I have a paid for house and no rent. I make a decent salary and taxes are eating me alive. Should I buy a rent

Question

Should I buy a rental property? How can I shelter some of my income?

Answer 1

You need to see a good accountant or financial planner. You're looking for a tax shelter against your current earnings and there are not too many of those available. Real estate is a good shelter, but you may need to use some of your current income to fund the investment, so make sure you have that cashflow.

Answer 2

I'm guessing you've maxed out your 401K, IRAs, Roth IRAs HSAs, Flexspending accounts and other easy ways of sheltering your money from taxes.

As the intelligent guy from the Boston area points out, Real Estate traditionally lags the stock market for returns. Except for the fact it's easy to get some schmo at the bank to lend you 80% of the selling price of real estate. Try calling Fidelity and telling them you'll put 20% down on some GE stock. Nothing better than investing OPM (other people's money).

If you can stand the risk (and dealing with people), and the 20% down and 10% in reserve is not a budget streach for you, and you could make payments on the property without breaking a sweat then research a rental property in your area. I find putting money upfront saves heartache in the long run. Newer furnaces, water heaters, roofs and amenities cuts down you middle of the night calls. If your properties have positive cash flow, you can make a little $$(and I do mean a little $$), save $$ on your taxes, and have a long term investment that will hopefully appreciate 2-4% per year for as long as your have it.

This with a stock portfolio makes a nice investment package.

Answer 3

Spending money to save taxes is NEVER a wise idea! You will ALWAYS come out on the losing end since you will NEVER get your money back in the form of tax reductions.

You should work towards maximizing your wealth, not just minimizing taxes! In doing so you do need to consider the tax implications of what you are doing but focusing on the "tax tree" and ignoring the "wealth forest" will guarantee you that you will come up short in the end.

If you have excess cash that isn't doing anything productive for you right now, the stock market and mutual funds would be a MUCH more lucrative place to be putting your money. Historically the stock market has outdistanced real estate as an investment by more than 2 to 1 and that's just using indexed funds. If you invest carefully you can do MUCH better than that over time.

Real estate CAN be a good investment, but ONLY if you heavily leverage your position (that is, borrow most of the money for the purchase) AND are willing to assume the risks of a flat or declining market AND are OK with illiquid (hard to turn into cash) investments.

Locate a financial adviser and discuss your situation with him or her. You want one who does NOT sell securities and investment products and who charges by the hour, not by the size of your estate. It may cost you a few hundred $$$ but will be money very well spent in the long run.

Answer 4

Real Estate has typically been a good way to make money and to legally shelter/offset income. BUT (caps intentional as I am shouting at you girlfriend...) DO NOT JUST GO OUT AND BUY A RENTAL PROPERTY!

Every area of the country has good/bad real estate areas and deals. You need to be committed to being a landlord with a good cash flowing property in order for this to work. If you buy a negative cash flow property just to offset some other income, then you are asking for headaches and a potential nightmare.

Find your local Real Estate Investor Association (REIA)Group and attend their meetings...talk to the investors there. Ask others for a referral to a CPA who understands Real Estate Investing (believe me, some absolutely do not) and find out how it would work for your particular situation. Then decide if being a landlord is for you!

Hope it works for you!

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Answer 5

My advise - make sure that you can afford it!

I've known a LOT of real estate investors who leveraged their rentals properties, and now in the surge of sub-prime defaults, their ARM's are going thru the roof, and they are either having to sell, or get foreclosed.

But if you can afford it, in my opinion right now, Real Estate is one of the best TAX SHELTERS available right now (they are not good investments unless you bought over 10 years ago).

Answer 6

401K, CD's, etc. Real Estate is down, it could be a decent eventment.