Welcome to the Real Estate Investing From A to Z series. Each week we’ll take a letter from the alphabet and define all the real estate investing terms you need to know that begin with that letter. Today’s letter is……I!
This week our feature words are income property, interest rate, internal revenue service and inflation.
An Income Property is the real estate you purchase to provide steady income to your business. It could be a condo, townhouse, single family home or an apartment building. No matter what type of real estate you purchase, the goal is to buy the property at a good price, rent it for an amount that covers all your monthly expenses (mortgage, utilities, taxes, insurance, etc.), plus give you some extra money in your pocket.
The Interest Rate is the amount of interest a lender charges on the money you borrow. This is how the lenders make their money in the transaction. Based on the strength of your credit, the interest rate may be negotiated. An amortization table will calculate the amount of interest you’ll pay over the life of the loan. Your goal is to get the lowest interest rate possible, so you save money in the long term.
The Internal Revenue Service (IRS) is the government agency responsible for collection of taxes. They make sure you are filing and paying your fair share of taxes. As a business owner, you pay taxes to the IRS just like an individual would. Different forms are required and different deductions will apply, but you still must file taxes stating the income you made from your business. The IRS is your silent partner and you want to be sure they don’t feel slighted. Make sure you have an accountant that is well versed in real estate investing to filing your business taxes.
Inflation may affect your real estate investing business in different ways. It refers to the buying or purchasing power of your money. When inflation is high, you can’t purchase as many products or services for the same amount of money as you might have in the past. This may apply to materials you buy for a rehab, fees for a contractor or for properties that you purchase. Low inflation numbers mean you’re getting good value for every dollar you spend.
That wraps up our real estate investing terms for this week. Next time we’ll talk about joint ventures, judicial foreclosures and junkers.