At what point to begin advertising and showing the rental?

Question

Do you wait until the rental is completely renovated to begin showing it to applicants?

Jon Holdman · Answer

Oh, tax question.  That's a more complex topic.  Its also a topic for a discussion with your CPA.  If you don't have a CPA, you need to find one.  No matter what the TurboTax people say, rental property taxes are not a DIY job.

When you buy a property, fix it up, and rent it out, you have different tax treatment for different expenses.

When you buy, the price you pay, plus buying expenses, becomes your "basis". When you fix up the property, those expenses are added to the basis.  They are not deductible at the time they're incurred.  The improvements (buildings) are depreciated over time.  27.5 years for residential property.  The value of the improvements is a fraction of the total basis.  The basis is reduced by the amount of the depreciation taken each year, but the amount of depreciation stays the same (assuming you don't do additional capital improvements.)

Once the property is "rent ready", anything you spend is an expense, and is immediately deductible.

Realistically, everything you spend getting it fixed up for the first tenant goes into the basis.  Anything you spend once you have that first tenant, unless its capital (roof, carpets, furnace), is an expenses and is immediately deductible.

That's the quick overview.  Keep your receipts, keep detailed track of what you spend, and hand it all over to your CPA.

Jon Holdman · Answer

The "for rent" sign goes up the day I close on the property.  I've not had much luck with people who view it during the renovations, but I don't think it hurts to show it.

Mark Yuschak · Answer

I'm with NC Mark.  I do not put out the For Rent sign until I'm ready to show the property.  IMO, it opens you up for more liability than good.  My tools are always spread all around the inside of a house, and the house is a mess anyway (I typically only buy depressed properties).  There's nothing for a prospective tenant to see during rehab-mode other than a mess, and a lot of tools.  Not to mention that I don't want them walking through my construction site.  That's a liability I don't care to entertain if someone were to get hurt.  When it's done, that's when I advertise.

Jeffrey K. · Answer

NC Mark makes a good point about tools.  I have a lot of people come up and ask questions.  If you have a for rent sign up and one of these crack heads comes up and asks for a tour, you might have to give them one under fair housing if you let a well dressed guy take one the day before.

Mark N.A · Answer

With my latest rehab since we're keeping a lot of valuable tools and such inside I'm not putting up a For Rent sign yet.

But with a dupe that just recently had a kitchen fire the For Rent sign is up and calls are coming in.

Unfortunately that seems more a waste of my time since no one is willing to pay an app fee until they can see the finished product.

Don't really blame them, either.

Richard J. · Answer

If you have a small operation, you may want to price check with an EA as opposed to a CPA, I used one for years with great results... they seem to be up on tax law and not too busy to educate.

Good Luck!  -- Dawn

What is an Enrolled Agent? 
An Enrolled Agent (EA) is a federally-authorized tax practitioner who has technical expertise in the field of taxation and who is empowered by the U.S. Department of the Treasury to represent taxpayers before all administrative levels of the Internal Revenue Service for audits, collections, and appeals.

What does the term â€œEnrolled Agentâ€ mean?

â€œEnrolledâ€ means to be licensed to practice by the federal government, and â€œAgentâ€ means authorized to appear in the place of the taxpayer at the IRS.  Only Enrolled Agents, attorneys, and CPAs may represent taxpayers before the IRS.  The Enrolled Agent profession dates back to 1884 when, after questionable claims had been presented for Civil War losses, Congress acted to regulate persons who represented citizens in their dealings with the U.S. Treasury Department.

Michael S. · Answer

when it's ready, liability, tools all that....i got rid of all copper pipes in all my units!

Mark Updegraff · Answer

I don't put up a sign when renovating because it is a red flag that says "Come Steal my copper pipes, I'm empty!"  Big problem in my city...  I do post it on Craigslist right away to get a feel for the current market it the area.  I show it about 1 time per week, if they can't make it then, they need to wait until the following week.  I get it tidy before showing it, but it is "under construction"  I go through the house and tell them everything that is scheduled to be done before leasing.  I give them Tenant references and a link to pictures of houses that we have previously refinished.  I've had some good luck with this.  A lot of people cannot look past the "under construction" but surprisingly many people can see the finished product and feel out the space.  I've OFTEN leased my spaces to very qualified tenants prior to finishing.  If things do not go as quickly as planned, I get the main functionality taken care of, discount rent for the first month, and get the finishing touches squared away after.  People are really happy to see a landlord that cares enough to do more than the bare minimum.  I keep my rehab budget around 5K depending on the severity of the deferred maintenance and in the end everything looks clean, fresh, and new!

Bill Gulley · Answer

Hi, as Jon said, after closing put the sign up, you never know who you will meet. Also, there are different depreciation rates for improvements that you can choose to take besides customary straight line rates as a whole. Breaking things down might save you more money, but then again, if you sell it, you'll have fun recapturing depreciation taken. Just about anyone can help you do you taxes and if you are audited they are required to be there (as if the H&R Block guarantee is something they do for you, lol). While CPAs are generally required in corporate entities, you may not need one. If you find a CPA that specializes in real estate issues, that's great, but an EA who specializes in RE might be better than a CPA who does not regularly deal in real estate. Then again, just about anyone who is capable, has an accounting or finance background who specializes in real estate might be better than any other who does not specialize....are you getting a theme here? Bill

At what point to begin advertising and showing the rental?

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