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With home prices at an all time low,now is a good time to invest. When the real estate market was hot everyone was investing, now some are trying to get out since there payments are higher than they can afford. You should be able to find some bargains. The interest rates are still low, so you can't find a better combination. If you use a property management company, you won't have to deal with maintenance issues or tenants. All you have to do is invest your money, and see a good return.

Factors to Consider

Location, location, location is key to finding good investment property. Gain knowledge about the community. Do research, if necessary. People want to rent in areas that are convenient to schools, shopping and an easy commute to work. You will find cheaper houses in outlying areas but with gas prices so expensive, these are becoming unattractive to tenants. A recommended real estate professional can give great advice on where to invest.

You may want to check out foreclosures when looking for a good buy. You are not the only one looking for a good deal, many investors know to look at these properties. If a property has been on the foreclosure list for very long, be wary, there may be some sort of problem.

The disadvantage of all the foreclosures for the investor is that now banks are not willing to approve mortgages with low down payments. Typically, you need 20-30 per cent down payment for rental real estate. You want to be sure that your monthly payments leave room for profit for the amount of rent you'll be able to ask for the area.

Make sure you calculate all of your expenses when determining if a particular property will be profitable. Besides your mortgage, if you decide to use a property management company expect fees of $75 to $100 per month. You also need to plan on other maintenance expenses. There needs to be enough profit margin that you can handle these expenses as well.

Tax Advantages for Landlords

Landlords deduct mortgage interest costs, property taxes, and insurance costs from their federal tax returns on the schedule E of the 1040. Furthermore landlords have other tax incentives. If you include utility services such as water, heat and/or electricity at no extra cost to tenants, you can deduct these expenses from the income on the property. Likewise, all operating costs for rental property are tax deductible. These costs include maintenance and repair costs, like repainting or replacing screens, broken fixtures and repair of appliances. Charges for liability insurance and rent loss insurance, if you choose to get them, are also tax deductible.

The IRS allows depreciation deductions for improving rental property. Items that qualify are would be the installation of a security system or sprinkler system, upgrading the bathroom, purchasing new appliances or furnace or air conditioner. You may decide to put on an addition or tear down a wall, these would be regarded as improvements not operating expenses. These expenses are then deducted as depreciation over the life of the improvement. There are various depreciation schedules for various items (ie carpets-5 years).

Depreciation Tax Advantages without Improvements

Depreciation costs are those accumulated by the normal use of any residential property including rented buildings. The IRS acknowledges the fact that a building wears out over time and permits landlords to deduct some of the cost of depreciation every year for up to 27.5 years. These deductions do not require you to spend anything in order to use the deduction on your tax return. Just calculate the value of the building and the allowable depreciation on that amount. The only time you will spend money for a depreciation deduction is when you make improvements to the property. Realize that you will have to make some of these improvements to keep the home livable.

Other Tax Deductible Expenses

If you don't already have an accountant, you may want to use one now. An accountant specializing in rental properties will make sure that you get all the deductions offered to landlords; their fees are a deductible expense. Other possible expenses are the wages of employees hired keep books, deal with tenants or make repairs. If you engage a property management company to take care of those things; their charges would be a tax deductible expense.

Buying now gets you in investment property when prices are low. Later as the housing market improves, you can sell at a profit, if you wish. Enjoy all the tax advantages of being a landlord and the extra income from a rental property. You may find a better return on your investment than other options open to you.