Becoming a real estate investor is an expensive idea. Sure, it’s quite lucrative but it is a business idea that has a steep entrance fee.
As we’ve already stated in the previous sentence, being an investor also means running a business.
This is a good thing, seeing as how the majority of your expenses may be subject to tax returns and deductions as business expenses.
Here are the top 10 such expenses that you need to keep in mind.
Routine operating expenses
The first thing you need to keep in mind is the list of expenses that are tied to owning the property, to begin with.
We’re talking about things like water, sewer, gas, and electricity. Then, you have property taxes, mortgage payments, and insurance of the place.
In a scenario where you’re not running things on your own, you need to pay for the property manager.
The next thing worth keeping in mind is the cost of variable expenses. You see, there are some things that you won’t be able to predict with 100% accuracy.
There’s the question of vacancy between tenants which will make your investments a bit higher. There are also remodeling and home improvement investments. Routine repairs for regular instances of wear and tear shouldn’t be neglected either.
When it comes to investing in a property, depreciation is definitely the single biggest concern. Why? Well, because the value of your property will decline over time, and even though you can do a lot to keep it new-looking for longer when it comes to the depreciation record, things are nearly impossible to change.
Now, a good thing about this is the fact that a loss caused by depreciation counts as a taxable loss. So, by getting the right depreciation tax quotes, you can turn a negative thing into a best-case scenario.
Rental property expenses
Rental income is also taxable and the IRS may pay close attention to various minor expenses. For instance, you have to worry about the prepaid rent the same as your monthly rent.
Then, there’s the tenant application fee, the same as the lease cancellation fee. There are also numerous landlord expenses that can be paid by the tenant (if this is the arrangement that you’ve made).
This is not to be confused with repairs made by the tenant, yet, both of these counts.
Keep in mind that you won’t be the only one tending to the property in question. You will need so many experts in order to buy, evaluate, and close the sale.
Then, in the very process of property management, you will have to depend on others in order to ensure that everything runs smoothly. The cost of this is far from simple.
The cost of the property
When talking about the major real estate investments, the single biggest cost that you’ll face is buying the property. The property cost is often measured in hundreds of thousands of dollars and some of this money has to be deposited as a down payment.
Just paying for the property isn’t everything. There’s also a long list of closing costs that involves all sorts of bureaucratic and legal fees. Once combined, this could seriously upset your budget, which is why it’s so important that you study this ahead of time.
One of the things that a lot of people fail to realize is the fact that, as a real estate investor, you’re an entrepreneur. Your real estate investment instances are instances of you doing business, which is why you can deduct various expenses.
For instance, traveling from and to property that needs maintenance can count towards travel expenses. If you’re using a part of your home as a home office, you can go for a deduction on the part of your utilities, as well.
Perhaps the most surprising entry on this list is the fact that you can deduct 50% of the cost of your meals, provided that you’ve eaten it immediately prior or after the visit to the property.
Due to the fact that you have to travel for work, you’re forced to eat outside (which is considerably more expensive). This can also be subject to deduction.
In order to grow in any business, you need to educate yourself. There are a lot of real estate investment seminars out there. Sure, this may not seem like something mandatory but it can definitely make a difference between success and failure.
Understanding your expenses will allow you to lower them and get some of your hard-earned capital back. The figures that you can save this way are far from insignificant. This means that knowing your expenses may make a difference between success and failure.
Maggie Holmes is a passionate blogger keen on writing about fashion, home design, pets and wedding. Her exclusive hobby is to surf the net to find amazing articles that can inspire her with some fresh ideas for article writing. She loathes being a common person who wastes her time.
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