Income Properties Colorado
Presented by Tyler R. Wanzeck
Income Properties Colorado
Income Properties in metro Denver can be financially rewarding when you find the right property at the right price and with the right planning. Following are a few advantages that can make investing attractive.
Use of borrowing power: With real estate investing, there is a benefit to using debt to increase the ability to purchase, especially if multiple properties are involved. One property can be leveraged to purchase the next. As additional properties are purchased, the investor’s cash outlay can potentially decrease if the property values have increased enough to support the next purchase.
Cash flow: If the rents charged exceed the cash carrying costs of the property, the result is positive cash flow. Cash carrying costs take into account real estate taxes, debt service, insurance, capital improvements, repairs and maintenance, utilities, association fees, and management fees. Many retirees use income streams from properties to supplement or provide for retirement income.
Increased investment: If the property is mortgaged, part of the cash carrying costs noted above include the principal portion of the monthly mortgage payment. This amount is not truly an expense of the rental property, since it builds equity in the investment. Consider this the dividend reinvestment program of the real estate world. Also, the hope is always that real estate markets will flourish and the fair value of the property will grow. However, as with the stock market that appreciates, the only way to realize that appreciation is to sell the property.
Tax deductions: While rental income is taxable, it comes with some viable potential tax deductions. Taxable rental income can be reduced by cash expenses, including some of the same costs listed under the second point above – real estate taxes, mortgage interest, insurance, repairs and maintenance, utilities, association fees, and management fees, or travel costs to and from the property if the residence is self-managed rather than serviced by a third party manager.
More tax benefits: Depreciation deductions can be claimed, which are essentially the write-off of the original costs of the buildings and improvements. Qualified business income – the tax cuts and jobs act now gives landlords another potential benefit. The rental activity may be considered QBI-eligible activity, which is effectively taxed at a lower rate than ordinary income. Passive losses – rental losses that are subject to passive loss limitation (for those in higher income tax brackets) do not reduce current year ordinary taxable income, but the benefits of these losses are never lost. Mortgage interest deductions can be taken on mortgage amounts up to the original purchase price of a property. As a property appreciates in value, it is possible to refinance the property and extract additional equity and the interest will still be deductible.
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