Why Tax Shelter Makes Investing in Real Estate Smart

With the bigger bite the Feds want to take out of your income for taxes, don’t you think it would be smart to start sheltering some of your income with rental property? Okay, let’s consider your alternatives. You hide your “nest egg” under your mattress or you place it into a CD and wait for the economy to improve-yes, just the way your grandfather or father might have done before you. Fair enough. But this economy is not the same as the one that your grandfather or father faced. In fact, they wouldn’t recognize the challenges that you are facing.

The idea of just leaving your money tucked safely under the mattress or in a bank account might feel secure but it isn’t going to cut it. The money under your mattress will eventually be eaten away by inflation (yes it will, sooner or later, and perhaps quickly). And whatever money you have in a CD (for all intents and purposes) is just collecting dust because you are probably earning just 1-2%; and hey, if you haven’t noticed, that isn’t even keeping up with inflation.

So what is a hard working stiff like you (and me, by the way) supposed to do? The truth is that we must consider investing in real estate so we can shelter our income and perhaps at the end of the day maybe even make a few bucks profit.

Here’s how it works.

An owner of an investment property takes in taxable rental income and pays out tax-deductible operating expenses like insurance and repairs resulting in a “net operating income” on which taxes must be paid. However, the tax code permits further deductions.

With an income-property investment you can deduct mortgage interest. The benefit to an investor here is that interest is not really a cost associated with operating the property, and in reality will get paid (along with your entire mortgage) by the tenants. So this IRS allowance is a sweet deal for real estate investors.

A depreciation deduction is the other source of tax shelter beneficial for those who own rental property. In this case, at the same time the market value of an income property is undoubtedly increasing over time, the tax code makes the assumption that the buildings are wearing out over time and allows investors to take a deduction for that presumed decline in value.

But here’s where it gets really exciting. Depreciation (or cost recovery as it’s now called) is a non-cash deduction. It doesn’t affect your cash flow and you aren’t required to shell out money to get the deduction. Depreciation deductions are merely taken and thereby provide an excellent way to shelter income without additional cost. Moreover, in cases where the deduction is large enough, it can also provide shelter for other investment income as well.

Okay, here’s the concept in very simplified fashion.

Income
less Operating Expenses
= Net Operating Income
less Mortgage Interest
less Depreciation
= Taxable Income

If you’re new to investing, of course, the toughest part (not unlike any new venture) is getting started. But with a systematic plan for investing in real estate you can succeed the same way others have. Here’s a suggested approach consisting of five phases: (1) Learn about real estate as an investment vehicle. (2) Research the market in your local area. (3) Plan how to invest your money. (4) Invest your money according to your plan. (5) Manage your investment to meet your goals and objectives.

You get the idea. Educate yourself, build an investment plan, make your move, and then roll up your sleeves and stay involved.

Two other words of advice you might want to consider. Make your first investment a conservative one; don’t try to hit a home run your first time at the plate. Secondly, get the resources to run the numbers yourself; you don’t want to base your real estate investing business solely on what others might be telling you. Here’s to your success.

Investing in Real Estate – Beginners Should Start Now

Investing in property and structures isn’t the most obvious way to make money. But with a little guidance, perseverance, and drive, even the beginning investor can stand to earn plenty of return on investment by pursuing opportunities in real estate–especially in today’s economy.

Why does today’s economy offer such a prime opportunity for the real-estate investor? Because of the massive number of foreclosed homes and quickly-constructed properties that were never sold in the first place, combined with the farther-reaching effects of the housing bust and ensuing recession, housing prices have been depressed to levels not seen in years. That means savings to the new home buyer, and opportunity to the savvy investor. Investing in real estate is an especially good opportunity because it gives you the chance to earn money in two distinct ways. Let’s take a look how it all works.

Investing in real estate goes like this: The investor (you) buys a piece of property, often with a structure on it already (though it could be a piece of undeveloped land–that would just leave the investor with the work of building something on it or otherwise making improvements to get a return on his/her investment). Then that investor rents the land out to a tenant, either as a private residence (e.g. house/apartment/condominium) or as a piece of commercial property (e.g. an office building). As the months go by, you, the investor (and now a property owner) get to collect renter’s fees from the renter on a regular basis.

Investing in Real Estate – Three Key Elements of Success

Investing in real estate has been a very profitable venture. But, there are several things that you need to keep in mind in order to ensure your success. Following is a brief rundown on some of the guidelines that an aspiring real estate investor must be aware of.

The Price Factor

The price that you pay for the properties plays the most important role here. It is very important for you to understand that the market value of the properties and its overall value to you are two different things. You must be very careful while evaluating these values. Many investors just follow the trends in the market and do not do their own research. For example, you can easily find many people who are ready to pay a much higher amount for duplexes just because others are also paying too much. Make sure that you do not follow the crowd blindly. If you do so, you are very much likely to have negative cash flow month after month. So, the best strategy is to set your limit that how much you should pay for a specific property. Do not cross this limit in any case.

Partners

When it comes to investing in real estate, you must be very careful while choosing your partners also. Always remember, there are lots of uncertainties in this industry. Therefore, if you have more than one decision maker, it will only increase the level of uncertainty and indecision. You should try to avoid having partners, but if you must have a partner anyway, make sure that the roles and responsibilities are clearly defined in the contract. The best partnership is the one where one partner puts up the capital while another one runs the show.

Tax Laws May Change

While you are investing in real estate, it is also important for you to understand that the tax laws may change. This way, it does not make much sense to plan your investment on the basis of the current tax laws. As a smart investor, you had better focus on selecting the right property with the right financing. However, taxes are still an integral part of your investing. So, do not forget to assess the tax situation thoroughly before you go ahead and make your investment. Always remember, an accurate assessment will make the difference between a negative cash flow and a positive one. Considering the importance of taxes, it may also be a good idea to consult an expert accountant – someone who is experienced in this type of job and have a deep understanding of the constantly evolving tax code.

There are several other things as well that you must consider while investing in real estate. For example, it will be wise to confirm the utility costs beforehand. Likewise, investigating the insurance coverage thoroughly will also help you make the right decision.

How to Make $2 Million and $90,000 Per Year Investing in Real Estate

More millionaires made their fortune investing in real estate that in any other profession. In today depressed housing market it is possible for the ordinary investor to make his or her millions by investing in real estate – but only if you do it correctly.

Many potential real estate investors jumped into the market 5 years ago with the expectation of buying a property, fixing it up and then selling it for a profit. This was an easy strategy to follow since home prices were appreciating up to 100% a year in several areas of the United States. Outside these super hot areas, it was not unusual to see home prices soar 20 percent annually in most other areas of the country. It is easy to make millions in a market where prices are increasing at these rates. The crash of the housing market in 2006 effectively ended this strategy of making millions in real estate.

In the past four years housing prices have declined on average 32 percent throughout the united states. There is an abundance of properties that are selling for a mere 20-50 percent of their market value just two years ago. Buying these properties is following the popular investing adage of “buy low and sell high.” My suggestion is to modify this adage to read “buy low, rent for 5-10 years for positive cash flow and then sell high.” This is the best strategy to follow in our current housing market.

Let me give you an example of how this strategy works. A house that sold for $100,000 in 2005 is listed for sale for $40,000 today. Most mortgage companies require you to put down 25% of the purchase price and will finance the balance. This requires you to put down $10,000 to purchase this house and you get a 10 year mortgage for $35,000. If you get an interest rate of 6%, your monthly payments would be $388.57. You spend an additional $5,000 rehabbing the property in order to get it rent ready.

Now you are ready to start making your millions and here is your strategy. This process will involve investing for 10 years and then not investing for the next ten years. After 20 years you will have properties with a value of over $2 million and you will collecting $7,500 per month in rents.

You rent the property for 10 years at a monthly rental rate of $750. Even with insurance and taxes, you should be clearing a positive cash flow of $200 per month. Over the 10 year period that is a $24,000 profit. In ten years the housing market should have recovered and you will be able to sell the house for $100,000. Since your mortgage has been paid off, you have made a $100,000 profit on the sale. Total profit is $124,000 on your initial $15,000 investment. That $124,000 profit is a far cry from making millions. The strategy involves buying one house a year for those ten years.

After 10 years you will have 10 properties. For the next 10 years you sit back and continue to rent the 10 properties that you have. At the end of that 10 years all of your mortgages will be paid off. At this point you will be collecting $7,500 per month. This revenue stream will continue for decades and decades. Your properties will probably be worth $200,000 each or a combined total of $2 million.

For that 10 years you have invested $150,000 on the purchase of the 10 properties. That investment resulted in an income stream of $90,000 per year and property worth $2 million. This is why you buy and hold real estate in a down market.

Can’t Sell Your Home – Start Investing In Real Estate!

So you’ve been trying to sell your home for quite a while, with no success. Oh, sure, you’ve had a few people through, maybe even a lot of people, and every time your life was disrupted… all for nothing. No offers, not even a nibble. It’s getting frustrating. Since life has given you some lemons, why not make lemonade and use this as a springboard to start investing in real estate?

You may be wondering, “How can this be an opportunity for me to start investing in real estate?” Glad you asked.

Since you’re having trouble selling your house through conventional means, maybe now’s the time to go a bit unconventional, and learn a creative real estate investing technique in the process… a technique that you can use over and over again to create wealth for you and your family.

If you use this technique to sell your home, you will be following in the footsteps of thousands of other homeowners who have followed this same strategy to start investing in real estate.

I’m talking about the lease / option method of selling your home.

What is a lease option? Simple… instead of selling your home outright, you’re going to lease it to someone, and at the same time give them the option to purchase it at a fixed price within a fixed period of time.

Why does this work? How can this allow you to sell your home faster and easier? The answer has to do with the type of people that will respond to your “lease with the option to buy” or “rent to own” ad. They will be people with bruised or damaged credit, but don’t let that scare you. Often these are good people who are back on track after a tough period in their life.

They’re not deadbeats… at least not the ones you’ll be putting in your home, because you’ll be carefully screening them. You’ll want to check their story, and verify employment and income. Trust your gut, but verify everything. Select carefully, and realize that it may take two or three tries before you get to the end result you’re looking for- a tenant who becomes a buyer.

The other great reason to use the lease/option technique is price- you can often sell for full market value… even more! What a great way to start investing in real estate.

There are three important terms you will need to negotiate with your tenant/buyer in order to enter into a lease/option agreement with them… price, option term, and monthly rent. Once you’ve learned to do that, you’ll be well down the path many others have followed to start investing in real estate.

Price is the price you will sell them the house for when and if they exercise their option. The option term is the length of time the option to buy is open to your tenant buyer. This is often one year, but could be longer. It’s up to you. I’ve seen option terms as long as five years, but in my mind that’s too long, unless you just want to be a landlord.

Finally, the monthly rent should be enough to cover your mortgage, taxes, and insurance, plus something left over to give you a positive cash flow every month. After all, there is a little hassle involved, so you should get something for your trouble.

Now, here’s the icing on the cake. You can and should collect a non-refundable option fee from your tenant/buyers, and you should get it upfront. The amount is negotiable, but generally about three percent of the value of the home is appropriate. So, on a $150,000 property, the option fee would be between $4,000 and $5,000. This shows good faith and commitment on their part.

Hopefully by now you can see that this is a great way to both get your home sold and start investing in real estate. You make money three ways… when you collect your option fee, when you sell the house, and every month in the form of positive cash flow. Plus, the home remains in your name until they exercise their option, so you still get all the tax breaks associated with homeownership.

Listen, I know there’s a lot more to say on the subject of lease option, and there’s certainly a great deal more on how to start investing in real estate. This is just a primer, but hey… we’ve all got to start somewhere, right?

Investing in Real Estate For Quick Profits

Real Estate Investing (REI) has always been a viewed as a long-term business. People know that real estate properties take years to appreciate. That is why there are only few investors venturing into real estate. You can’t blame other investors if they go after quick-profit businesses. Financial stability today, amid harsher times, is everybody’s concern. Smarter ones, however, know that they can actually earn quick money by investing in real estate.

There are methods of REI that can give you profits in just days, and others in just months. You won’t have to wait for years just to get money from real estate. Among the most popular forms of short-term real estate investing is wholesaling houses. This is basically placing a property under contract and then finding buyer for that property. You will then assign that contract to another wholesaler or a home owner for a fee. The assignment fee can vary depending on the location of the property and other factors.

Here’s a sample transaction. You found a distressed property for $55,000. You pay a few hundred dollars to the owner of the house to place his property under contract. You will then search for a buyer for that house. It will help if you have a buyer’s list, or a list of buyers who are ready to buy properties. Send details of the property to qualified buyers and wait for a response. Don’t forget to change the price of the property before sending the details. If you want to earn $10,000 for assigning the contract, then advertise the property at $65,000. Upon finding a buyer, let your title company take care of matters for you while you can worry about cashing and spending your check.

Another investment method you can use is rehabbing houses. Also know as fix and flip, you will repair properties in this business. It starts by buying a cheap property. (By the way, you can contact a wholesaler in your area of you need properties to rehab.) Rehabbers will then make repairs and improvements on the property before quickly selling it to home owners.

REI through rehabbing requires more capital but the returns are bigger. Most rehabbers seek financing from banks and other lenders because of the huge capital needed. There are a lot of sources of financing today so you won’t have to worry about funding your projects.

6 Benefits Of Having A Partner When Investing In Real Estate

If you happen to be contemplating investing in real estate, you should know that you don’t have to do it by yourself. There are a lot of people out there that want to buy a property to rent out just like you, but don’t have the correct resources or time to look into and embark on the process. Building partnerships to invest in rental properties is one of the great methods to begin building an income off of renting out property.

1. Having a partner to help invest in rental properties with you will allow for any missed steps of the procedure to be picked up before it’s too late because there will be more than one perspective looking into it. This can be especially vital in the beginning of the process. Two heads are always better than one, especially if you are just beginning

2. Having a partner that can assist you with investing in real estate will also be valuable due to managerial requirements that will have to be met. Everything from fundamental paperwork to taxes and even strategies are often better when handled by two people.

3. By having more than one person involved in the investment of rental properties, you will be able to put in place your goals, keep standards and move forward in your real estate business.

4. Finding the fitting partner who has the necessary resources whether it be spare time or capital to invest will provide you both with the best chance you will be successful. Having the right assistance will provide you the ability to continue to expand your real estate business and make plenty of profit from renting out your properties.

5. When you have a partner to invest in real estate with they will bring all of their networks of contact with them to the table. They might be in a different industry to real estate but you will be surprised the wide variety of professions that can be required to successfully run and grow a real estate empire.

6. When looking for and selecting a suitable partner to invest with, you will need to find someone that has skills in areas that you don’t. If you are not good with financials, then they will have experience in this field. If they are not confident in minor renovations then this could be your strong point, you get the idea that your skill sets need not match but your desires for the business and future goals should be aimed reasonably in the same direction for everything to go smoothly.

Investing In Real Estate – Are You Listening To the Right People?

Everywhere you go, you hear the same sad things: “The rich are getting richer while the poor are getting poorer.” “There just isn’t enough to go around.” “It takes money to make money.” This can lead you to believe that there is some mystical force out there that regular people like you and me just can’t tap into. If you subscribe to this way of thinking long enough, you may be tempted to say, “Since it takes money to make money and I have no money, then what hope is there for me?” There is plenty of hope, as long as you don’t listen to the wrong people. Media naysayers are definitely the wrong people.

Press about the declining value of real estate as an investment or about skyrocketing housing prices that keep regular people out of the market altogether can make the prospect of making money through real estate investment seem almost ludicrous. Yet people are doing it – real people like you and me. And you can do it too. All you have to do is listen to the right people.

Sounds easy doesn’t it? Yes it does. That’s because it is. It is very easy to find a person who knows how to make money by investing in real estate, find out what has worked for them, and apply it to your own life. If it’s so easy, you might be tempted to say, then why isn’t everyone doing it? And that, my friend, is the meat of the matter. Everyone isn’t doing it for two reasons. The first reason is that they’ve simply been told all their lives that success is very, very difficult. In fact, they’ve been told, because of the scarcity of money, success is almost impossible.

They are paralyzed because they have been listening to the wrong people.

The second reason everyone isn’t investing as they should is, it’s just too easy. If you look at the lives of successful people, those people have followed a systematic plan to increase their wealth. Well, systematic plans aren’t sexy. They aren’t interesting. They’re boring, and that’s why people don’t like them. Most people would rather have the adrenaline rush of a get-rich-quick scheme than settle into a proven systematic plan to let their wealth increase for them in the background of their lives.

Because most people think like that, those are the ideas that the media are catering to. That is why murder and mayhem is front-page news and happy things are not. That is why people slow down when they see an automobile accident and not when they see a couple holding hands. Tragedy is far more interesting. Just check out the plot line of any major motion picture. People like to believe that life is tough.

The good news is, it doesn’t have to be.

If you can break the habit of thinking of life in tragic terms, of convincing yourself that there is simply not enough money to go around, then you will learn to start listening to the right people so you can develop your systematic plan for investing. And what does a systematic plan lead to? Financial success. We’ve established that the media and the majority of their audience are the wrong people to listen to, but who are the right people? The right people are those who have invested in property and profited significantly from those investments. People like me. Wouldn’t you rather listen to someone who can tell you how you can make money, rather than to people who insist on telling you how to stay poor?