MiamiRealEstateKing

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Six Ways Investing in Real Estate Can Save You Money

In Buyers, Commercial Real Estate, florida, Investing, Investor, IRS, miami, miami beach, Miami-Dade County, Multi-Family Real Estate, real estate, Roth-IRA, Self-Directed IRA, Sellers, tax deductions, Tax Matters on May 10, 2013 at 1:28 pm

There are many investment vehicles. Stocks, bonds, art, coins, postage stamps, toys, commodities and real estate, among others.

Some economists even suggest that as long as you are disciplined and can comfortably pay for it, you should buy any investment you can. If you can finance the purchase, even better.

However, real estate is probably the only one against which you can borrow and have the asset pay itself off through rental income, EVEN as it pays YOU.

In fact, I have spoken to property owners who have managed to leverage a property two, even three times in their lifetime, by borrowing against the property they now own free and clear, to buy another.

What’s more, the income from the new property (let’s call it property B), paid with borrowed funds from say, property A, plus the income they still generate from that newly leveraged property A, can over time, pay back the loan on A from rent collections on A and B, while proving the owner with a boost in passive income. In other words, party money.

Even if you can purchase property in cash, many recommend you consider financing after the fact. Leveraging allows you to possibly, acquire two or more properties, update or fix them up and let themselves carry the burden of paying down the loans with rental income.

Over time, you would have the ability to acquire even more properties and eventually, when you are at the right stage in your life, own them all free and clear while enjoying all that income in retirement. The ultimate 401K or IRA.

Of course, you must buy right and be disciplined throughout. With every payment received in rents, you must set aside a portion every month to pay for licenses, taxes, insurance maintenance and miscellaneous repairs, improvements, etc. In short, you must budget as you would with any business.

Below, we examine some of the advantages for owning investment property and in particular, multi-family property.

1. Economies of Scale

When you buy a single family house or condo unit, small investors often feel they’re easy to manage. That may be true to some extend. On the other hand, consider that with a multi-family building, you only deal with one roof and/or one yard to mow, you are the board that approves tenants or how many times a year you rent your property and in one single trip, you can fumigate, inspect and have a punch list ready for your handyman, plumber and/or electrician to take care of, minimizing headaches.

2. Lower Taxes

There are several tax incentives for real estate investors. If you are employed, deductions from real estate investments may be used to offset wage income. In addition, there are a number of tax breaks for real estate investment which often allow property owners to turn a loss into a profit. Deductions can include any actual costs involved in financing, managing and operating the property, to include maintenance, repairs, property management fees, travel, advertising, and utilities. In addition, the IRS allows a depreciation deduction that accounts for a portion of the building (not the land portion of the property) over time, usually some 27 years.

3. Cash Flow

A property can generate negative or positive cash flow. Cash flow simply refers to the amount of money that flows in and out in pursuit of maintaining a property. Rents are an example of cash flowing in while taxes and insurance must be paid out, typically from a portion of the rents received. When the amount of income received exceeds the payments, it is said you have a positive cash flow. There are times when the amount of payments exceed your income and in these cases, you are said to have a negative cash flow. Regardless, when it comes to real estate investment, there are two more important concepts involved: pre-tax and after-tax. A pre-tax positive cash flow for instance, may also be said to occur when income received is greater than expenses before taxes are paid. However, even if your are experiencing a negative cash flow, you may end up with an after-tax positive income when your expenses are more than your collected income, but the tax breaks bring you back in the black. Depreciation can often help turn a negative into a positive.

4. Use Leverage

An old rule of thumb in real estate is to never spend a dime on your real estate investment unless you have to and/or unless it will save you money. Leverage is an important aspect of saving money through real estate investment because a real estate investor uses leverage to increase their assets without spending their own money. By taking advantage of your equity, you also improve your return on equity and it provides you with tax-free funds to help fund your next deal or improve the value of your existing property by making updates, upgrades or repairs that entice tenants (to come in or stay) and should allow you to raise rents and improve your bottom line.

5. Equity Growth

The best way to save money and earn money, is to build up equity from real estate investments. That way, with high equity you are able to save on your mortgage while earning a nice chunk of profit. However, idle equity is like idle funds in the bank. Ideally, you are always utilizing your equity to improve the value of the property and/or pursuing and acquiring new opportunities. Often, selling is a great way to take advantage of existing equity, which would allow you to reposition yourself in a potentially better property with better opportunities. For instance, you may own a building sitting on prime land which may allow you to build a much larger structure for more potential. However, you are not a builder and you’re not in the mood to start. Even if that property is making money, selling it may bring enough to allow you to purchase a more suitable property or properties.

6. The Benefits of Inflation

Generally speaking, inflation can help you save money on your real estate investment because as rent increases, your mortgage costs will remain static (assuming it is a fix-rate loan), which means you will improve your position with the increased cash flow from the rent and equity growth. Although inflation is quite low these days, there is a typical amount of appreciation properties experience as a result of even low inflation, which adds to your equity without a single penny out of pocket.

Of course, it is not all rosey with real estate investing. There are a LOT of factors that deter people from getting involved. It is scary, you could lose a lot if you engage from an emotional standpoint and there are headaches and horror stories borne from bad tenant situations to fill a few books.

Regardless, I reiterate that if you buy properly, budget properly and stay involved, you may never have to worry about money when it counts – throughout the live of the property and during your retirement. What could be more beautiful than that?

Most real estate professionals can help a buyer or seller make the right buy or sell decisions. Obviously, as you would listen to a quality attorney, doctor or accountant, listening to a quality real estate professional’s valuable information will go a long way in helping you achieve your buying or selling goal. Budgeting however, is a function of habit and here again, you must proactively seek qualified, quality, professional advise.

Americor / Vacation Finance Lunches New Lending Product

In Buyers, credit, Distressed Sales, florida, forclosure, foreclosure, government, Home Buyer, Industry trends, Investing, Investor, IRS, lenders, Loan Program, Market Report, miami, miami beach, Miami-Dade County, Military, mortgage, National, Qualified Retirement Plan, real estate, Roth-IRA, second home, Self-Directed IRA, South Beach, Tax Matters, Trends, vacation home, Wenceslao on October 13, 2010 at 7:51 am

Using your IRA to buy Investment Real Estate

Posted: 12 Oct 2010 09:35 AM PDT

Americor Mortgage is launching a new loan program for investors who are buying investment property with their self directed IRA. Our mortgages will be NON-RECOURSE, and the individual does not need to qualify, the property does.

So even borrowers with recent credit challenges, low or retirement income, can get a mortgage through their IRA.

IRAs can buy condos, single family residential, and commercial income producing properties.

Contact Americor-Vacation Finance for more info: info@vacation-finance.com

To learn more about Self-Directed IRA rules visit http://www.IRS.gov

You may also contact Jason DeBono at Entrust Florida (www.EntrustFl.com) at JDeBono@EntrustFl.com who are qualified administrators for Self-Directed IRAs

What are investors looking for these days?

In Buyers, credit, Distressed Sales, FHA, First-Time Buyer, florida, forclosure, foreclosure, foreclosure prevention scam, government, Home Buyer, home sellers, homeowner, Investing, Investor, IRS, Lease-Option, Leasing, lenders, Market Report, miami, miami beach, mortgage, real estate, REO, Roth-IRA, Self-Directed IRA, Sellers, Short Sales, Tax Matters, Trends on September 10, 2010 at 10:58 am

I often argue with a great friend of mine about the potential for making money buying real estate today.  This person is no newbie or stranger to investing. He owns several multi-family buildings and recently sold one.

He feels this is no time to buy – though of course…he had no issue selling to this buyer, who I’m sure he was glad to see buying HIS building  🙂

My friend also feels it may not be time to buy for several months, possibly as many as 12 or 18 months, fearing that taxes and rental income are almost impossible to calculate in this environment.

This, in spite of the fact that he was recently able to successfully increase the rents of two of his units by 20%. He claims to be unsure whether he can continue to do this consistently moving forward and attributes his recent ability to raise these rents as a temporary and unexplainable blip.

However, he agrees with me that this may have been due to (at least in part), the number of REO properties that are ‘off’ the market and the still thousands of unsold units developers refuse to rent, plus the fact that so many of the ex-home owners are now unable to buy and must rent.

Don’t get me wrong…we’re looking at the possibility of partnering on deals so, there is most definitely a side of him that’s willing to put his theory to the test and either proof himself or me wrong.

I also argue with him that, although he feels the way he does, that most buyers today could not only finally enjoy positive cash flow from renting their property, but also gain with capital appreciation if they choose to hold the property for at least 3 to 5 years or longer.

Such people will not care whether the property suffers added “paper losses” while holding the property in the next 12-18 months or so, as long as the property recovers its lost value so that, five years from now, they can make a nice chunk of cash in addition to the passive, rental income collected during that time.

Yet, he still feels emotionally unable to feel good about the idea that he may buy something today that in 6 or 10 months could still be worth less than he paid today, regardless of the fact that, if held it for at least 3-5 years or longer, he agrees it would be worth much more.

It’s that sense of loss, albeit temporary, that he seems unable to get passed. I tell him that this loss, may even be more temporary than the ‘gains’ of recent years, and much less damaging to those still holding these properties in 3 years than it has been for those who bought at the top of the market and must wait 6-10 years for their ‘old’ inflated prices to level off.

Here are 4 additional concepts I subscribe to:

1) Conservatively speaking, most investors I know, know that money invested in real estate is made when you buy and realized when you sell.

Although appreciation is likely over time (as proven by historical fact … although the SEC would make you say as in any prospectus that…’past results are no guarantee of future performance’), it is difficult to calculate any appreciation going forward and probably better if ignored and considered a ‘bonus’ when you sell.

The difficulty in calculating the numbers mostly stem (or at least in part), from potential changes in tax and other laws plus uncertainty about the economy and how long it will remain weak, unemployment and how much worse will it get before it is overcome and vacancies potentially worsening as more properties are recycled by lenders dumping their REO inventory into the market.

Obviously, if you are buying a property for personal use (your  primary residence), memories built within those walls and the family’s enjoyment are often worth much more than anything else to the typical home buyer whereas, investors look at that cash flow and appreciation as a way of measuring whether to buy or not.

Still, the issues listed above continue to be, among others, the biggest handicaps in the minds of some investors.

2) A point I feel is helping investors today is that many buyers simply…cannot afford to buy.

Financing is tough on them and if they are buying a condo unit, its even tougher on the buildings.  For those investors able to pay cash or even get financing, the loan-to-value ratios can help them make a monthly profit.

Ideally, the total cost of the purchase, fees and repairs should be no more than 70 percent of the appraised value of the property in good condition. This leaves 30% equity plus whatever the property value grows to while tenants cover all costs with rent.

Typically…this is much better than a CD or today’s 401k or mutual fund performances. As a matter of fact, many investors are pledging their funds in roll over IRA and other similar accounts as private money that grows their nest egg with much better velocity of return.

Finally, a vehicle for many to compensate and get ahead of the curve as they accumulate wealth for retirement in this uncertain environment. of course, this is tightly regulated under strict IRS guidelines and only competent administrators (i.e.: Entrust and several others), should be used.

3) Investors can also finally look at property that allows them to maximize their annual return.

They can choose properties that can be rented for at least 1.5% to 3% of the purchase price so that, if you pay $100,000 for a property that can be rented for $1250 per month for instance, the mortgage at today’s extra-low rates, taxes, insurance and everything else should be easily covered  by the rent and even leave some money on the table for unexpected repairs, etc.  Remember of course that, there is that 30% proverbial equity still sitting there, waiting for an opportunity to cash out in a sale.

4) Just the same, every investor knows they must have alternate exit strategies.

By finding properties that have intrinsic value added at the time of purchase, then no matter what happens to the market, they are likely to gain.

Some of the strategies an investor should always have available are to:

  • rent the property,
  • sell to other investors,
  • sell to end-users (primary resident owners), who plans to live there and are able to buy using cash, conventional financing or more creative methods like lease purchase.

In short, there are many ways to invest and many reasons to feel positive about it. Being on the fence or fearful of the unknown never makes anyone any money.

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YOUR COMMENTS WELCOMED…

Q2-2010, Existing Florida Home & Condo Sales – UP

In Buyers, Distressed Sales, FAR, florida, foreclosure, HAFA, HAMP, Home Buyer, home sellers, HomePath, HUD, Industry trends, Market Report, miami, miami beach, Multi-Family Real Estate, real estate, REO, Roth-IRA, Self-Directed IRA, Sellers, Short Sales, Trends on August 11, 2010 at 3:10 pm

Florida’s existing home, condo sales up in 2Q 2010

ORLANDO, Fla. – Aug. 11, 2010 – Sales of existing single-family homes in Florida rose 21 percent in second quarter 2010 compared to the same period a year earlier, according to the latest housing statistics from Florida Realtors®. A total of 51,564 existing homes sold statewide in 2Q 2010; during the same period the year before, a total of 42,604 existing homes sold. It marks the eighth consecutive quarter that Florida has seen higher existing year-to-year home sales, according to the state association.

Statewide sales of existing condominiums in the second quarter rose 45 percent compared to the same time the previous year. This marks the seventh consecutive quarter for increased statewide sales in both the existing home and condo markets compared to year-ago levels.

Statewide sales activity in 2Q 2010 also increased over 1Q 2010’s sales figure in both the existing home and existing condo markets, Florida Realtors’ records show. For 2Q 2010, statewide sales of existing homes rose 32.7 percent over the 1Q 2010 figure; statewide existing condo sales in 2Q 2010 increased 24.2 percent over the 1Q 2010 level.

Looking forward, the University of Florida’s Bergstrom Center for Real Estate Studies’ latest quarterly survey of real estate trends reported that job growth and the BP oil spill were cited as top concerns for the future outlook of the state’s real estate industry. The survey polls market research economists, industry executives, real estate scholars and other experts.

The center’s director, Timothy Becker, noted in the report that the oil spill has created “a cloud of uncertainty that is affecting all markets across the state. Our respondents indicate that the effect of the oil spill is being felt across Florida despite the fact that oil is only showing up on some beaches in the Panhandle.”

The survey reported the outlook for investment in industrial properties continues to brighten and is becoming increasingly positive.

Seventeen of Florida’s metropolitan statistical areas (MSAs) reported increased sales of existing homes in 2Q 2010 compared to the same three-month period a year earlier; 18 of the MSAs showed gains in condo sales.

The statewide existing-home median sales price was $141,300 in 2Q 2010; a year earlier, it was $143,000 for a decrease of 1 percent. The 2Q 2010 statewide existing-home median sales price was 5.6 percent higher than the statewide existing-home median sales price of $133,800 in 1Q 2010. According to industry analysts with the National Association of Realtors® (NAR), sales of foreclosures and other distressed properties continue to downwardly distort the median price because they generally sell at a discount relative to traditional homes. The median is a typical market price where half the homes sold for more, half for less.

In the year-to-year quarterly comparison for condo sales, 20,986 units sold statewide for the quarter compared to 14,430 in 2Q 2009 for a 45 percent increase. The statewide existing-condo median sales price was $98,900 for the three-month period; in 2Q 2009, it was $110,300 for a decrease of 10 percent. The 2Q 2010 statewide existing-condo median sales price was 3.2 percent higher than the 1Q 2010 statewide existing-condo median sales price of $95,800.

Low mortgage rates remain another favorable influence on the housing sector. According to Freddie Mac, the national commitment rate for a 30-year conventional fixed-rate mortgage averaged 4.91 percent in 2Q 2010; one year earlier, it averaged 5.03 percent.

Reprinted by Permission: © 2010 Florida Realtors®

Expected improvement in rental market giving positive outlook to multifamily market

In Buyers, Commercial Real Estate, Distressed Sales, florida, Leasing, miami, miami beach, Military, Multi-Family Real Estate, real estate, Roth-IRA, Self-Directed IRA, Sellers on June 11, 2010 at 4:31 pm

Multifamily builders less pessimistic

WASHINGTON – June 11, 2010 – The multifamily market showed signs of moving toward stability in the first quarter of 2010, according to NAHB’s Multifamily Market Index (MMI). The current production index for market-rent apartments jumped to 30.6 – 14 points higher than a year earlier – while future demand expectations for Class A apartments rose to 49.6 from 34 and for Class B to 53.1 from 43.9. For lower-rent units and for-sale condominiums, the current production indexes rose to 38.2 and 25.0, respectively – more than 10 points higher than in the first quarter of 2009.

The MMI measures multifamily builder sentiment based on production and occupancy at the current time as well as builders’ expectations for conditions over the next six months. An index number greater than 50 indicates that the number of builders who view conditions as getting stronger outnumber the number who view conditions as becoming weaker. The values are not seasonally adjusted.

The current demand index for Class A apartments – among the hardest hit by the recession ¬– also showed improvement, rising to 41.7, or 19 points higher than a year earlier. The index measuring demand for Class B apartments rose to 43.4, up seven points. Demand for Class C apartments – the least expensive, and the most likely to stay occupied during hard times – actually showed a slight decline, falling about two points to 43.1.

Builders’ expectations for future production, though improved from a year ago, are still constrained by the difficulty in obtaining loans to fund development. Condo starts showed the lowest expectation for increased starts at 32.7. The future production index for lower-rent communities is 45.1 and for market-rate rent communities 43.5.

“The most encouraging part of the MMI is the number of multifamily builders expecting gains in rental occupancy over the next six months,” says NAHB Chief Economist David Crowe. “Builders’ optimism is directly related to recent positive employment news and expectations for the trend to continue. Current conditions are still depressed by multifamily builders’ difficulty obtaining financing for acquisition, development and construction.”

Reprinted by Permission: © 2010 Florida Realtors®

Creative Real Estate Financing – Self Directed IRA or 401k may help put you in control

In credit, First-Time Buyer, florida, government, Home Buyer, IRS, Kiyosaki, Qualified Retirement Plan, Ramsey, real estate, Roth-IRA, Self-Directed IRA, Suze, tax credit, Tax Matters on March 18, 2010 at 4:39 pm

There is this thing called “the reticular activator” and it goes something like this. You see something you like, you think you’re the only one on the planet who now owns it, and right at the next corner, you see it.Maybe even in the same color!

Maybe it’s an idea that just pops into your head, and WHAM! There’s the tv ad, radio commercial or friend on the telephone telling you about the same thing. Pregnant women know how this works. Suddenly, it seems everyone they know is pregnant!

For some reason, I am hearing more and more people discuss retirement planning and how to grow their nest-egg and how to take control of their finances. Maybe it’s cuz I’m at the tail end of the baby boom generation (born 1961) and I’m surrounded by concerned boomers and this just happens to be the topic o f the day.

Maybe it’s because with the economy the way it is, retirement plans and pension funds evaporating, that folk are beginning to realize that maybe, just maybe, in another 20-30 years (just like our last major recession about that long ago in the early 80’s), when we’re too old to do anything about it, we may find our savings disappear and so, the buzz is about taking responsibility, learning the ropes and taking control of our future. God knows Dave Ramsey, Robert Kiyosaki and Suze Orman have been talking about it for quite a while now.

Did you know your IRA can purchase real estate?

That’s right, since 1975 IRAs and 401k plans have been afforded the ability to purchase real estate, which has helped many investor create large nest eggs by investing in what they know and understand.  As the famous investor Louis Glickman once said, “The best investment on earth is earth”

By simply transferring your IRA from the bank or brokerage firm you are currently using to a self-directed IRA administrator, you gain the ability to make your own investment decisions, without being limited to the stock market.  With all the uncertainty in the stock market, now more than ever is the time to learn how to take control of your retirement plan and invest in what you know and understand…real estate!

Self-directed IRAs offer substantial tax advantages that have made many millionaire investors. The greatest advantage is that IRA investors pay no capital gains tax when the property is sold by the IRA.

In addition, because the profit from the sale is deposited back into the IRA with no tax on gain or growth, the investor enjoys the power of compound interest to invest in the next real estate deal. Although IRS 1031 exchanges can be used to fund partial IRA investments in real estate, Self-directed IRAs do not have the same limitations and holding periods, thus are much more flexible.

Finally, if you’re like many investors who are tired of poor-performing investments in stocks, bonds and mutual funds, Self-directed IRAs offer true portfolio diversification; i.e., in real estate, to help build wealth via tax-deferred or tax-free income-generating assets!

Your first step in purchasing real estate is to have a trusted Realtor who is knowledgeable in finding your ideal property.

Purchasing real estate with your IRA is very similar to conventional means, but IRS regulations must be observed. As with any investing, it’s always appropriate to have competent advice from tax and legal advisors.

Beyond that, the best remedy to avoid problems with the IRS is to become an educated investor by reading or attending a workshop or seminar on buying real estate in an IRA offered by your local Self-directed IRA Administrator.

The local Self-directed IRA Administrator I work with is Entrust Administration Services Inc based in Lake Mary, FL.  To learn more about the company, visit their website at www.entrustfl.com or call them at 407-367-3472.

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*Neither myself nor my brokerage are in any way affiliated with Entrust Administration Services Inc, nor are we compensated by them.  Please do your own due diligence.

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