Prior to the 1986 Act, real estate investors were able to offset their rental property losses against their active income including w-2 earnings and profits from businesses.

Operating Agreement: This document should outline each partner’s investment, share of profits/losses, decision-making authority, and exit strategy.

This creates two loan payments ($100,000 of equity and $300,000 on the new mortgage).Key NumbersHome Equity Loan Interest Rate: 6%Mortgage Interest Rate: 7%Rental Income: $3,000 per monthExpenses (management, taxes, insurance, maintenance): $800 per monthIncome and ExpensesMonthly Rental Income: $3,000Monthly Expenses: $800Monthly Mortgage Payment: $2,000ExplanationThe investor earns $3,000 in rent each month.They pay $2,000 on the investment property mortgage and $800 on other expenses.This leaves $200 profit each month or $2,400 per year.However, you have to pay $6,000 interest on the equity borrowed.This leaves you with an annual loss of $3,600.This example shows that while the rental property generates positive monthly income, the interest cost of borrowing the initial $100,000 results in an overall annual loss.

We are taking over seller payments, then renovating and sharing profits with the owner. 

It’s important to balance cash-out refinance with maintaining healthy cash flow from rent.Mismanaging the Rehab Process:Delays in the rehab phase can eat into your profits.

Keep this in mind when going the VA route for management.2) If a deal breaks/is no longer profitable because of Property Management Expenses, it might be best to find another deal with bigger margins.

This can increase your profit margin by avoiding platform fees.

Some properties take years to become profitable.

But, the investing education was phenomenally profitable for me and my husband.

These factors can play a huge role in making a property profitable in the long run.