Inform Yourself before Investing in Real Estate

With the latest reality craze in television shows, it’s easy to find a rich and famous star that made a fortune in the real estate business. True, for an informed and seasoned investor, this type of venture is quite easy. However, with a first-time experience, there are several things to be aware of before jumping in head-first.

There is a very steep learning curve when investing in real estate. Though this means that you learn a vast amount of knowledge with each and every property, it also translates to potentially losing a great deal of money in the process. Any investment that leaves you broke is not a good one!

This is why it’s so important to never get so excited that you move too quickly; do your homework, ask questions, and wait. There will always be another deal to be had, so don’t get in a hurry. Wait until that property drops in price even more to play it safe – if it sells in the meantime, walk away and look for another.

Also consider what type of results you want from investing in real estate. Is this to become part of your retirement fund, or do you want it to become a full-time job and business? What type of money do you want to make? Make sure these goals and your expectations are always realistic.

Remember that when the housing market drops, it is usually quite drastic. This possibility may leave you hanging on to properties longer than once thought to wait for the next upturn. Be sure you can handle this fluctuation before jumping in!

After setting your real estate goals, outline your course of action for the next one to five years. This business plan should always be reviewed at least every six months, and will need to be revised frequently; however, it still serves a useful purpose of keeping you on track to your end goals.

When writing your business plan, consider your immediate capital available, and what type of financing you may qualify for. Perhaps you have enough equity in your primary residence to find a second home equity loan, but be careful – if you are ever in trouble and are at risk of losing one, make sure it’s not the one you live in!

Remember that as stressful as investing in real estate can become, there are great rewards. After buying and renting or reselling your first property or two, you’ll have a great idea of what mishaps can be avoided in the future, resulting in more money in your pocket.

Your negotiation skills will also improve, and this coupled with a growing rapport with contractors, agents and lenders can result in lower charges and rates in the future. Once you have developed a trusted network of real estate professionals, you’ll be able to hit the ground running.

It is very possible you may discover that investing in real estate is not for you. If you do not trust the process or don’t have any desire to have a hands-on experience with your investments, then choosing another vehicle to grow your money is probably best.

Increase Your Sale Value with Sweat Equity

If you’re in the market to sell your home, you want to get the highest sale price possible from it. The best way to increase the value of your home, and thus the offers you will receive, is to sweat a little bit and perform minor improvements that result in big dollar signs at closing time.

Even if you have no experience in design or repairing property of any kind, there are several tools available at your local hardware store to meet this goal. Many times, you can simply visit the store and ask the knowledgeable salespeople about small, easy projects that don’t cost an arm and a leg.

As a seller, you have to view your home through the buyer’s eyes. What is your neighborhood like? Is there trash alongside the road, or old cars in your neighbor’s driveway and yard? If so, ask them to kindly clean up their own properties or offer to do it yourself prior to showing day.

Make sure the lawns are also mowed and neatly kept; this may require you to offer to mow your direct neighbors’ lawns on either side of your property. Haul their trash to the dump, or offer a small incentive at the culmination of a sale in order to motivate them to help you sell.

Keep your own lawn tidy and well-kept, mowing it often and laying down sod or grass seed in any areas that are bare. Head to the nearest greenhouse and plant colorful flowers around large trees and the perimeter of the property for an added sense of “hominess”. These small things are extremely important; it’s the first area a potential buyer will see when arriving at your property!

Usually, an inspection will take place on the buyer’s behalf before the papers are signed. You will be able to save yourself significant cost and heartache by commissioning your own inspection and fixing any minor repairs needed throughout the house. Dripping faucets and leaky plumbing can easily be fixed with a just a few of your everyday tools.

Flooring can become quite costly if you’re thinking of replacing, but a good cleaning is easily finished with $100 and some time and sweat of your own. Replace any old and worn rugs and mats, and if there are any unsightly stains that simply won’t leave, just cover them up with a piece of furniture or throw rug.

You needn’t replace all of your windows, but screens can be replaced for a few dollars each, and will greatly improve the appearance of the external appearance of your house. Screens are also easily repaired or replaced using kits available at your local hardware store.

That being said, if there are broken or cracked windows, you’ll need to replace them to prevent added cost to you during negotiations.

Finally, give your home a good cleaning like it’s never seen before, and keep it that way until you sign on the dotted line. Any paint scratches or marks should be touched up in order to put that clean and polished look in every area of your home, and you’ll receive your investment multiple times over at closing!

Important Tax Considerations for the Real Estate Investor

There’s a very good reason that most of us never learned to be an accountant and leave our taxes to someone else every year: tax codes are complicated and confusing, not to mention extremely boring to most of us! However, as a real estate investor it’s important to become familiar enough with those that apply to your business in order to ensure you are making the best deals possible.

There are several misconceptions about currently existing laws or those that may not exist at all any more. Real estate tax laws vary between states and local districts, but the bare-bones knowledge is still required to realize your true profits from any one deal – structuring a purchase or sale incorrectly can severely reduce these, as well as open you up to additional tax liabilities you may not even realize you missed.

Some investors make the common mistake of purchasing residential real estate, fixing it up and selling it for profit without ever living there, and not understanding current tax laws regarding this activity. Many tax deductions and credits for real estate purchases are only applicable to those which are used as a primary residence. There are also capital gains tax implications and increased property taxes due to the lack of deductions for investment real estate.

However, if an investor purchases a home and lives in it for two years or more, this will result in a tax-free sale if proceeds are used toward another piece of real estate. This law was enacted in 1997 to encourage owners to continue owning, and have the ability to move to increasingly higher valued properties.

When a property is held for less than a year, such as is the case in flipping for a quick profit, proceeds are subject to short-term capital gains tax that equals normal income tax rates. When held for a longer period of time, the profits are classified as long-term capital gains, and taxed at a maximum rate of 15%. Of course, this is assuming you never lived in the residence yourself.

1031 exchanges provide a tax advantage to real estate investors in what is referred to as a “like kind” trade in property. An investment property sold can use proceeds to purchase additional income-producing real estate and defer any owed taxes. Funds from the sale are held by a facilitator, and up to three different replacement properties must be identified within 45 days of the original sale. Then, the investor has 180 days to close on one or all of these properties.

Also remember that many tax incentives offered when purchasing your residence are not available with investment purchases. However, if you properly structure a business entity to buy and sell properties, rent them out and repair them, there are business tax deductions that can be taken advantage of.

Always consult a tax professional before continuing with any type of investment purchase or sale to ensure you are not incurring undue tax liabilities. Having a trusted CPA and accountant are priceless when it comes to saving more of your own money!

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