With the local rental market in a strong upswing and many homes still upside down on their mortgage, many home owners are turning to renting rather than selling. Unemployment numbers on the Emerald Coast are some of the lowest in the State. A strong tourist market and Military presence has attracted new business and investors to the greater Fort Walton Beach area. As the population grows, the demand for rentals increases proportionally.
Many of our local military choose to hold on to their homes when they are reassigned. Some plan to retire here or plan to sell at a later date when the property values have increased to offset the mortgage. By renting their homes while away, they can maintain a permanent address and have a place to move back to when they return.
Owners of rental property enjoy many tax advantages. Some of the deductions include interest on the mortgage, insurance, property taxes and management fees. Money spent on repairs or improvements while the home is rented are usually a valid tax deduction. This allows an owner to improve or upgrade the property and take the deductions off of their tax return. Investment property can also be depreciated, allowing for a further tax deduction. The income from the rental, for tax purposes, is added to personal income on the tax return, but the allowable deductions will usually offset the income gain.
With interest rates at near 4%, it is possible to cover a mortgage with rent. A tenant will help pay down the mortgage as the value of the property goes up. Tenants will often want to buy the property they are renting. They can apply their deposits toward closing costs and save on moving expenses. Nothing says owners have to sell to tenants, but they can be a good prospect when deciding to sell. If there is a negative cash flow between the rent and house payment, the difference is usually covered by the allowable deductions of the interest, insurance, taxes, etc.
What about the fear of tenants damaging your rental property? Damages and wear can negate the appreciation on a rental, however, with proper tenant screening and professional management, the rental experience can be rewarding. A professional property manager uses their experience and skill to protect an owner’s investment. Property management fees paid to a professional property management company are also valid tax deductions. By law, however, a property manager must have a valid Florida Real Estate License to manage rental property for a fee.
If you need to sell at this time, sell. The sales market has also picked up this year. As long as the property is priced reasonably and will appraise for asking price, it should be sellable. If you are looking for an alternative, talk to a professional property manager and your accountant to see if renting might be a better option. Everyone has a different financial situation and an accountant can determine if renting your home or investing in other rental property is beneficial to you and can discuss the various tax advantages of rental property ownership.