By Betsy Fallwell
Buying a house is a gruelling enough process when you plan to live in your new property – so why would anyone go through it all knowing full well they’d never, ever call a place “home”? I’ve got two words for you: property investment.
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It Isn’t As Risky As You Might Think
Over the past few years, we’ve gotten used to associating a lot of negativity with the housing market: sub-prime loans, short sales, foreclosures. But there’s a lot in the tax code that protects your investment property from the same excruciating financial difficulties.
For example, when you’re involved in property investment, you can write off things that normally wouldn’t be tax deductible, including:
- HOA dues
- Homeowner’s insurance premiums
- Property taxes
- Interest on your home loan
- Property maintenance
- Advertising available rentals
But these aren’t the only tax benefits of property investment. Although you can’t write off any losses you suffer in the sale of your personal residence, the IRS looks at losses on the sale of an investment property the same way it looks at equity investments. IRS form 4797 shows you how to write off any losses on the sale of a property used for business (you must have held the property at least a year).
Finding the Financing
Coming up with the money to finance an investment property begins on two fronts. The first has to do with working with the right people. For many would-be investors, that means a mortgage broker. This professional works as a liaison between lenders and borrowers, helping you find a mortgage product that fits best into your lifestyle and financial situation. In addition to helping you save time and money as you search for a loan, a mortgage broker – along with an experienced real estate agent – can add an extra set of eyes to the purchase process, helping you avoid investing in the wrong type of property or a place in the wrong area.
The second part of financing an investment property deals with coming up with the money itself. In many cases, you may be required to secure commercial financing for your investment property. This type of financing typically requires more capital up front. If you don’t have cash on hand for this down payment, you may be able to come up with the funds you need by working with a partner (or partners) or by using equity in your personal residence to get the money you need.
Looking for the Right Opportunities
Right now is a great time to look into property investment, thanks to the glut of distressed properties on the market combined with ultra-low interest rates. But looking for opportunities goes beyond evaluating today’s housing market; to maximize your growth potential, you’ll also want to consider how the market will grow in the future. An area that may be the “cool” part of town today may fade down the road, while another part of town may be “up and coming.” Also consider where your potential tenants will come from. Investing in property near a college or university is often a good choice, because there are always students and professionals who need a place to live.