There are many reasons why your family might be living off a single income. Maybe one of you is taking some time off because you have children to care for. Or, one of you may be attending school. Regardless of the reason, many single-income couples still want to invest in Howard County rental properties.
After all, investing in rental property is a great way to supplement your monthly income. And, if you and your partner are currently living off one income, any extra positive cash flow is most likely welcome.
Today we will share some property investing tips for single-income couples in the Howard County area looking to get into the rental property business.
Investment Tips for Single-Income Couples
Purchase in Strategic Names
For those couples that have an above-average income (despite it being a single-income household), consider taking advantage of one of the most common strategies used in property investments – purchasing in strategic names.
By negatively gearing your investment and having the higher-income earning spouse (or only income earning spouse) make the purchase, you will be able to offset the full value of the tax deductions against your income tax.
Not sure what that means?
Here are some facts about negative gearing and how it may affect single-income couples looking to invest in rental property:
- Negative gearing occurs when the cost of owning a rental property outweighs the income it generates each year. This creates a taxable loss that can offset against other sources of income to provide a tax savings.
- This only becomes profitable when the property is eventually sold in a housing market where property values are rising not falling.
- In this situation, the investor must have the income to cover the shortfall between income earned and interest due until the property is sold.
- The property’s interest rate must be locked in at a low rate as well because a variable interest rate will create more of a shortfall between income earned and interest due that the investor must cover.
Negative gearing an investment property is not a quick and easy investment tip for single-income couples. This type of financial decision is very complex and needs careful consideration.
Invest in a Family Trust
Setting up a family trust and investing in assets such as rental properties through it instead of your individual name may save you a large amount of money in household tax fees. Since the trust is tax-free, distributions can apply to lower-income families (such as a single-income couple). However, keep in mind that the beneficiary of this family trust will need to pay the taxes.
This investment strategy will not work for negatively geared investments since you cannot distribute a loss when using a family trust. It will, however, give the single-income couple control over the property despite not having legal ownership of it.
Purchase Property Using a Land Trust
Another type of trust that may be beneficial for investing in a Howard County rental property is the land trust. Since a trust is simply an arrangement in which someone holds something of value for the benefit of another party, a land trust can be explained as an arrangement in which someone holds the title to a piece of real estate (e.g. your rental property) for the benefit of another party (e.g. the single-income couple).
Here are some of the top reasons you might consider using a land trust to invest in rental property:
- The beneficiary of the trust remains private
- Easily transfer interests of the property
- Avoid the costly and time consuming probate process
- Purchase price privacy
- Possibly avoid transfer taxes
Again, consulting with an accountant or financial advisor before investing in rental property using a trust of any kind is your best option for protecting you and your family.
Get Life Insurance and Other Income Safeguards
If you are the sole income-earner, having income safeguards in place is essential to you and your partner’s financial security and stability. Should anything happen to the sole breadwinner in a single-income couple such as an injury, illness, or death, financial disaster can creep in quickly.
Having life insurance will secure the financial well being of the non-income earner and other family members should the sole income earner pass away. After all, if you invest in rental property and pass away leaving your partner without a job, and with bills to pay, food to purchase, shelter to pay for, possibly kids to care for, and a rental property to handle, they are going to need some sort of lump financial sum to help.
In addition, having other income safeguards such as short-term disability helps protect all of your assets, including the rental property you invested in. Short-term disability is great for times when the sole earner becomes too injured or ill to work, but has not passed away. Sometimes covering up to 60% of an employee’s weekly gross income, short-term disability can help with life’s daily expenses and the maintenance of a rental property.
Altogether, having financial safety nets in place is even more crucial when a single-income couple decides to invest in something as large as a rental property.
Tips for Investing as a Low-Income Earner
Just because there is one income earner in a couple does not mean that earner makes enough money to purchase investment properties left and right. However, it is possible to invest in Howard County rentals as a low-income earner by following some of these exceptional tips:
- Understand how much you can realistically afford
- Come prepared with a large down payment
- Reduce your current debt as much as possible before applying for a loan
- Compare different loan types
- Use equity in any existing properties you may own
- Research the market and purchase prices for properties
- Have an emergency fund for rental property maintenance
Though many of these tips are similar to what any property owner should do before investing in a rental home, as a single-income couple, these tasks are more vital than ever before. When relying on one person’s lower-than-average income to pay for everyday life, in addition to a rental property, there is a lot of preparation that should take place before jumping in and purchasing a property.
There are plenty of options available for those single-income couples looking to invest in a Howard County rental property. And, if the proper precautions are taken, becoming a property owner may not be as difficult as you might have originally thought.
If you find yourself a property owner that also works to provide for your family and you want a break from managing your property on your own, contact Howard County’s top property management company, Bay Management Group. We have experienced staff on hand to take the burden of managing the day-to-day tasks of your rental property off your hands.
By employing Bay Management Group you can concentrate on spending what little time you have free from work with your partner and family. The peace of mind that Bay Management Group offers, in addition to the full spectrum of property management services we provide, is priceless.