10 Important Tips to Successful Real Estate Investing
Be a Real Estate Investor - 10 Important Secrets
When it comes to investing, everybody has certain goals and
aspirations. However, we have found that there are certain guidelines
every aspiring real estate investor needs to know:
1. Compare Property Values and Rents
Financial statistics only go so far; the best measure of a property's
market value is often the sale prices of nearby properties. The same
holds true for area rents. A low price can often be justified by a
reasonable rent; renters who can afford a high rent can afford to buy
instead, so reasonably priced rent is a need.
2. Be Careful - Tax Laws May Change
Don't base your tax investment on current tax laws. The tax code is
constantly changing, and a good investment is a good investment
regardless of the tax code. The right property with the right
financing is what you should look for as an investor.
3. Specialize In Something You Know
Start in a market segment you know. Whether you focus on fixer-uppers,
foreclosures, starter homes, low-down payment properties,
condominiums, or small apartment buildings, you'll benefit from
experience by specializing in one aspect of investment real estate
properties.
4. Know The Costs Going In!
Know the financial statements inside out. What are operating expenses?
What are loan payments? Vacancy costs? Taxes? What does the cash flow
statement look like? These are key issues that must be addressed
before making a solid investment.
5. Know Where Your Tenants Are Coming From
If the last rent increase was recent, your tenants may be considering
a move. If tenants have a short-term lease, they may be living there
simply to attract unsuspecting buyers. It is also important to collect
the tenants' security deposits at closing.
6. Assess The Tax Situation
Taxes are an integral part of successful real estate investing, and
they often make the difference between a positive cash flow and a
negative one. Know the tax situation, and see how it can be
manipulated to your advantage. It may be a good idea to consult a
tax advisor.
7. Investigate Insurance Coverage
If seller's coverage is based on lower-than-current replacement value,
your insurance cost may increase when you pay a higher purchase price.
8. Confirm Utility Costs
Ask the local utilities to verify recent utility expenses, especially
if any of these costs are included in your tenant's rent.
9. Consult Your Accountant
Taxation is a key element of successful real estate investing, so be
sure to find an accountant who is well-versed with the constantly
evolving tax code.
10. Inspect!
Make sure that you always perform a thorough inspection of the
property before buying it. Never, ever buy any property without at
least examining the site. In some cases, hiring professional
inspectors to examine the structural mechanical system may be a sound
investment.
Other Tips:
Tax incentives for real estate investors can often make the difference
in your tax rates. Deductions for rental property can often be used to
offset wage income. Tax breaks can often enable investors to turn a
loss into a profit.
For which items can investors get tax breaks? You could claim
deductions for actual costs you incur for financing, managing and
operating the rental property. This includes mortgage interest
payments, real estate taxes, insurance, maintenance, repairs, property
management fees, travel, advertising, and utilities (assuming the
tenant doesn''t pay them). These expenses can be subtracted from your
adjusted gross income when determining your personal income taxes. Of
course, these deductions cannot exceed the amount of real estate
income you receive. In addition to deductions for operating costs,
you can also receive breaks for depreciation. Buildings naturally
deteriorate over time, and these "losses" can be deducted regardless
of the actual market value of the property. Because depreciation is a
non-cash expense -- you are not actually spending any money -- the
tax code can get a bit tricky. For more information about
depreciation and various tax alternatives, ask your tax advisor about
Section 1031 of the U.S. Tax Code.
Have a Positive Cash Flow
There are two kinds of positive cash flows: pre-tax and after-tax. A
pre-tax positive cash flow occurs when income received is greater than
expenses incurred. This sort of situation is difficult to find, but
they are usually a strong and safe investment. An after-tax positive
cash flow may have expenses that outweigh collected income, but
various tax breaks allow for a positive cash flow. This is more
common, but it is generally not as strong or safe as a pre-tax
positive cash flow.
Regardless of what kind of real estate you choose to invest in, timely
collections from your tenants is absolutely necessary. A positive cash
flow -- whether it is pre-tax or after-tax -- requires rental income.
Be sure to find quality tenants; a thorough credit and employment check
is probably a good idea.
Use Leverage
One of the most important factors in determining a solid investment is
the amount of equity you are purchasing. Equity is the difference
between the actual worth of the property and the balanced owed on the
mortgage.
Benefit from Growing Equity
ile investing in real estte is relatively complex, it is often worth
the extra work. When compaed to other financial investments, like
bonds or CD's, the return on investment for real estate purchases can
often be greater.
The key to real estate investing is equity. Determine an amount of
equity that you want to achieve. When you reach your goal, it's time to
sell or refinance. Determining the proper amount of equity may require
the assistance of a real estate professional.
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