I want to be a landlord!
It's the American dream! Have your renters payoff your mortgage and make you rich! We've all seen the infomercials touting "Get Rich In Real Estate" seminars and self-study courses.
The reality is very different.
First, if you do decide to rent out real estate and become a landlord, I assure you that I can easily help you integrate this into your tax filing needs. See the checklist for landlords (rental real estate) at the checklists page.
Sometimes we become landlords by chance. We inherit a house or have to move and can't sell our existing home.
The first issue for anyone considering acquiring a piece of rental real estate is price. If you overpay, it will be very difficult to recoup your investment except under the most ideal circumstances.
You can find the best renter in the world, and from my personal experience, things will take unexpected turns.
I have witnessed the trials and tribulations of many a "Mom and Pop" landlord. Talk to someone you know who already does this to learn about their experiences.
If there is one thing we have learned over the past 10 years, it is that real estate prices do not rise exponentially.
I have not dealt with larger property owners, but I suspect they are the ones making the money. If you owned 500 or 1000 apartments, you could make money if you bought the property at a good price and under favorable terms.
You gain economies of scale with these larger properties and hire someone to handle the day to day management of the property.
As a solo owner, you are the one who gets called when the pipes freeze or the kids plug up the toilet and septic system.
Because you are a wealthy "landlord" the courts favor the tenants in court. You are the rich evil landlord, charging too much rent to a disadvantaged or unemployed tenant.
Do your renters do drugs? Will your kitchen become a meth lab?
Do your renters have pets? Will the pets disturb the neighbors and destroy the property?
Enough said, go into the venture informed and with your eyes wide open.
Residential rental property (excluding cost of land) is depreciated over 27 1/2 years.
Most taxpayers who actively participate in the operation of their rental properties can deduct losses up to $25,000 and take that deduction and offset it against other income.
Legal advice may need to be sought regarding the advantages of placing rental real estate into separate entities ( rather than holding them individually).
Your liability insurance and other coverage should be updated with your insurance agent.
Special rules apply when you rent a property to a related party or rent out rooms in your home. In both cases, losses are not deductible.
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