Guide to Savvy Investing

SHORT SALES	FORECLOSURES	BANK OWNED

Lower Your Taxes
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.

Seek 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 be 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
While investing in real estate is relatively complex, it is often worth the extra work. When compared 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.

How to Reduce the Risk in Real Estate Investment
Avoid 12 Common Mistakes Made by Novice Investors and Ensure High Rates of Return! Real estate investment has provided many investors with positive cash flow, tax benefits and satisfaction of making an impact in others lives. However like any investment, real estate has intricate nuances and market trends that when ignored can cause an investor tremendous heartache. Unbelievably many first time investors are willing to part with their hard earned cash without taking the time to study their investment. They rely on traditional trends and gut feelings. Before you risk your investment take the time to learn all you can about your market. By aligning yourself with the right professional you can avoid these 12 common mistakes and you’ll ensure an excellent return on your investment.

Failure to Determine Your Time Need- Cash flow, capital appreciation, tax benefits, loss of management, equity pay down and pride of ownership are just some of the things that need to be addressed before you make that investment. A service minded real estate professional can be a tremendous asset by taking the time to evaluate your needs and making sure you’ve got all your bases covered.

Not checking out the Seller or Sellers Agents Numbers- Claims of extremely high rates of return run rampant in real estate investment. Don’t get caught up in the excitement – check everything: rents, payment history, taxes, expenses, deposits, future modifications… everything. Make sure you have the right agent…it’s like having a good insurance policy against overlooking all the seemingly insignificant but very important details.

Forgetting You Are Buying a Business- Owning investment property carries with it great potential for creating wealth and… Some potentially difficult decisions. Evictions, re-investment into the property, time management all need careful consideration. Remember this is not a ‘hands off’ business.

Avoid Negative Cash Flow- Property that eats cash every month can drain your working capital. This can create stress, frustration and become quite painful. Predicting constant appreciation is extremely difficult if not impossible for the unseasoned investor. A strain on your cash flow may cause you to sell the investment before the benefits of ownership are ever realized.

Failure to do a Thorough Inspection- Look under every rock! Hire a professional inspector. Ask the tenants about pest problems, structural damage or reoccurring problems. Don’t overlook anything! A value driven real estate professional will help you find the right inspector and can help you avoid costly mistakes. When investing your hard earned money be sure and use sound business judgment!

Failing to Have Adequate Insurance- Investment property brings liability. Tenants, cars, parking lots, cleaning facilities, property liability – the list is quite extensive. Adequate insurance coverage is an absolute must! Be sure to consult with an insurance professional and protect your hard earned assets.

Inspect, Approve, and Confirm All Documents- The list of documents that need to be proofed can be overwhelming to the first time investor. Building permits, zoning laws, rental and lease applications, health licenses, laundry leases, underlying loan documents, CC&R’s, by-laws, title policies, mineral leases, inspection reports, purchase contracts, insurance.. Don’t attempt to do it alone. The right professional can remove most of the stress and bring the transaction to a conclusion smoothly.

Get a Bill of Sale For All Property Involved- Many types of personal property (appliances, furniture, fixtures, etc.) can be involved in an investment sale. Be very detailed…know who owns what!

Charge Fair Rents- Vacancies, turnovers and lease terminators are your biggest expense. Charge fair rents, treat your tenants with respect and respond as quickly as possible to their needs. It’s a lot less costly in the long run to take care of the little problems before they become big problems. Vacant property is your Achilles heel.

Select Qualified, Good Tenants From the Start- Take the time to check references. Previous landlords, employers, financial references, credit, judgments are all vitally important. If there are any questions do a thorough investigation. Drive by their previous residence. A little work up front can save tremendous problems later on down the line.

Make Sure You Get Estoppel Letters- Get letters from tenants confirming the status of tenancy. Make sure their version of the rental or lease agreement corresponds with the sellers interpretation.

Education is the key to buying real estate, that is what I will do, give you the details of the market and it’s properties. When you buy, you will be making an educated decision. I welcome the opportunity represent you in your real estate needs; I can do the job for you.

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