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Does apartment rental fall when property prices fall?

Rents increase when the property prices increase. This is a trend that is seen over time. On the other hand, when the property prices fall, rent does not decrease in proportion. In a few cases, rent may even rise. This is because history has shown that property prices keep on increasing over a long stretch of time. Also the rent does not only depend on the property price and is influenced by a variety of economic factors in that particular area. This has grave consequences for property investing.

A study was conducted on the relationship between the rents and the sales price. The study revealed that rents oscillated at 5% of home prices until the year 1995. Towards the end of that year the monthly rent was around $533. However, in the beginning of the year1996, home prices started to increase must faster compared to rents. Towards the end of 2006, they had doubled to around $282,000. That decreased the annual price ratio to 3.84%. When buying investment property you must take into this account annual price ratio.

So we can see that in many cases, rent actually had yet to catch up with the increase in property prices. Decrease in property prices is actually restoring the balance. Thus we can conclude that rent may not always fall when property price falls. There is much truth to this as most individuals might believe that it is imperative that you find a strong method to index your salary to property rental costs. Between 2002 to 2007 in the USA, property prices soared with no top in sight. However as some economists believed while reviewing the Bollinger Bands that the market was trending for too long and that a top was well within sight. Many property investors did not heed that warning and bought on the brink of the sub prime mortgage crises only to see their property investment values fall and they were helpless to prevent substantial losses as even below market value they were unable to divest the property. We have added a small video to help illustrate the proper rudiments of investing in property and real estate.

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[tags]apartment rental and property prices,property investing,property investment,apartment renting[/tags]

Real Estate Loss Tax

Tax Help

Real estate loss taxes are very important to many people. This can take the form in losses on property rentals on an every day property as well as losses on a sale of real estate. However there are losses on real estate that take place. This differs if you are an individual or a company. The major concern is the carry forward of these losses. If you make a loss on the sale of a property then you are able to carry those loses to apply against your earning in future years.

Real Estate Loss Taxes for Landlords

Landlords must have up to date accounting records pertaining to the following the cost basis, the income, and total expenses (normally called net income). The best way to do this is with property software that calculates this on a spreadsheet. You can easily see your net income and profit and loss with these types of software.

Software that we recommend


 

In order to keep track of your real estate loss tax ensure you use:

  • The purchase price of the property in question.
  • The accumulated depreciation and annual depreciation for the current year.
  • Total rental income,
  • Total security deposits held and collected.

The expenses that you must consider are:

  • Property management fees
  • The total advertising costs incurred during the rental process.
  • Property maintenance and repair costing – inclusive of utilities, landscaping, waste management etc.
  • Property insurance expenses.
  • Returned or reimbursed security deposits.

Once this is ascertained you can quickly determine if you made a loss or a profit. If you made a real estate loss of this kind then you can carry forward those loses to apply against income until you begin making a profit and then apply that to your taxes in the next year. However this changes if you decide to sell the property.

Real Estate Loss Taxes for Investors

If you purchase a property for $x.00 and sell it for less than $x.00 then this is considered a capital loss and can be brought forward to the following year. This would be coupled with the loses that you made if you had attempted to earn rental revenue and this also ended up being an operating loss. However you must note that: the IRS limits losses from property rentals to a maximum of $25,000 per annum with further information found in Schedule E of the IRS instructions.

To actually determine a real estate tax loss you must first calculate the losses. This is

SALE PRICE – COST BASIS = Gain / (LOSS)

Cost Basis is : Purchase Price + In purchase costs (realtor fees etc.) + property improvements + selling costs (advertising, real estate agent commission) – total accumulated depreciation.

If there is the loss the IRS schedule states ‘Generally, losses from passive activities that exceed the income from passive activities are disallowed for the current year. Unused passive losses are carried forward to all future years. A similar rule applies to credits from passive activities.’ Hence you must note that you can carry forward the losses. Please note it is always best to seek professional advice in these matters. Get free real estate loss tax advice here:

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