If you are an active investor or thinking of becoming one what is your game plan for the properties you now own or for the next one you will be buying?
If you’re investing in Real Estate whether it is a single dwelling, condo, duplex, apartment the next time you are planning on purchasing a property, think about why this property rather than another. What do you intend to do with that property? Rent, flip, hold for a few years etc?
Hopefully, you are investing in RE with some goals in mind. Where do these goals fit into your Game Plan?
Are the property(s) producing enough cash flow to cover the expenses, can you increase the rent? Are they still meeting you needs?
Real Estate is considered a hard asset and an investment that acts as a hedge against inflation. Owning properties in desirable areas (Location,Location,Location) make for great rentals/flipping candidates. We believe that you make your money when you buy - It is easy for a property to appreciate when purchased way under market value. It doesn’t take a rocket scientist for figure out this formula.
Real Estate will appreciate over the long haul but for the sake of an argument if you paid $50,000 for a property 10 to 15 years and it has been rented all this time and it is only worth $50,000 but is fully paid for, are you better off? Who helped you to pay for the property? Did you make the payment or did the tenant?
3. TAX BENEFITS (How much taxes will you be paying for 2009?)
Real Estate ownership has certain tax benefits that allow you to deduct operating expenses, (maintenance, taxes, interest, insurance, etc., along with any overall losses which are called “passive losses”. These loses can help you offset some of your other ordinary income. Are you getting every advantage that you can? Do you have an accountant that is very knowledgeable about real estate? Additionally, the big tax benefit is Depreciation.Our government encourages us to buy investment properties so it is beyond me that more don’t invest in RE. It allows you to depreciate a little bit of the value of an investment property by a certain percentage each year. Currently you can depreciate over a 27.5-year time frame for residential properties and over 39 years on commercial type properties. What a wonderful gift to accumulate and build wealth. I am amazed that more do not.
Another tax benefit is the use of IRS code, 1031 which involves exchanging of investment properties. Use of these provisions in the tax code allows one to defer taxes on sale of your rental properties.
Here is a simplified system for you to decide how an investment property fits your “game plan”. We start by creating (3) three designated categories called “A” type, “B” type, and “C” type properties
A Type Property
These are in family friendly-desirable (location, location, location). Do you intend to own them for a number of years? They will provide you with rental income and tax benefits although they may not provide much positive cash flow initially. These types of properties are what I call “Keeper’s” and are worth owning for the long haul. They will increase in value over the years.
B Type Properties
These are good properties that perhaps have been neglected and have deferred maintenance & and are in need of repairs. They may be a foreclosure, short sale, estate sale, etc. that after you do the fix up will substantially bring up the value. They are the fixer uppers and these types of properties, you fix them to rent (generate wealth) or to sell (make a living-use profits to pay bills, expenses etc.)
A “B” type property you can easily become an “A” type property. You can then refinance the property pulling out the money you invested that you can use to buy additional properties.
A knowledgeable Realtor that is also an investment specialist can help you find A & B type properties sometimes before they even come on the market.
C Type Properties
These may be properties in less desirable areas that provide lots and lots of cash flow and can be purchased for a few thousand dollars and fixed up just enough to get a tenant( maybe not a picky one) . In all likelihood you will not see a lot of appreciation, but you can surely make a lot of money if you want to deal in this market.
A knowledgeable Realtor that is also an investment specialist can help you find A, B or C type properties sometimes before they even come on the market.
How picky do you want to be as a property owner? How much pride are you willing to have? Would you be willing to show off your properties to your friends?
So the next time you are looking at a potential investment property, consider where it might fit into the “A”, “B”, or “C” type categories and your overall investment goals.
Again know “What’s your game plan for the property?” Whatever you do, take the first step and you will be glad that you did.
It's our mission to help our clients generate wealth by Investing in Real Estate.
Check out my web site: http://fredtichauer.com
Buy Today, Profit Tomorrow"