Investing in real estate is a long-term strategy to develop wealth and security. But in an ever-changing market, it sometimes needs clarification on how to get started, grow, and sustain your business. Here’s what to know about investing in a property and how working with a real estate tax advisor can strengthen your foundation for success.
Treat Your Investments Like a Business
It’s possible to invest in real estate on the side but to succeed and scale, it needs to be treated as a business. Other investors are focused on the process but view the work as closing different deals. Instead, treating it as a real business comes with everything from tax advantages to making informed decisions about where to spend your money. A real estate tax advisor can help determine the best structure for your real estate investment businesses and how to make the most of your finances.
Consider the Tax Breaks
When you treat your real estate investments like a business, you also enjoy the tax breaks that come with it. Depending on your business structure and guidance from your real estate tax advisor, you may be able to expense and enjoy tax write-offs, including but not limited to:
- Property taxes
- Maintenance fees
- Property management fees
- Mortgage interest
- Computer
- Legal fees
- Accounting fees
- Advertising fees for your rentals
- Office space to run your investment business
- Business related travel
Landlords of even one rental property enjoy income tax deductions that could allow them to recover the cost or basis of a real estate investment. In most cases, the IRS also doesn’t consider rental income earned income, which provides more opportunities for tax savings. Instead, rental income is taxed as passive income, similar to how the IRS treats stocks or REIT distributions.
Don’t Over-Leverage Your Finances
It’s easy to get swept up in all of the tax savings and financial windfalls that can come with real estate investing. But it’s still possible to over-leverage your finances and turn a budding business into a financial burden. Carefully consider each real estate investment and whether or not it’s worthwhile, offers reliable ROI, can endure market fluctuations and is cash flow positive. Your real estate tax advisor can help walk through the tax planning and financial implications of your decisions to both protect and maximize your finances.
Look for Reliability
Unless you’re a seasoned pro in real estate investing and have a team to vet properties and take calculated risks, it’s best to focus on reliability. Buying a mediocre property in a fantastic neighborhood is one strategy, especially if you can make a small investment in a facelift or minor renovation. Commercial properties should be in heavily trafficked areas and benefit from the foot traffic of adjoining, well-established businesses. Or you can look for single-family homes to rent out in renowned school districts. The more you focus on reliability, the easier it is to create a stable real estate investing business.
Join Networking Groups
The best deals in real estate aren’t always on the MLS. Instead, off-market deals can be found through networking and making yourself known as a real estate investor. Making the right connections, following up with people, and being helpful and proactive can all help uncover potential investments you wouldn’t have heard about otherwise. Networking groups can also help connect you with other investors looking to pool money together to purchase a more significant investment, like a multi-family property.
Stay Open-Minded
Real estate investing isn’t necessarily predictable as market conditions change. Staying flexible is key to both success and survival. You may have started your career as a commercial property investor but later need to consider single-family units, multi-family properties, or mobile homes in a shifting market. As your primary market recovers, you end up with a diversified portfolio and expertise in areas you wouldn’t have had without an open-minded approach.
Work with a Real Estate CPA
When you hire GJR Consulting as your real estate tax advisor, you maximize your finances and tax planning for your business. We help lift the financial burdens off your shoulders and collaborate to find the best tax planning solutions for your business. Our ultimate goal is to make your life more manageable while delivering professional expertise, reliable responsiveness, and quality service. Take the next steps in your real estate investment business by contacting GJR Consulting today.