Range
Get expert advice, analysis and tax help for your real estate holdings
1. Start smart
Put down 20% to avoid private mortgage insurance (PMI) and get better rates. If your down payment is less than 20%, an insurance premium is typically added to your monthly mortgage payment, ranging from 0.5% to 1.5% of the loan amount. As for rent, use the 1% rule as a baseline, which means the monthly rent you charge should roughly equal 1% of the purchase price. Also, build a reserve fund for repairs and vacancies. A general rule of thumb is to keep at least four to five months of rent payments in your reserve fund.
If you qualify as a real estate professional, you can also unlock significant tax benefits by using rental losses to offset non-passive income, such as wages or business earnings. You could also consider purchasing real estate under a Limited Liability Company (LLC), which separates your personal assets from your investment properties. This not only provides legal protections but also serves as a tax-friendly vehicle that can optimize your returns.
2. Pick the right property
The property you choose can directly impact your bottom line, as well as the type of tenants you’ll attract (for better or worse). Aim to buy properties near job centers, universities or transit hubs, and choose homes that will appeal to your target tenants — families want good schools, young professionals want convenience.
A strategically chosen property can appreciate in value over time, while a poor choice could lead to higher vacancy rates (and more management headaches). It’s also best to avoid overly unique properties that may limit your renter pool. Sometimes the right move is to buy the ugliest house on the street. However, it’s important to carefully assess the renovation costs, market demand and your own resources before making a purchase.
3. Manage cash flow
For long-term success, managing your cash flow is critical. That means finding reliable tenants who pay on time and take care of your property. If you end up with unreliable tenants, you could end up chasing down rent payments or even dealing with costly legal issues. Before you hand over the keys, screen tenants thoroughly by verifying their income, checking their credit and calling references.
Charge market rent and raise it annually. If you’re not local or lack the time, consider outsourcing tasks to a property management company.
Range
Get expert advice, analysis and tax help for your real estate holdings
4. Maximize tax benefits
Rental income is taxable, but provisions in the tax code make it possible to reduce your taxable income. For example, depreciation (the gradual decline in an asset’s value) can be used as a tax deduction, allowing you to recoup part of your investment over time. GDS (General Depreciation System) is the standard for residential rental properties, providing a depreciation period of 27.5 years in which you can deduct all legitimate expenses, including repairs, maintenance and professional services. Other assets, like appliances and furniture, can be depreciated using accelerated methods under GDS, which can boost your deductions earlier on. Keep detailed records, and consider an LLC for liability protection.
While most rental income is categorized as passive, it’s possible to classify it as active versus passive. Active income allows losses to offset other earned income, potentially reducing taxable income. Another strategy to consider is tax-loss harvesting, in which you sell underperforming properties at a loss to offset gains from profitable investments, which can be useful for reducing taxes on short-term capital gains.
5. Build wealth over time
Housing is one asset that typically increases in value with inflation —after all, everyone needs a place to live. Rental income can help you pay down your mortgage while the property appreciates. Aside from passive income, you can also benefit from tax benefits and consistent cash flow.
To maximize the benefits from property appreciation, consider refinancing when rates drop to access equity for more investments. Treat your investment property like a business with clear financial goals and exit strategies.
6. Get a cost segregation analysis on your property
A cost segregation analysis can accelerate the depreciation on an investment property by reclassifying building components from 27.5-to 39-year schedules to five- to 15-year schedules. This creates significantly higher tax deductions early on, which can improve cash flow. For example, it typically generates $100,000 to $200,000 in additional first-year deductions on a $1 million property, with study costs of $5,000 to $15,000 providing a 5:1 to 20:1 return on investment through tax savings.
To maximize their financial potential, investors with $300,000 or more in household income may want to consider a service or platform that can help streamline their wealth management process, and real estate investing may be a big piece of this.
Range, for example, is an AI-driven platform — with a dedicated team of financial advisors behind it — that can help high-net-worth real estate investors (and investors in general) minimize their tax exposure, grow their portfolio and optimize their investment strategies.
Range also offers innovative tax and financial planning expertise to help real estate investors maximize their returns and build long-term wealth. For instance, through its partnership with Engineered Tax Services, Range members receive free cost segmentation analysis on their investment properties and discounted pricing on cost segmentation studies.
Range
Get expert advice, analysis and tax help for your real estate holdings
With Range, investors can manage their wealth in one place, from investment management to tax optimization and estate planning, with flat-fee pricing and 0% AUM fees. By comparison, traditional advisors typically charge 0.5% to 2% AUM fees. And while Range is tech-forward, investors have access to a hybrid AI and human advisor model — not just another robo-advisor.
To find out more, book a free demo with the Range team.
