Investment strategy for High income earner ?

[Ken Wang]

Dear All,

I am new to REI, and have been researching optimal investment strategy for me and my family. If we invest in cash flow property, after taking the depreciation tax benefit, the positive rental income will still be taxed about 20% (right?). Please correct me if I am wrong; there is no tax benefit difference for low or high income family, if we are only using rental property as the investment strategy. Am I correct?

[David Faulkner]

I would go for properties with higher appreciation potential (forced and/or market appreciation) but may have lower cash flow on day one. If/when the property does appreciate in both price and rent increases (they usually come hand in hand), you can tap that equity tax free via cash out refinance and in the process lower your taxible income on it. The sweet spot IMO would be something that has positive cashflow including everything EXCEPT depreciation expense, but shows neutral or slightly negative cash flow after deducting depreciation for your taxes, so that you have appreciation and actual monthly money coming in, but nothing to pay in taxes or even a slight tax break. You probably need the tax deduction more than you need the cash flow right now, and this IMO would be the best way to invest for that along with future upside. These type of properties would be on the nicer end of town, and/or in some of the "expensive" markets (appreciation is how they got to be expensive in the 1st place) ... as an added bonus, these type of properties will be more passive and less management intensive.