Appreciation and tax savings are legitimate contributors to an overall rate of return on the rental real estate but what if you didn't consider them at all? If you only looked at one or two, very conservative measurements, you might decide to invest especially knowing that there are more benefits that will accrue to your investment.

If we bought a property for cash, collected the rent and paid the expenses, the amount left would be called Net Operating Income. In the example below, if would generate $7,200 a year which would be a 7.02% cash on cash rate of return which is considerably higher than the current 10-year treasury rate of around 2.3%.

If we place a mortgage on that property, the rate of return actually increases due to leverage. After the principal and interest are paid, the net operating income obviously decreases but the cash on cash rate of return increases to 9.10% because the borrowed funds mean less cash invested.

Another contribution to the investment's rate of return occurs with the mortgage due to amortization: the principal reduces with each payment made which increase the investor's equity. In this example, the equity build-up divided by the initial investment yields a 5.25% rate of return in the first year.

Single family home for rental purposes offer the investor high loan-to-value mortgages at fixed interest rates for long terms on appreciating assets with tax benefits, reasonable control and an opportunity to earn higher than normal rates of return. Contact Kathy if you'd like to talk about what kind of rental opportunities are available.

IRS requires that expenses must actually be paid in the year that a deduction is to be taken. If you have a mortgage with an escrow account to pay your property taxes and insurance, you expect the company servicing your loan to pay this year’s taxes this year so that you can deduct them on your 2014 income tax return. After all, your monthly payment includes 1/12 the annual amount so there will be money available for them to be paid on time.

The predicament occurs when you’ve made your payments but the mortgage company didn’t pay the taxing authority in the tax year they were due. If they paid your 2014 taxes in January of 2015, they wouldn’t be deductible for you until you file your 2015 income tax return.

Verify with your lender after you make the December payment that they did indeed pay your property taxes. The question for your lender’s customer service is: "Have you or will you pay the 2014 property taxes this year so I’m eligible to deduct them on my 2014 income tax return?”

For more information and all your questions, contact Kathy today.

Imagine your money down the drain...Private mortgage insurance is necessary for buyers who don't have, or choose not to put 20% or more down when they purchase a home.  If this is you, take heed.

It is required for high loan-to-value mortgages.  It also provides an opportunity for many people to get into a home who would otherwise not be able. [...]

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Your chance to make a good offer, better.

It is time to make your good offer even better! ...It happens all the time: you fall in love with a home, are already planning your furniture layout, and the annuals you will plant out front, and you submit your offer. Aahh, your future is in hand! But not so fast. Your offer may not be [...]

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Your IRA for a Down Payment?

There is an alternative source for down payments if you are a first-time home buyer! Keep this in mind if you fall into this category...

Most taxpayers know that they will pay a 10% penalty if they withdraw funds from their IRA before they turn 59.5 years old. There is an exception for first-time home [...]

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Taxation: maintenance vs. improvements? HOW you spend on your home makes a difference, when it comes to taxation and potential gains.

Repairs to maintain your homes condition are not deductible (unlike rental property owners who can deduct repairs as an operating expense).On the other hand, capital improvements to a home will increase the basis and therefore affect the gain when you sell, which [...]

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In 2013, the Types of Mortgages Acquired Shows the Trend...But Should You Follow Suit?

 Fixed or Adjustable Rate - IT DEPENDS! 94% of purchasers last year opted for a fixed-rate mortgage at some of the lowest rates in home buying history. Yet, some of them will pay more in interest than necessary, based on the time theyll own the [...]

 

Just One Example: Why Section 1031 Exchange May Be of Benefit to You

Your taxes may have been filed, but here's an opportunity for Real Estate Investors, to grow their proceeds through the Section 1031 exchange. Section 1031 exchange for rental and investment real estate, is a tool that allows investors to move the gain from one property to another without immediate income tax consequences. [...]

 

Is the Window Closing?

With interest rates lower than theyve been in over 40 years, it may be difficult to think of a window of opportunity closing. Consider this - rates will only go up from here. It may be a slow rise, but a steady one (the rise of home prices illustrates the same trend). [...]

 

Take note.

Prepaid interest, sometimes called points, is generally tax deductible when a person pays them in connection with buying, building or improving their principal residence. When points are paid on a refinance, they are not a current deduction but have to be taken prorata over the life of the [...]