Apartment and Rental Properties - Rental property appraisal
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Sue11
05-08-08, 04:50 AM
Hello,
We are renting our house for the first time. We bought the house 6 years ago. Are we supposed to have it appraised so that we can deduct deprecation from taxes? I would appreciate any suggestions and advice. Also I purchased the lease agreement from lawdepot.com. Would there be any problems with this lease agreement?
Thank you,
We are renting our house for the first time. We bought the house 6 years ago. Are we supposed to have it appraised so that we can deduct deprecation from taxes? I would appreciate any suggestions and advice. Also I purchased the lease agreement from lawdepot.com. Would there be any problems with this lease agreement?
Thank you,
slumlordfrank
05-08-08, 08:21 AM
Hi sue11;
I'm not familiar with lawdepot, I always used leases drawn up by our state real estate commission. When I stopped doing leases it was 10 pages!
In answer to your first question; depreciation is based on the lower of cost or market so no appraisal is needed.
I've been a RE investor for 30 years and I can tell you that almost every new landlord I ever met did almost everything wrong.
1. Rented too cheap to make any money. Thought "break even" or a small positive cash flow was OK. Expenses on single family homes run about 45% of rent. If you think yours will be lower, you've overlooked some important expenses
2. Thought that "tax benefits" would bail them out. Any time someone tells you that there are great tax benefits in any kind of investment RUN AWAY. Tax rates are low, and in order to get "tax benefits" you have to LOSE MONEY. Never go into any investment planning on losing money.
3. Thought that appreciation would bail them out of low rents. Look how well that's worked out for folks in Phoenix, Las Vegas, Florida and many other markets. We're likely heading into a loooong period of flat/falling (in real terms) home prices as middle class incomes continue to fall.
4. Believed anything a prospective tenant told them:
a. "Let me move in now and I'll pay you the balance of the rent later." NO, no one moves in unless and until I have collected, Security deposit, and full month's rent, and we've conducted a walk through inspection with a 4 page checklist.
b. "The rent is late because my pay was a bit short, I'll pay you two months next month". NO, rent is due on the FIRST, late on the SECOND and I'm filing notice on the SECOND. If you can't pay one month now you won't be able to pay two months next month.
c. I'm having a hard time paying the rent, so my college buddy, girlfriend, co-worker is going to move in". OK, fine, but they're paying a deposit, giving me their social security number and the rent is increasing.
I've seen thousands of "amateur" landlords fail at this over the years, and I had my own troubles early on. Too many landlords fall into it because they have a little difficulty selling their house and become a landlord by default.
Don't get me wrong, I've made a lot of money in RE, not through tax benefits, not through appreciation (I owned CA property, it did well, but it never beat the stock market) but through BUYING RIGHT, hard work and tough management.
Profits in RE whether for flipping or renting are made on ACQUISITION. If you bought your house at "market price", even six years ago I doubt if you can PROFITABLY rent it today in any market in the US. SFHs don't make terribly profitable rentals, the profits are in commercial and industrial.
frank
I'm not familiar with lawdepot, I always used leases drawn up by our state real estate commission. When I stopped doing leases it was 10 pages!
In answer to your first question; depreciation is based on the lower of cost or market so no appraisal is needed.
I've been a RE investor for 30 years and I can tell you that almost every new landlord I ever met did almost everything wrong.
1. Rented too cheap to make any money. Thought "break even" or a small positive cash flow was OK. Expenses on single family homes run about 45% of rent. If you think yours will be lower, you've overlooked some important expenses
2. Thought that "tax benefits" would bail them out. Any time someone tells you that there are great tax benefits in any kind of investment RUN AWAY. Tax rates are low, and in order to get "tax benefits" you have to LOSE MONEY. Never go into any investment planning on losing money.
3. Thought that appreciation would bail them out of low rents. Look how well that's worked out for folks in Phoenix, Las Vegas, Florida and many other markets. We're likely heading into a loooong period of flat/falling (in real terms) home prices as middle class incomes continue to fall.
4. Believed anything a prospective tenant told them:
a. "Let me move in now and I'll pay you the balance of the rent later." NO, no one moves in unless and until I have collected, Security deposit, and full month's rent, and we've conducted a walk through inspection with a 4 page checklist.
b. "The rent is late because my pay was a bit short, I'll pay you two months next month". NO, rent is due on the FIRST, late on the SECOND and I'm filing notice on the SECOND. If you can't pay one month now you won't be able to pay two months next month.
c. I'm having a hard time paying the rent, so my college buddy, girlfriend, co-worker is going to move in". OK, fine, but they're paying a deposit, giving me their social security number and the rent is increasing.
I've seen thousands of "amateur" landlords fail at this over the years, and I had my own troubles early on. Too many landlords fall into it because they have a little difficulty selling their house and become a landlord by default.
Don't get me wrong, I've made a lot of money in RE, not through tax benefits, not through appreciation (I owned CA property, it did well, but it never beat the stock market) but through BUYING RIGHT, hard work and tough management.
Profits in RE whether for flipping or renting are made on ACQUISITION. If you bought your house at "market price", even six years ago I doubt if you can PROFITABLY rent it today in any market in the US. SFHs don't make terribly profitable rentals, the profits are in commercial and industrial.
frank