This is my first attempt at blogging, and aim to keep this page updated with news pertaining to investment real estate, interesting deals I come across, and reflections on the market in general.
For my first post I want to briefly touch on whether an Investor should look to flip or rent. There are lots of investors that differ on this subject, and with equal amounts of fervor they fight for their cause. The investor that flips never has to deal with tenant problems, and also makes a nice return on a property that they have gotten rid of. The investor that looks to build a rental portfolio always has passive cash coming into his bank account. By passive I mean the investor can leave for months at a time and still count on that same amount of cash flow every month. The investor that flips his property has essentially bought himself a job, once his property is sold he is out of work. The tax man also looks to gouge the flipper with capital gains taxes, where he rewards the landlord with breaks.
Lets say a rental house for a certain investor looks like this:
After Repair Value of $100,000.
Rehab of $10,000
Purchase Price $60,000
The mortgage on a 20yr fixed refi would be around $750/mo
Rent on the house $1000/mo giving $250 a month in gross cash flow.
This investor looks to have some nice tax benefits on just one house.
Write Offs:
1. Closing Costs - $3000
2. Interest - $8,400
3. Repairs - $10,000
Total Write Off - $21,400
Tax Credit:
Depreciation - which is calculated as 80% of tax assesment/27.5yrs = $3,000/yr
For just one house an investor saves $24,000 in taxes in one year. Now think of what you can save with 10 rentals.
I do not advocate only purchasing rental property as some deals just make great sense to fix and sell. I do believe that for every deal that an investor looks to fix and sell they should buy at least one rental property.
