How to Buy a Rental Property

Rising unemployment due to recession has resulted in a number of people losing their home because of their inability to make mortgage payments. This has forced people to move into a rental apartment in their quest for cheaper accommodation. Considering the present scenario, investing in a rental property may not be a bad option. In the US, rental properties can be classified into five categories: mobile homes, condominiums, properties with 1 to 4 housing units, properties with 5 to 49 housing units, and properties with more than 50 housing units. Before buying a rental property, the following factors should be considered.

Buying a Rental Property

Goals: The type of property to be purchased would depend on whether the person is looking for a long term or a short term investment. A long term investment would mean a steady stream of income from the property in the form of rent. Hence, one can afford to buy an expensive property because the probability of rent appreciating long term is much higher than in the short term. A person who intends to hold the property for a short period of time and sell it for a profit, should go for a cheaper investment.

Location: Location is an important factor which needs to be considered before investing in a rental property. A good location is characterized by the proximity to schools, parks and stores. The neighborhood should also be safe. The best way to locate such a neighborhood is through a real estate agent or a broker.

Eviction Letter Samples

An eviction letter is simply a notice asking the tenant to vacate the premises where he/she is currently residing. It serves a written communication about the landlord's decision as far as the tenant's stay is concerned.

Sending an eviction letter must be the first step for a landlord seeking legal eviction of his property. Though an eviction letter cannot be considered as a legal notice, a landlord can take the tenant to court, if he does not agree to evict the place.

Find a few sample eviction letters below.

Sample 1

420, Fannin Street,
Austin, TX 77030

October 8, 2012

Derek Mcarthy
645, Creek View Street,
League City, TX 77573

Dear Mr. Derek Mcarthy,

This is to notify you that your failure to pay the rent since May 31, 2012 for the apartment addressed 645, Creek View Street, League City, Texas 77573 has rendered you in violation of our lease agreement dated November 1, 2011. The amount due for payment sums up to $5000.

You are hereby requested to pay the above-mentioned amount within 3 working days or vacate the premises. Failure to do so will compel me to file an eviction suit against you. Your cooperation will be appreciated.

Sincerely,

(Signature)

Mr. Chris Kringle

Landlord Responsibilities

Being a landlord has its share of monetary and non monetary gains. However, there are many responsibilities that you have to shoulder and carry out efficiently. Being a landlord doesn't mean you only have to collect money and maintain your tenants accounts, you also have too look into each and every landlord repair responsibility that need to be followed. Some of these are like doing maintenance works in the rental property, preparing the required legal paperwork and also protecting landlord's rights to the property, he/she is giving on lease.

Commercial Responsibilities

When you take commercial property on lease, it's very important that you understand the basic landlord responsibilities, that he/she has to follow. On a commercial property mostly tenants are responsible for internal repairs and in some cases external repairs too. Many of these repair conditions depend on your lease and contract that you have with your landlord.

When your landlord is giving you a commercial property on lease, he/she has to allow tenants to move in without any disturbance.
Mention in the lease agreement, conditions related to repair and maintenance of the property, if it gets damaged.
Ensure that your property complies with building regulations.
Make sure that all electrical equipment you provide to the tenants are safe and usable. Make sure the furniture you provide is fire resistant.

Depreciation of Rental Property

Assets and properties are important terminologies in the world of investments and finance. They give you a financial security. But every materialistic entity undergoes wear and tear. So do the buildings and structures, which are a part of your rental properties. A steady drop in the rental property value over the years is known as rental property depreciation.

What Is Depreciation of Rental Property?

Definition: Depreciation of rental property can be defined as the steady rate of decrease in the value of a passive rental property owned by a person.

Rent collected on property is also a source of income. But is that a part of the taxable income? Yes! But then the depreciation costs, repairs and operating costs are considerable amount of tax deductions that can be made on the taxable rental income. For investors, depreciation of rental property is a good news, as the taxable portion of income from the property is recovered through the rental depreciation. As per the Internal Revenue Services (IRS), the factors that determine the amount of rental depreciation are: the recovery period for the property owned, the owner's claim on the property and the kind of depreciation methods used. Not to miss on an important point, the rental depreciation applies only to the structures and rental properties on a land and not to land.

Rental depreciation is favorable investment choice when it comes to real estates and rental properties. To avail the benefits of rental property depreciation, many investors allocate much of their property purchase price to improvements and little to land. For example: A tax assessor has shown on paper that he has 95% of his property that is attributable to improvements and 5% to land. This is accepted by IRS, although the distribution by the tax assessor may not be actual. When a property is shown attributable to improvements, the depreciation costs are deductible expenses, which provide an effective tax shelter for rental properties. Let's take an instance. Assume there is a property which has cash flow worth USD 5000. Say, the cash income is exceeding the cash expenditures annually by USD 5000. Now the investor has USD 5000 cash in hand. If this were depreciated as USD 10,000 in that financial year, the property would have suffered a loss of USD 5000. But if it is shown as USD 5000, the spendable income would remain untaxed and the remaining USD 5000 (depreciation cost) would be used to offset other incomes. This is how rental depreciation helps in tax sheltering.

Rental Property Management Fees

Managing a property on your own can be a largely time-consuming job. If it's a rental property, then the scale of management is even higher and more complex. Recognizing this need of property owners, professional property management companies were created. They offer a complete rental property or residential property management solution for property owners. If you are the owner of a residential or rental property, thinking of outsourcing the management job to a professional company, this article will provide you with a breakdown of management fees charged by such companies.

There are hundreds of things that need to be handled, when it comes to managing a rental property. You could either hire a company to manage the affairs of your property, or opt for a rental property management software, that makes your job easier. While a professionally managed firm's services will cost you more, a property management software will cost a lot lesser. Let us now proceed further and see what are the factors that decide these fees.

Analysis of Management Fees

While hiring a personal property manager may seem like a more convenient solution, professional firms are in a better position to do the job for you. They handle everything from advertising for your property, finding tenants, signing lease agreements, handling rental accounts, maintenance jobs to creation of lease renewal agreements. Firms may offer to do some or all of these jobs for you. Depending on the number of property affairs that they handle, the fees charged will be higher. Here is an analysis of the fees that you can expect to be charged with.

Commission Earnings
One of the sizable parts of the fees is the money you pay the firm as commission. These fees are generally charged as a percentage of rent collected from your property. It may vary widely from as low as 3% to more than 15%. Some property management firms will ask for a fixed amount of commission, irrespective of the rent earnings. This fee will depend on the size of rental property being managed and may be anything upwards of $200 a month.

Rental Application Template

Real estate is a difficult market to deal with as there is high level of demand and substantial increase in the prices. On the other hand, the supply side of this market or rather the availability of land is quite limited. This has inflated the cost of real estate, lease costs and rent amount. Apart from that, getting rental properties, has also become quite a difficult task due to the fact there are simply too many people bidding on the property. The best way to get an edge over the other bidders, is to write out a really good rental application.

Rental Application: The Basics

A rental place or a property that has been taken up on a lease is on the basis of a legally en-forcible contract between you and the landlord. Your right to use and occupy against the rent paid out to the landlord are the two considerations of this contract. Now, as an applicant for the real estate or apartment rental, you will have to state very clear facts in the rental application.

The first fact that you will have to state is your age and marital status. Next off, indicate the status of your employment and also mention your monthly income. This a basic necessity, due to the fact that a steady income means your landlord is going to get the rent regularly. Apart from that, the landlord will also calculate a debt to income ratio in order to ascertain whether you shall be able to pay rent easily or not. You can also state your profession and your tentative work timings. Lastly you can also present a series of personal reference letters, as it would perfectly reflect your own personality. Also note that the landlord is bound to conduct a background check on you and it would better to politely disclose any record that would be viewed to be negative (e.g.: bankruptcy, federal offense, etc). An honest disclosure would obviously prove to be effective.

Rental Property Tax Deductions

The deduction for rental property for a landlord is possible on certain grounds, however the total amount is restricted. In case of tenement, this becomes possible only when the rental property is used for residence as well as business purposes. In case of several complex inclusions in your income tax return, to determine the exact value of the deductible amount, you will require a rental property tax deduction calculator, or a form plus guidelines by the Internal Revenue Service (IRS).

Tax Deductions for Rental Property in 2010

Here are some guidelines for landlords, regarding the deductions that they can avail in the 2010 year's income tax return.

Note: From the administrative prospect, the IRS distinguishes between a passive investor and a real estate professional. In case of real estate professional, who (IRS defined) spends half or more than half of his or her time in the real estate business. A person not qualifying this condition is a passive investor. Full-time investors have the freedom of deducting almost all losses, whereas, in passive income cases, $25,000 is the limit. Please check your Modified Adjusted Gross Income (MAGI), if your income is between $100,000 and $150,000, the deduction phases out.