As we move forward in the new year, many of you will begin to turn your thoughts to tax preparation. While we are not tax professionals, our staff at Frontline knows how stressful tax time can be. We strive to reduce your stress by providing the needed documents such as year-end reports and 1099s, all of which have been issued to our investors.
Though the long-term goal for purchasing an investment property is to build equity and value over the initial investment of the property there are many benefits to be taken advantage of in the meantime. One of the biggest benefits is the tax deductions allotted to real estate investors! However, it can be easy to overlook many of the deductions available to you. Below are some things you may want to consider while preparing for tax season:
The following are deductions that you should track each year:
- Mortgage interest
- Homeowners association dues
- Property taxes and insurance
- Professional fees such as attorneys, accountant, etc.
- All property management cost such as management fees, leasing fees, etc.
- Utility payments
- Miscellaneous repairs
- Added or replaced appliances
- Repairs to units such as HVACs, water heaters, etc.
- Travel expenses incurred because of your investments
- Tenant concessions
Some deductions should be amortized over a period of years. (It is especially important to seek advice of a tax professional regarding these items):
- New paint, carpet, fencing, gutters, roof and other major improvements
- Replacement of units such as HVACs, water heaters, etc.
- A major loss to the property
Most of the items listed above can be found on your year-end statement provided by Frontline Property Management, Inc. Year-End statements were issued to each of our investors with in the first two weeks of January. It is importation to ensure you use the year-end statements verses the monthly statement sent out for December. Some other items to consider while preparing for your tax filing:
Did you sell or buy a property in the current year, or are you anticipating transactions in the upcoming year? Be sure to make a copy of your final closing papers for your tax person to review for significant deductions including:
- Amortization of points and other loan cost on investment loans
- Fees paid for new mortgages or refinances
- Exchange fees for 1031 exchanges of your properties
- Insurance, taxes, interest and utilities paid during escrow.
Review your expenditures carefully for any missed deductions and be sure to consult your tax professional to ensure that you are providing the IRS with reasonable and valid deductions. Make your investment portfolio work for you!
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Tips on Investing
What to Ask Yourself BEFORE You Invest
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You, as an investor, need to be picky about the property you buy and the people you work with. And you need to know what you need as a return on that investment to support your end goal.
Ask yourself these questions:
- What do you want to accomplish by investing in real estate?
- Do you have cash reserves, or will your investments be financed?
- How large of a portfolio can you see yourself having?
- What is your desired level of return?
- Do you have an exit plan in the event you need to sell out?
- Do you have a relationship with honest and trustworthy people for assistance?
- How can this investment allow you to live better and to accomplish your dreams and goals?
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Up & Coming Trends
Smart Home Technology for Landlords
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We live in a world where homeowners can turn on the AC, unlock and lock the front door, turn on the lights, and detect water leaks – all from the office, the airport, or across the country. Home automation systems have gained popularity due to overwhelming success of computer-to-computer communication, commonly referred to as the Internet of Things (IoT). As smartphones, tablets, and other mobile devices continue to advance each year, consumers have access to smart home technologies that were once reserved for the elite.
Smart home technologies can be wired into the structure of a house with a central control panel, or offered through external devices like electronic plug adapters or standalone sensors. These home automation systems create smart homes, connected over wireless networks and linked directly to a mobile device allowing users to control smart devices from an app. Smart home users benefit from added security, comfort, energy management, and convenience, all while easily and remotely monitoring their home.
Landlords and property managers can greatly benefit from the use of smart home technologies in their rental properties – not only to attract tech-savvy tenants who will pay higher rent for these amenities, but also to actively manage maintenance, improve security, and prevent property damage.
Here are some of the leading innovations in smart home technology for landlords:
- Smart Locks
- Smart Appliances
- Moisture Sensors
- Smart Irrigation Systems
- Smart Utilities
- Smart Security Systems
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The Ultimate Guide to Due Diligence!
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What Is the Meaning of Due Diligence?
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While an entire book could be written on all the ins and outs of this subject, the definition of due diligence is rather simple. It’s the “investigation or audit of a potential investment or product to confirm all facts,” according to Investopedia.
Basically, the purpose of performing due diligence in real estate is to confirm what you believed to be true about a property when you got it under contract.
While it can be arduous, following the steps outlined below will help you avoid any unwanted surprises and greatly increase your confidence in the investment. And what do new investors need more than confidence?
Checklist: The Process
Performing due diligence can be broken down into several distinct stages.
Pre-Offer Due Diligence
- Area Analysis
- Value and Financial Estimate
- Rehab Estimate
Post-Acceptance Due Diligence
- Physical Due Diligence
- Financial Due Diligence
- Legal Due Diligence
- Inspections
Retrading (if necessary)
Final Decision and Walking Away (if necessary)
Use this as your due diligence checklist. Make sure you never to skip a step!
Note that while there are differences in how to approach houses and apartments (as well as commercial), the fundamentals are the same.
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