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How To Profit From Your Rental Properties

There are lots of people who believe that harvesting huge profits from rental properties is one of the easiest businesses they can do for enjoying a luxurious life. The reason which at first instance, seems to be responsible for this myth be no tension of establishing a personal office or factory, no tension of appointing huge staff for getting different tasks accomplished on time, no concern about the sinking of funds on etc. In simple words it can be said that lots of people think that earning rent from the property given on rent doesn’t require any huge investment.But, is it really so as it seems to be or earning profits from rental properties is complex and requires the proper involvement of the person investing his funds in the property for giving on rent. This in-fact is the matter of debate which is mainly because of the discussions which they have from their known ones who have given their property on rent. Although, this can be true, but that is possible in the case if you have rented the portion of your house to only one or two tenants. But, in case if you have two to three properties which you want to give on rent then looking after those properties could be quite messy for you, especially at the time when your tenant calls you at some odd timings.Moreover, if you some properties for rent located in another corner of your city or is some other city then looking after those properties could be quite daunting for you. Because looking after all the properties at the same time won’t be possible for you, anyhow, even if you succeed in managing it, you might have to struggle with your tenants for rent and other issues. Anyhow, even if someone assumes that investing in property is one of the easiest methods of earning, then they do not know that it is like hitting the bullseye. So, how a novice can get rid of various issues arising from Rental Properties Adelaide for earning expected profits from his property.An answer to this question in simple words can be hiring the services of the rental property management group which is constituted by the group of mavens having vast experience in looking after the various aspects associated with rental properties.Why you should hire the services of rental property experts:As referred above that most of the people consider earning money from rental properties as an easy task, agreed that it is. But, do you know how to search for the prospective tenants, how to interview the tenants and get their documents verified, what are the legal documents required to be prepared before giving any property on rent or what to do in case if your tenant refuses to pay rent on time or tries to exhibit his ownership on your property? All these questions are just illustrations of the problems which as a newbie, you might face while investing your funds in property, there might be various other issues about which you might have even not imagined could disturb you once you have given your property on the rent.Anyhow, if you are aware about all these problems and know how to get through them, then undoubtedly nobody can stop you from becoming rich in a few years. But in case if you do not wish to face all these issues, then it would be better to at-least will think of hiring the services of the property management experts to avoid any type of critical situation in the future.These experts will work for you and take care of your property as their own property on your behalf and will look after all issues arising from the property, starting from the hunting of the tenants to sorting out different issues which might face because of your tenants. Let us, for instance, say that, you have not allowed your tenants to park their vehicle inside your garage during your absence, but still if they do so and argue with you that as they are paying rent for your house, they are liable to use the garage also. At that time if they did not stop parking their vehicle inside the garage at that time the only option left with you will be getting your house vacated from the tenants quite early before the expiry of their agreement.

Deferring Capital Gains Taxes on Business Property

The tax deferred exchange provides real estate owners with one
of the last true tax breaks and the only method of deferring tax
on the sale of investment and business property. Most
taxpayers know they can exclude the gain on a sale of their
personal residence. Unfortunately, many business and
investment property owners fail to capitalize on the benefits of
another type of tax-deferred exchange, under Internal Revenue
Code Section 1031.Far too many business owners sell their business and
investment property and pay capital gain taxes because they are
unaware of provisions in the tax code that allow for deferral.
Internal Revenue Code Section 1031(a)(1) states in part that
“no gain or loss shall be recognized on the exchange of
property held for productive use in a trade or business or for
investment if such property is exchanged solely for property of
like kind which is to be held either for productive use in a trade
or business or for investment.” Examples of property types that
typically qualify are vacant land, office buildings, warehouses,
farmland, single-family rental units and shopping centers. Even
leases with 30 or more years remaining are considered real
property and can be traded for other real property.How does one get started? The procedure is fairly simple as
Treasury Regulations issued in April of 1991 provide a
guideline for taxpayers to follow. Once a buyer for the property
to be sold (the “relinquished property”) has been found, a
phone call to a selected “qualified intermediary” to assist with
the Section 1031 exchange is all it takes to begin the process.
The qualified intermediary will produce the necessary legal
documentation required to facilitate the exchange process.
Once the closing of the relinquished property has occurred, the
taxpayer has 45 days from the date of closing to identify in
writing to the intermediary the possible replacement properties.
Due to significant restrictions, it is usually best to identify no
more than three replacement properties. The final step is to
close on one of the identified properties within 180 days from
the date of closing of the relinquished property.Although the 1031 tax code section is very liberal, various
modifications over the years have resulted in a few additional
restrictions. Partnership shares, notes, stocks, bonds,
certificates of trust cannot be exchanged. A taxpayer who holds
a partnership interest or shares in a corporation that owns real
estate cannot trade that interest for similar share interests.
Business owners should consult a tax expert or legal advisor in
this situation.With the reduction in capital gains tax rates, taxpayers were
given a rare break. However, this break was not as generous as
originally proposed. Most taxpayers are aware of the new
capital gains tax rate of 15 percent, lowered from the previous
28 percent rate. This is applicable for gain generated from the
sale of capital assets held for more than 12 months. At the last
minute, however, Congress altered the tax rate for recapture of
depreciation taken on real estate to be taxed at 25 percent. This
higher rate is applicable for all depreciation taken after May 6,
1997. Combining the 25 percent depreciation recapture rate
with state and federal tax rates could cost a taxpayer who sells
business real estate over to 40 percent or more of their profit.
On the other hand, a property owner who chooses to perform
an IRC Section 1031 tax deferred exchange can defer taxes on
the all of the capital gain! This leaves the prudent exchange or
with the entire amount available for reinvestment.Many business owners are unaware that personal property used
in a business, such as a medical practice, can be exchanged as
well. The major difference between a real property and
personal property exchange is what the Internal Revenue
Service considers “like kind” property. I.R.C. Section 1031
defines like kind as “…property held for productive use in a
trade or business or for investment.” Like kind as it applies to
real property is very broad in definition. Determining whether
personal property is like kind to other personal property
requires a much narrower scope. The Internal Revenue Code
does not define “like kind.” The IRS has published regulations
that can be used to decide if an exchange involves like-kind
properties. The Treasury Regulations distinguishes between
two types of personal property: depreciable tangible personal
property (DTPP); and other personal property (OPP), which
consists of intangible and non-depreciable personal property.
DTPP can only be exchanged for other DTPP. These properties
must be of a “like class” or “like kind.” In determining whether
DTPP is of a like class the Treasury Regulations designate 13
general asset classes. These classes combine particular types of
personal property into a certain class group. Some examples of
these groups are office furniture and fixtures, information
systems, airplanes and helicopters, automobiles and taxis, and
buses.The Regulations also designate that personal property can fall
within product classes contained in the North American
Industry Classification System. These numeric codes can be
used as an alternate method to define the characteristics of a
particular property.OPP is difficult to classify as like kind to other OPP. It does
not fall within the like class safe harbor available to DTPP.
Intangible personal property, such as a lease or copyright, can
be considered like kind to similar intangible property. The
determining factors are the nature and character of the rights
involved and the nature and character of the underlying asset.
Selling a business can create more than one personal property
group in which to exchange. The IRS looks at the sale of a
business as an exchange of each asset to be transferred, and not
the exchange of the business as a whole. The underlying assets
of a business (e.g., lease value, covenant not to compete,
equipment and fixtures) will need to be analyzed in respect to
their comparable replacement property. Each asset is placed
into the proper exchange group. An exchange group is a
subgroup of the total assets exchanged. Every exchange group
will either have a surplus (trading up in value) or a deficiency
(boot). When the total fair market values of the properties
exchanged are different, the value equal to that difference is
called the residual group. The property in the residual group
will consist of cash and other property that does not fit into an
exchange group.An example of a business exchange would be the exchange of
one medical practice for another. The relinquished medical
practice value consisted of: (1) the medical equipment (x-ray
machines, etc.) and office fixtures; (2) a covenant not to
compete; (3) lease value for the below market lease of the
office; and (4) client patient lists and files. The medical
practice acquired will generally have similar components of
value. To balance this exchange each separate component is
matched up with its like kind counterpart. A surplus in one of
the exchange groups is not taxable as the Regulations allow for
trading up in value. Any deficiency – going down in value -
would be taxable as “boot.”The Regulations provide the non-yielding rule that goodwill
and going concern value in one business can never be like in
kind to goodwill and going concern value in another business.
In the example of the medical practice exchange, the client
patient lists and files would probably be viewed by the IRS as
goodwill, and should not be included in the exchange. A
prudent tax planner would attempt to allocate value to the
depreciable or amortizable personal property, such as the
medical equipment and office fixtures, to avoid this problem.
Additional personal property not eligible for exchange
treatment is inventory. The inventory of a business is held for
resale and does not fall within the definition of Section 1031
property.Anyone considering deferring tax under IRC Section 1031
should obtain competent tax/legal advice before proceeding
with a transaction. A mistake can be costly.

Is It Still Worth Investing in Property Since the Increase in Stamp Duty?

We explore whether it is still economically viable to invest in property since the stamp duty increase, and what sort of properties you can invest in to minimise the effect of the increase or completely bypass it altogether.The Impact of the Increase in Stamp DutyThe cost of an investment property in Birmingham is £168,062.00 which means you’d typically have to pay £5903 in stamp duty costs.The Increase in Stamp Duty Has Contributed to House Price SlumpOne of the main issues that the increase has caused, has been the increased cost in acquiring new property, which has subsequently caused a slump in house price inflation. Whilst this now means it is a good time for potential investors to consider purchasing additional properties, those who already own property will probably be disappointed with the growth in the market. In particular, property prices in London are most affected by the increase simply because house price are generally more expensive so the stamp duty levied on the properties is proportionately higher. This means that either demand may go down due to the high prices, or property prices may decrease to make up for the increase in stamp duty. In fact, Halifax’s April 2016 House Price Index announced negative growth in terms of house prices, as month on month April 2016 saw average house prices fall by 0.8%, which it attributed to a lack of confidence in the wider economy.The Increase in Stamp Duty Fails to Dampen Landlords’ SpiritsThe increase seems not to have deterred landlords, as the number of landlords has risen to 1.75 million. This has mainly been due to the increase in lending and cheaper mortgages, as access to funds is one of the main drivers in the property market. Another factor that has contributed to the increase in landlords has been the superior yields, far outstripping interest investors make on their money saved elsewhere.Another positive is that according to Halifax’s May 2016 House Price Index, house prices are resuming an upward trend, with month-on-month growth of 0.6%. This suggests that the British public still very much has an appetite for property, and is welcome news to existing property investors.Strategies to Avoid Stamp Duty or Minimise its EffectAlthough the increase may make some investors think twice about investing in property, it needn’t have to. There are plenty of ways property investors can work around the stamp duty increase or minimise its effect.Purchase Property in a Company NameStamp duty land tax can be avoided by purchasing property in a company name using a business mortgage. This also allows for interest payments to be tax deductible, exponentially increasing your return on investment because mortgages can be granted up to seventy-five per cent of the value of the property which amounts to a lot of interest.The Number of Mortgage Products Available to Limited Companies is IncreasingThe number of products available to limited companies is increasing year-on-year. In H1 2015 there was an average of 99 products available to limited companies, but in H2 this rose to 147 products.The number of mortgage applications made by companies now accounts for over a third (38%) of all mortgage applications, up from 15% in 2014. It’s also worth noting that mortgage acceptance rates are at an all-time high, so if you’re thinking of investing in property, now is a good time to apply for a mortgage.Avoid Stamp Duty Altogether with Alternative Investments Such as Car Park InvestmentsFurthermore, would-be buy-to-let investors are focusing on ways that they can avoid the stamp duty charges altogether or minimise its effect. Car park spaces are exempt from the 3% stamp duty charge because they’re classed as commercial property. Car park investments can also give an 8% net assured income for two years and has a five year exit strategy with buy-back option if you decide that the investment is not for you.Invest in Properties Outside of London for Lower Stamp Duty CostsAnother option is to consider properties in areas outside of London. As mentioned previously in the article, properties in London are more expensive so there is proportionately more stamp duty to pay. Cities such as Manchester and Liverpool command a much higher rental yield allowing you to maximise your profits. Properties in these cities outside of London are generally much lower, so the amount of stamp duty you’ll have to pay is much lower.Birmingham is consistently considered one of the best areas for buy-to-let, and was recently named by the Council of Mortgage Lenders (CML) as the number one buy-to-let hotspot outside of London. Average property prices in Britain’s second city are considerably lower than property prices in London. According to Rightmove, overall average property prices in Birmingham currently stand at £168,062, compared to £556,350 in London. For property investors, this means that if they were to invest in property in Birmingham, they’d pay exponentially less in stamp duty compared to investing in London property.Student properties in Liverpool such as Pembroke Studios command an assured net rental yield of 8% for five years had have a buy-back option after five years. Fortunately, in a city such as Liverpool there will never be a shortage of students looking for high quality accommodation due to its sizeable student population that comprises 12% of the city’s overall population. Pembroke Studios is conveniently placed within a mile’s radius of four universities in Liverpool, so it’s desirably situated for an overwhelming number of students.In conclusion, property investment is definitely still a viable way to achieve good returns, especially when interest rates for money kept in savings accounts is at record low. Property investors should make cautious decisions when it comes to investment, and consider investing in towns and cities outside of London where possible. For those looking to bypass stamp duty altogether, we recommend car park investments or other commercial investments that do not incur the charges.