Invest in Real Estate
There are many benefits and reasons to invest in real estate.
Lower Your Taxes
Tax incentives for Santa Monica real estate investors can often make the difference
in your tax rates. Deductions for rental Santa Monica home can often be used to offset wage income.
Tax breaks can often enable investors to turn a loss into a profit. For which items can investors
get tax breaks? You could claim deductions for actual costs you incur for financing, managing
and operating the rental Santa Monica home.
This includes mortgage interest payments, Santa Monica
real estate taxes, insurance, maintenance, repairs, Santa Monica home management fees, travel,
advertising, and utilities (assuming the tenant doesn't pay them). These expenses can be subtracted
from your adjusted gross income when determining your personal income taxes. Of course, these deductions
cannot exceed the amount of Santa Monica real estate income you receive.
In addition to deductions
for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate
over time, and these "losses" can be deducted regardless of the actual market value of your Santa Monica home. Because depreciation is a non-cash expense -- you are not actually spending any money --
the tax code can get a bit tricky. For more information about depreciation and various tax alternatives,
ask your tax advisor about Section 1031 of the U.S. Tax Code.
Have a Positive Cash Flow
There are
two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when
income received is greater than expenses incurred. This sort of situation is difficult to find,
but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses
that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more
common, but it is generally not as strong or safe as a pre-tax positive cash flow. Regardless of
what kind of Santa Monica real estate you choose to invest in, timely collections from your tenants
is absolutely necessary. A positive cash flow -- whether it be pre-tax or after-tax -- requires
rental income. Be sure to find quality tenants; a thorough credit and employment check is probably
a good idea.
Use Leverage
One of the most important factors in determining a solid investment is
the amount of equity you are purchasing. Equity is the difference between the actual worth of the
Santa Monica home and the balanced owed on the mortgage. Benefit from Growing Equity While investing
in Santa Monica real estate is relatively complex, it is often worth the extra work. When compared
to other financial investments, like bonds or CD's, the return on investment for Santa Monica real
estate purchases can often be greater. The key to Santa Monica real estate investing is equity.
Determine an amount of equity that you want to achieve. When you reach your goal, it's time to
sell or refinance. Determining the proper amount of equity may require the assistance of a Santa Monica real estate professional.
This includes mortgage interest payments, Santa Monica
real estate taxes, insurance, maintenance, repairs, Santa Monica home management fees, travel,
advertising, and utilities (assuming the tenant doesn't pay them). These expenses can be subtracted
from your adjusted gross income when determining your personal income taxes. Of course, these deductions
cannot exceed the amount of Santa Monica real estate income you receive.
