Investing in Rental Property
Rental, also called letting or renting, is basically an arrangement under which a temporary rental agreement is made for a person, property or service owned by another. Under such an agreement, the renter pays a fixed rental fee and the owner pay for all other property expenses regularly incurred by both parties. This is a very common form of rental agreement especially in metropolitan cities and even in some rural areas. Some renters prefer renting to someone who will pay the rent on time and who will maintain the property. However, there are other renters who want to live in the property without actually occupying it.
One important consideration that affects the basis of rental property tax deductions is the depreciation that the renter’s rental fee accrues. In general, the longer the period of agreement (or lease) that has passed, the greater the deduction. However, if the period of agreement is shorter, the deduction is reduced because the rental fee paid for the vacant land can be deducted immediately.
Residential rental property owners also have to consider the residential portion of their property. Most people are familiar with the structure of residential property. It consists of one-story units, two-story units and three-story units, and is generally located on private land (not part of any municipality). The most common types of rental properties include condos (for single-family homes), apartments, townhouses and mobile homes.
There are several types of rental properties. A condominium is usually a residential property type that consists of multiple dwelling units located on one property type. A condominium is separate from the owner’s primary residence. This means that the mortgage to the property does not cover the cost of the property. The individual resident of the unit pays the mortgage for the unit and any related expenses.
An apartment building is a commercial or residential property where there are single-family residences or apartment units within it. Some apartments are managed by a management company. An apartment building is very similar to a condominium in that it also consists of one-story units, but the only difference is that there is only one unit; usually with only one or two units. In an apartment building, the rent you pay for your apartment is set by a contract between the landlord and the tenants.
Renting out your property can be quite rewarding, especially if you invest in a commercial insurance policy that covers the value of your rental income. You should consider your personal needs when investing in a rental property. If you expect to see many non-paying tenants, then a single-family residence is probably best. If you expect a paying tenant, then an apartment building is probably a better choice.