You’ve decided to build wealth with real estate, and rather than sell your property to buy a new one, you will instead convert your home or condo into an Oahu investment property. It’s a wise, wealth building move. Generally, the first few years of mortgage payments are equal to or greater than the monthly rent you could charge, making losses likely. Some investors welcome the loss due to the tax effects, but as many shy away from the opportunity. Eventually, monthly rents will exceed your monthly mortgage payment, making the prospect of converting your home into an Oahu investment property appealing, and profitable. Here are some tips* to make the transition:
1. Plan ahead. If you need to take equity from your current residence to buy a new residence – do that now, while you are still living in the property, as some loans may have a required “owner occupancy” provision. This is especially true for refinancing, rather than a second mortgage or line of credit. Contact a mortgage professional for details and any restrictions.
2. Contact your tax professional. Oftentimes, investment properties initially operate a loss, but whether you can deduct that loss is dependent upon your specific tax situation. Specifically, you want to educate yourself regarding depreciation, deductible expenses, carryovers and passive income and losses. Also review information concerning 1031 exchanges here, and learn how you can exchange one investment property for another or several others, increasing your income potential and potentially deferring payment of income taxes on capital gains.
3. Make any and all necessary repairs to the property, to place it in good working order. Make sure all the appliances are working as designed, that there are no electrical issues, and that all plumbing is working as expected. If you haven’t painted the walls in a few years, consider this cosmetic improvement. It is relatively cheap, and makes a huge difference to prospective tenants. Also, consider replacing light fixtures or plumbing fixtures – oftentimes, these simple improvements provide the updated look without the remodel expense. Finally, make sure the front of the property, including the landscape, is manicured – it is the first thing that prospective tenants will see.
4. Contact Kasandra Shriver. Kasandra can assist you in obtaining the current market value of your home, which you will need for your tax records. Kasandra can assist you with finding a replacement home, locate a tenant, and manage your Oahu investment property with or without your direct involvement, making the process of being a landlord painless.
5. Finally, enjoy the financial independence than many achieve by owning an Oahu investment property.