2million - My Journey to Financial Freedom

A Personal Finance Blog      ANNOUNCEMENT:2million has moved to www.2millionblog.com.     

Wednesday, December 21, 2005

Brainstorm - Buying Real Estate in Your Hometown

I have been kicking this half-baked idea around for awhile.

As I suspect is the case with many you, I no longer live in my hometown. I live a few hours away and go visit my family and friends in my hometown several times a year.

I am always interested in finding real estate investment opportunities. Unfortunately, these days it seems nearly impossible to find a real estate investment that has an acceptable rate of return.

I have often wondered (usually during the trips to my hometown and back) if I could couple these trips with an investment in real estate to enhance my total return to an acceptable level.

For example, if I owned a rental property in my hometown, I believe any travel expenses to and from my hometown (with the primary purpose of working on the rental property) would be deductible from my rental income. My understanding is these expenses include transportation including airfare or car mileage (40.5cents/mi), lodging, and meals.

Lets say I head to my hometown an average of 8 times a year to primarily work on my rental property and spend $100 during each trip (lodging would be free because I would stay with family/friends).

 

Miles

Mileage Rate

Food

Amt. Deductible

1 trip

400

$ 0.405

$ 100.00

$ 262.00

4 trips

1600

$ 0.405

$ 400.00

$ 1,048.00

8 trips

3200

$ 0.405

$ 800.00

$ 2,096.00



Assuming a 25% federal tax rate and 8% state income tax rate then this would in effect be a $2096.00 x 0.33 = $691.69 or ~ $700 tax credit.

Now what if your hometown was on the other side of the US. Expenses to travel to a rental property would be even more significant in this case from larger airfare and rental car expenses.
Airfare estimated @ $300 r/t
Rental car estimated @ $180/trip


 

Airfare

Rental Car

Food

Amt. Deductible

1 trip

$ 300.00

$ 180.00

$ 100.00

$ 580.00

4 trips

$1,200.00

$ 720.00

$ 400.00

$ 2,320.00

8 trips

$2,400.00

$ 1,440.00

$ 800.00

$ 4,640.00



Assuming a 25% federal tax rate and 8% state income tax rate then this would in effect be a $4640.00 x 0.33 = $1531.20 tax credit.

Nothing earth shattering, but with proper planning it may be a handy twist to help maximize possible investment returns from a rental. This day in age, with high real estate prices, this edge may help you find real estate that meets your investment return. In my scenario, I could find a real estate investment that was roughly $700/yr less profitable in my hometown and still find that is has an acceptable rate of return.

7 Comments:

  • good idea, but remember since you dont live in the same town it will be harder to manage, be a pain in the a** when something goes wrong, etc. If you are an out of town owner your best bet is to have a manager that usualy takes 6% of gross rents. I think the management cost would offset any cost you could writeoff. You would be better off buying a home in the town where you live, that way you can immediaitly deal with any problems that may arise and manage it yourself. Just my 2 cents
    ~SLOMONEY
    www.slomoney.blogspot,com

    By Blogger SLOMONEY, at 10:17 AM  

  • Yeah I have been kicking that around too. Although I would have family in the area (some retired with plenty of time on their hands) maybe they could help out with some of the management when I wasn't around.

    By Blogger 2million, at 10:26 AM  

  • I know of quite a few people who do this. In the Boston area some folks who grew up here and have a family base here have purchased investment units. In this city you have the large rental market because of all the students. You then have the possibility that your investment condo may become your child's dorm room in the future. In the meantime you have family in the area to help and yes, you get to write-off a lot of those trips home.

    Not a new thing, but really works best for condo's in my opinion. That way you don't have to deal with exterior maintenance, trash issues, shoveling, etc. If you invest in the right place, you may end up with a great city "pied-a-tier" to utilize in your retirement years.

    By Anonymous Jane Dough, at 11:00 AM  

  • Hmm - I didn't think about buying a condo instead of a single family home - interesting - I like it. It makes it much simpler to handle and probably not as big of an investment is required, yet you would receive the same benefit.....Thanks Jane Dough! Now I have something to think about on my next trip ;-)

    By Blogger 2million, at 12:51 PM  

  • I think its a great idea. but try and make sure the market isn't going down, like in San Diego.
    I'm actually travelling to India next week to buy property there so i can make my foreign trips tax deductible! i went to swizterland this summer and looked into buying a house there but it was way too expensive. hopefully india will be cheaper.

    By Blogger Empty Spaces Inc., at 11:20 PM  

  • As I was searching for information on real estate investment I arrived at your site. I would be really pleased to find some posts soon on real estate investment. By the way, congratulations with your nice blog.
    pensacola florida real estate

    By Anonymous Real Estate Investment, at 6:10 PM  

  • Great post,Thanks for providing us this great knowledge,Keep it up.
    A good blog.
    ----
    facebook móvil and facebook movil and apply facebook iniciar sesion

    By Anonymous facebook iniciar sesion celular gratis, at 4:07 AM  

Post a Comment

<< Home