Average package is $50,000.

House cost will range anywhere from $7,000 to $35,000 with the rest of the cost being rehab, closing costs, and selling fees.

Each transaction is structured in such a way that all cost over and above the actual cost of the house is rehab cost. All rehab cost, for tax purposes, is deductable the first year. However, some cost may have to be taken over 27.5 years. Example: Carpet and paint is 100% deductable the first year but if you build a wall it is deducted over 27.5 years. Permanent items, like the wall, are deducted over the 27.5 years while items that are not permanent are deducted the year they are done. Also if you put in an item like a tank-less water heater or super efficient air conditioner there are tax credits available.

Since these houses are being rented to low income families, the federal government since 2008 has been giving tax credits to the investor for the COST of the house (i.e. this means cost of house and rehab). In this example that would be $50,000. This credit runs from 9% to 30% depending on the area and need. When the paper work is submitted the feds tell you what the credit will be and then you take it in equal amounts over 10 years.

The state of Georgia also allows or gives tax credits for these houses but they do not tell us what the range is until you apply. Your CPA has to fill out paperwork and submit it to the state for the credit.

In both cases, Federal and State, there are no limits on the number of houses.

Example Estimate:

Total Property Cost $50,000 = House cost $10,000 + Rehab $40,000. 90% of rehab is 100% deductable the first year and 10% is deductable over 27.5 years or $145 per year for the 27.5 years. The federal government gives you 9% of the $50,000 or $4,500 to deduct over 10 years or $450 each year. The state gives you 6% of the $50,000 or $3,000 to deduct over 10 years or $300 each year. Depending on the tax bracket the owner will have a deduction of $30,000 on the rehab plus $145 plus $450 plus $300. The first year deduction equals $30,895. Add to this the cost of taxes and insurance. Average insurance will be $540 and the average taxes will be $2,500. The average $50,000 house will net from the rent about $12,000 to $13,000 and your total deduction, first year, is $33,935.

Please understand that I am not a CPA and this information should be put in front of a CPA to clarify since there are many variables with each investor due to their own tax situation, but I hope this helps.

Also, many people have a perception of Section 8 with most of that perception being based on hear say and not reality. You will hear about the many problems with Section 8 renters, but my own experience shows me that there are no more problems with Section 8 renters than there are with general renters. In fact I have had fewer problems with Section 8 renters. I also like the fact that there is never a shortage of Section 8 renters so if I have a vacancy I simply notify the Section 8 office and they send me new renters.

Hopefully, the above information is helpful to you as an investor in rental income properties. Investing in foreclosure and investment rental income properties does have its advantages beyond the price you pay.

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