4 ways to maximize your return on a real estate investment
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As a real estate investor, you want to generate a positive cash flow and maximize the return on your investment. Knowing the ins and outs can save you on expenses and increase the revenue your investment property can generate.
Tax write-offs
There are quite a few tax benefits for real estate investors and working with a CPA is a great way to make sure you’re taking advantage of those benefits.
One of those benefits is writing off certain expenses. If you buy a property with an LLC or an S-Corp, the property now becomes a business asset. As a rental property owner, you can rack up quite a few fees that could fall within the category of business expenses. Some examples include repairs, upgrades, property maintenance costs, utility costs, and furnishing/appliances. Essentially, if an expense is business-related, you may be able to write it off in your taxes. For instance, do you use your phone to communicate with property managers, tenants, or property maintenance? Are you employing the help of a CPA? You could write these expenses off. You can find more information on what you can write off and how to go about it here.
*I’m not a tax professional and cannot give tax advice (find a tax professional for your network)
Furnish rental properties
Furnished rentals generally charge a higher rent. If you’re trying to maximize the positive cash flow a property is generating, consider furnishing it and raising your rent. Now this does require somewhat of an upfront investment. Luckily, there are means of finding inexpensive furnishings and if you’re handy, can refurbish used items. Some great places to find used furniture includes:
Facebook Marketplace
Thrift stores
Garage sales
Remember, if you buy the property with an LLC or an S-Corp, any furnishings and appliances added to the property can be written off on your taxes as business expenses. Also, upgraded features are great for appeal and resale. It also means that you could charge a higher rent to tenants who may be looking for a home with certain features. Research your market for comparable properties and features to determine if it would be advantageous to invest more into your property upfront and possibly write off later.
And don’t forget to talk to a tax professional about what you can and can’t write off.
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Switch to affordable energy
Adding a solar panel system to an investment property can be a great way to cut costs and increase your positive cash flow.
Tax Credits
Because renewable energy is incentivized, there are tax credits and state incentives (depending on your state) that are available to homeowners who install solar on their homes. The Solar Investment Tax Credit (ITC) allows qualifying homeowners to deduct 26% of the cost of solar installation on their federal taxes (2023).
Cut your energy bill
Switching to solar power can significantly lower the costs of your energy bill. This is great as a rental property owner as the lower utility bill can further increase the monthly cash flow that you can generate. A lot of solar providers also offer different rebates on solar systems.
Increase property value
According to a 2022 Forbes article, solar additions could increase the value of your home. As a real estate investor, this is good news for resale.
Depreciation costs
Real estate investors can claim a 10% deduction in system value each year. Solar can require some upfront costs, but the idea is to save in the long run through tax benefits, decreased energy bills, and depreciation costs.
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Property related service fees
Does your rental property require landscape upkeep? Snow removal? Depending on the property and how much work you’re willing to put into it, you may be able to offer some services as a means of earning a little extra income to boost your positive cash flow.
Remember,
Build your network and expand your connections. Having experts in your corner allows you the opportunity to take advantage of all the benefits in real estate investment that you may have otherwise been unaware of. Find your real estate agent, loan officer, and tax experts. Talk with and build connections with property managers. A solid network is one of your most advantageous tools as a beginning real estate investor.
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Sources: https://www.chandlerdavidsmith.com/post/6-tips-on-how-to-earn-money-from-rental-properties
https://www.mynd.co/knowledge-center/10-tax-deductions-often-overlooked-by