At some point, every business owner or entrepreneur will face loss. It’s an unfortunate but inevitable part of doing business. The key is to not let those losses define you or your company—to learn from them and use them as a springboard for future success. This is especially true when it comes to property investment losses.
The good news is that you can use plenty of strategies to recuperate those losses and come out ahead. Here are some of those strategies and how you can put them into action.
Rent Out The Property For A Profit
If you’re no longer interested in using the property, you can always rent it out and earn a profit. This strategy requires minimal effort on your part once you’ve found a tenant, and it can provide a steady stream of income that can help offset any losses you incurred on the initial investment.
For example, let’s say you purchased a property for $100,000, and it lost 20% of its value, leaving you with a loss of $20,000. But if you’re able to rent out the property for $1,500 per month, it would only take 14 months to make up that $20,000 loss. And after that, the property would start earning you a profit.
Of course, there are a few things to keep in mind with this strategy. First, make sure you’re charging enough rent to cover all of your expenses, including the mortgage, insurance, taxes, and repairs. Second, you’ll need to find a reliable tenant who pays on time and takes good care of the property. And finally, you should have a solid lease agreement in place that protects both you and the tenant.
Refinance The Property
Another option is to consider refinancing your mortgage. This can be an excellent way to lower your monthly payments and free up some cash that can be used to offset your losses. To do this, you’ll need to find a new lender who is willing to give you better loan terms than your current lender.
You may also be able to negotiate a lower interest rate or get a longer loan term, which can help reduce your monthly payments. Just make sure you compare offers from multiple lenders before making a decision.
Moreover, while refinancing can be a good way to lower your payments, it’s important to keep in mind that it will also extend the length of your loan. So you’ll need to make sure you’re comfortable with being in debt for a more extended period before moving forward with this strategy.
Sell The Property
If renting out the property isn’t for you, selling it is another option. This will obviously require some effort to find a buyer, but if you’re able to sell the property at or above the price you paid for it, you’ll come out ahead.
Of course, there’s no guarantee you’ll be able to sell the property for a profit. But if you’re patient and work with an experienced real estate agent, you may be able to find a buyer who’s willing to pay the price you’re asking.
Moreover, if you’re selling the property as-is, you may be able to negotiate a lower price. This is because buyers will factor in the cost of repairs and renovations when making an offer. So if you’re willing to sell the property at a discount, it may be easier to find a buyer who’s willing to pay the price you’re asking.
Use The Property As A Tax Write-Off
If you’re not interested in selling or renting out the property, you can always use it as a tax write-off. This is because losses on investment properties can be used to offset other income sources, such as your salary or wages.
To do this, you’ll need to calculate your taxable income and deduct your losses. The resulting number is your taxable income after the deduction.
For example, let’s say your taxable income is $50,000, and you have a loss of $10,000 on your investment property. This would leave you with a taxable income of $40,000. Keep in mind, though, that you can only deduct up to $3,000 of investment losses each year. So if your losses are more significant than that, you’ll need to carry them over to the following year.
Use The Property As Collateral
Finally, if you still have a loan outstanding on the property, one option is to use it as collateral for another investment. This will obviously involve some risk since you could lose the property if you’re unable to make payments on the new loan, but if used wisely, this strategy can help you leverage your losses into future gains.
For example, let’s say you have a $100,000 loan on the property with an interest rate of 5%. You could use the property as collateral for a new loan with an interest rate of 3%. This would lower your monthly payments and free up some cash that could be used to offset your losses.
Of course, you’ll need to be careful with this strategy since it can easily lead to more debt if not used wisely. But if you’re confident in your ability to make the new loan payments, it can be a good way to reduce your monthly expenses and free up some cash.
These are just a few of the strategies you can use to offset losses on your investment property. If you’re patient and willing to take some risks, you may be able to find a way to make the property work for you. But if not, don’t be afraid to cut your losses and move on. There are always other opportunities out there.