. There are many websites available for you to list your rental property, and some of these may very well lead to a great response. It is definitely important to consider the fact that most people spend their time on a cell phone rather than a computer. And, in doing so, often spend more time on social media than anything else.

So, what would happen if you decided to list your properties on social media? That’s right – if you want to get find the perfect tenant for your rental property, you are going to want to take advantage of social media. You will have to do your due diligence to determine which social media platform – Facebook, Instagram, Pinterest, TikTok, etc. is best for your target audience. A professional property manager will also give you the ability to advertise on websites like Zillow and rental.com to boost your exposure.

Keep in mind that the algorithms are always changing so it is best if you stay on top of the latest stats. In more recent times, social media posts with video seem to get more views than those with pictures only. And those with pictures get seen far greater than those with only a post of words. This could change. The more you gain an understanding of the marketing world, the easier it will be to stay on top of things.

5. Consider a Property Manager

Listing your property online is one thing. Advertising rental properties online and making sure it finds its way to the high-quality tenants that will want to sign your lease is another. It takes an in-depth knowledge of the market and an understanding of how to maneuver through all the available tools.

This is where a property management team comes in. Not only do they handle all physical aspects of managing properties, but they take care of the advertising rental properties, too. If you find yourself overwhelmed when listing your property – or don’t like the results you have been getting – then perhaps it is time to ask for help from the best property manager in Phoenix – Real Property Management Evolve.

Final Thought

Remember, it doesn’t matter how beautiful your property is or how many amenities it has – it isn’t going to serve you well if it is vacant. From taking notice of your target market to building a social media presence, try following these important tips for listing your property online – or consider consulting a professional property management team to market the property for you.

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