American consumers are very passionate about finding smart ways to invest their money. This desire to invest is what has made the United States one of the dominant economic powers in the world. Over 62% of the adults in America own real estate. Having rental properties is essential when trying to create a reliable form of passive income.
Choosing the right rental property to purchase is just the first step in this investment journey. Once you have a rental property, you need to worry about things like tax deductions, upkeep, and tenant screening. Below are some of the most common mistakes new landlords make and how you can avoid them.
Failing to Uncover Tax Deductions
Some new landlords view owning rental property as a hobby. While this may not be your full-time job, you can still generate lots of revenue from your properties. Keeping more of the money you generate in your pocket will require you to take advantage of tax deductions. Each year, rental property owners have to find taxes on the income they generate with their investments. If you fail to claim the deductions you are entitled to, then you will have to pay a lot of money to the IRS.
Real estate investors can deduct everything from loan interest to property depreciation. Finding out about these tax deductions and using them correctly will be much easier with the help of a certified accountant. Ideally, you want to use an accountant who is familiar with real estate investments and the deductions allotted for these properties. Attempting to handle tax filing on your own can result in expensive penalties and fines. This is why paying professionals to lend you a hand is so important.
You Have to Get Everything in Writing
Whether you are collecting a security deposit from an existing tenant or renting a unit to a new tenant, you need a paper trail. There are many inexperienced landlords that have to learn the importance of having this paperwork the hard way. Simply relying on a handshake or a promise when renting a property to someone you don’t know can come back to haunt you.
This is why you need to seek out the help of legal professionals when attempting to iron out the details of important documents like rental agreements. These professionals can help you structure these documents in a way that protects everyone involved.
Not Vetting Tenants Can Be Dangerous
One of the main concerns you should have as a landlord is keeping your units full. The only way to accomplish this goal is by finding the right tenants. Some inexperienced landlords make the mistake of renting a property to someone they haven’t vetted. Instead of making this mistake, you need to run background checks and contact references before letting a person sign a rental agreement.
Let Us Help You Manage Your Taxes
If you are having trouble with the financial side of your real estate investments, give The Real Estate CPA a call today.