Archive for Real Estate Investing

Warning!! Buying a Vacation Home?

February 13, 2009 at 5:18 pm · Filed under Buy a House, Get Thrown in Jail?, Buy a Property?, Buying Real Estate, Real Estate Investing, buy sell home ·Tagged , ,

Warning: Don’t Buy a Vacation Home or Timeshare Unless You Ask These Questions

These questions determine what investing in a vacation home or timeshare will mean to you:

1. How many weeks can you actually use it?

2. Do your own the property or just get to use it? Deeded Ownership v. Timeshare

3. When do you get to use it?

4. Who takes care of the property?

5. What is the monthly maintenance cost?

6. Do you share in the profit from any resale?

7. Can you deduct your investment in the property?

8. Can you really afford, or do you really want to afford to buy the whole property?

9. Can you afford a luxury million dollar home or do you have to settle for a condo?

10. Will you get a profit locked in when you buy the property?

Love to ski and longing to actually own a mountain home? Or have you always wanted to be able to enjoy the mountain climate and lifestyle during the summer months?

But:

- You can only get there for two to four weeks per year? Not enough vacation to justify owning the house?

- You hate maintaining your own house and dread the thought of having to take care of a second house

- Your pocketbook can’t afford the house you would really want?

- You want a house with room to invite friends not a condo that doesn’t really have enough room for your own family

- You realize timeshares are not a real estate investment and only make the timeshare seller rich?

- The maintenance costs of a second home scare the you know what out of you?

Ask yourself the questions above before you take any action to achieve your dream.

A mountain vacation home should be that dream. You should be able to buy the amount of the home you can actually use. It should be a real estate investment that builds equity for you, not a cash drain. You should be able to have someone else deal with the maintenance and cleaning. You should be able to go fishing or skiing without having to worry about the home when you get there or leave. You should not have to worry about the home when you are not there.

All you can find is 2 bedroom, 2 bath condos for over $300,000 plus the cost of running and maintaining it every month? Not exactly what you had in mind?

Why not buy more house than what you can afford but pay less than you would for the condo?

You want to own the house with a deed but why not just pay for the amount of time you can actually use at the house?

Would you prefer not to worry about the maintenance?

Would you prefer to just lock up and leave when you go home?

How to own a luxury, six bedroom, over 4000 square foot $1,200,000 home.

You could of course buy the house all by yourself. You would pay $240,000 down and have a 30 year mortgage for $960,000.00. Your payments would be $6,387.00 per month. You would also have to pay the taxes, insurance, utilities, and maintenance. You would though have a luxury home instead of a condo that really isn’t big enough and is not what you really want.

However, since you can only use your house two to four weeks a year, just buy the piece of the house you can use. You can even use your house at other times on a space available basis

So how much would you pay to own two weeks? $300,000 to own a condo? $200,000, the cost to own a luxury timeshare for two weeks?

Buy a luxury home instead. Properly structured, you can buy your share of a house for $50,000 to $80,000. Use it for at least two weeks and space available the rest of the year. Want more weeks, buy another share. Just pay your share of the taxes, insurance, utilities, and maintenance. Those costs will run about $400 per month. Just renting a house like that will normally run $800 per night or $11,200 for two weeks per year or IF you could pay monthly, $933 per month for just those two weeks. But by buying, you also get the appreciation in value of the house and if the house is also rented, your investment could be eligible for depreciation and deductions for the upkeep payments. Your interest in the house can be sold, willed to your family, or gifted to your family. You can donate your time to your favorite charity for auction.

You can actually own the house for two weeks for less than you could rent the house for one week!

Trick Question: Is it better to pay $5,000 annually plus maintenance for at least two week’s use (and not worry about the house when you aren’t there) or rent the house for $5,250 for one week rental? A house like these luxury homes rents for at least $800 per night. One week’s rental would be $5,250.00. If you finance the whole $50,000, your payments will be about $5000 per year. If you rent, your money is gone and all you have is the memory. If you buy, you own the house and you have the memories of at least two weeks.

What two weeks do I get? Time at the house is allocated by lottery. Your pick is determined by when you buy. Holidays are rotated so that everyone gets an opportunity. No more that 20 shares should be considered in any property.

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How to Become a Real Estate Investing Success

January 16, 2009 at 6:50 pm · Filed under Buy a Property?, Real Estate Investing, Want to sell your home?, buy sell home

The key to investing in real estate is to find yourself a good realtor. This is important because the real estate market is huge which means jobs in the real estate market are hot. While there is plenty of room for new faces, with new realtors comes inexperience. A single mistake by a realtor can keep a house the market far longer than it should be and in the end it will cost you more money then what you receive in profit. If you are looking to buy and sell real estate it is important to have an experienced and well versed realtor at your side. Before you sign up with a realtor there are several things you should consider.



First of all determine if you need a realtor at all. If holding onto a particular property is not a problem from a time or financial stand point you may be able to market it yourself. This would definitely save you money on realtor fees but you may have a hard time moving the house. Also make sure you know how real estate contracts work and have professional look over anything before either party signs. If you decide that you do need an agent for your real estate investments make sure you interview several agents from different companies. Below is a list of questions to ask them before you sign:



How do they market their houses? Will your house get the exposure it needs to sell and sell fast? What is the scope of their marketing? TV? Radio? Magazines? Newspapers? World Wide Web?



What is the realtor’s experience and background. How long have they been a realtor, how many houses, have they sold, and how successful have they been?



How long does it take them to sell a home? What is the price range of houses they usually list? How many homes are they trying to sell currently?



Have they worked with investors in the real estate market before?



What is will the percentage commission be on the house they sell? Remember that for a house to be worth a realtor’s time they are going to need to make money off of it. Additionally some realtor’s offer a deal in which if you use them both buying and selling they give you a reduced commission rate.



Finding a successful and experienced real estate agent is important because you can build a lasting relationship which is financially beneficial for both of you. Real estate investments especially flipping houses for profit is a booming business. It is equally important to forge relationships with construction companies, wholesalers, and the community in which you are buying and sell homes.



Sometimes the best marketing is word of mouth. Realtor’s will often try to lower your asking price to decrease the amount of time a house is on the market, thus reducing their work load. As the seller you are in charge, after all the realtor is working for you. Make sure your the decisions that are made are best for you and your financial goals.

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How to make big money with distressed properties

January 16, 2009 at 1:01 pm · Filed under Basics of Real Estate, Buying Real Estate, Real Estate Investing, buy sell home

The term, “distressed properties” has always seemed rather amusing to me. It makes me think of a property that is sad or somewhat out of sorts, even lonely. When you think about it, a property cannot really be distressed. A house can be rundown and in need of repair, but that doesn’t necessarily mean it’s distressed. I know a lot of people who live in run-down properties and they’re happy as can be to be living there.

When looking to make money in the fixer-upper type of properties, don’t look for distressed properties; look for properties that are owned by distressed people. Then no matter what shape the property is in; you may very well get yourself a real bargain.

People may be distressed for one of many reasons. They may be distressed about their family situation, some neighbor they may not like, or their house may need some repair that they don’t want to fix or pay to get fixed.

Maybe, you’ll find some wacky negative thinking person who always supposes he is going to get the worst end of any deal. So, he will sell his property accordingly. In any of these situations, these people may be unloading what might be a diamond in the rough!

Once you find a property owned by a distressed person, chances are you can make a big profit with this property, whether it needs a lot of work or not. In a hot real estate market, any property that goes up for sale at a price below the going market rate won’t last very long. The realtor himself may buy it and flip it in a hurry for a huge profit before you ever get to see it.

Finding a property for sale by owner is a better way to find a bargain. Here, the seller saves on realtor costs and may pass on this savings, at least in part, to you.

An even better situation would be if you could find a property through word-of-mouth. I know folks in the fix it up business that have fixed up and sold many properties. Many times, people who need to sell a property approach these professionals and ask them if they might want to make an offer for it. Many times these renovators do buy these properties, but other times they are just too busy to take on another house and the sellers end up listing the house with a realtor.

So, if you’re looking for bargain properties to turn over and sell at a profit, and you keep missing out on the good deals, try to get to work with someone who is in the business of buying, repairing and selling properties. Approach him about a service you can provide for him. This is the best way to get started in this business and it gives you an inside track. It gives you the opportunity to see what’s going on. You’ll find out what is selling and what they’re selling it for.

Once you’re an insider, leads will come to you. Sometimes more leads than you can handle. I tell you all this, because the bargain property business is a hard business to get started in. There’s a lot of competition, and with good reason. There’s a huge profit potential in fixing up bargain properties as well as buying properties that have distressed people living in them.

Many times great deals come from distressed investors, particularly distressed partnerships. Lots of times these people will sell a property under the market value just to get out of their situation. These people will worship anyone who can take the property off of their hands.

There is no way that a short article like this can tell you all the ins and outs of dealing in bargain properties. But the lesson to be learned is: Don’t go chasing after every property you see. Don’t go after properties that many other people are interested in. Start slowly, work with someone else, if possible, and get to know the business from the inside. This way, you will gain experience without taking risk.

Once you have the experience, you’ll be ahead of 98 percent of the people who are looking for bargain properties. This field is full of amateurs, but in a short time, you’ll be a pro. Good luck, you might just become a real estate mogul!

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Most Real Estate Investors are Doomed to Fail. Learn Why?

December 5, 2008 at 8:48 am · Filed under Buy a Property?, Buying Real Estate, Cutting Your Losses, Real Estate Investing, Real Estate Investing Comfort Zone, buy sell home

Let me start by saying that, sure, real estate can be a good investment. Real estate provides a hedge against inflation. And real estate often amounts to a forced saving plan. But most of the people who’ve jumped onto the real estate investment bandwagon over the last few years are going to fail. Here’s why:



Ignoring Returns on Investment



When you compare bank accounts, you know that 5% interest means more money in your pocket than 2% interest.



Similarly, you know that a mutual fund with a track record of 11% annual returns has made more money than a fund with a track record of 8% annual returns. Duh.



One picks investments and evaluates investment performance by looking at the return on the investment. This rule is true for stocks, bonds, and everything else—including real estate.



Which means that investors who can’t or don’t know how to calculate the return on a real estate investment—and almost all amateur real estate investors fall into this category— fly blind.



To be fair, real estate return on investment calculations get tricky fast.



First, consider how easy something like a bank CD. If you buy a bank CD for $100 and a year later receive $105 back, the return on investment calculations are pretty easy. Divide $5 by $100 and you get 5%. That’s the return on investment.



But what about a real estate investment that requires a $50,000 down payment and then negative monthly cash flows of $500 for 43 months. If you sell the property in month 44 and net $85,000 in cash, have you really made money with your real estate investment?



You can’t truly know whether this imaginary real estate investment is a good deal unless you compare its annual return to your other options.



It turns out, by the way, that the imaginary real estate investment is a slightly better deal than the imaginary CD—something you need a spreadsheet program like Microsoft Excel to determine. Programs like Microsoft Excel include rate of return calculation tools like the IRR function which you can and should use to estimate returns on investments with complicated cash flows.



Ignoring Real Estate Tax Laws



Here’s another reason that real estate investors fail. Real estate investments dramatically complicate your income taxes. For example, the passive loss limitation rules mean that you typically can’t use depreciation tax deductions except in special circumstances until you sell the property.



Schedule E (which you use to report your real estate investing to the IRS) requires you to prepare profit and loss statements by real estate investment—a bookkeeping requirement that pretty much forces you to use a full blown accounting system like QuickBooks.



Finally, rampant misunderstandings about Section 121 of the Internal Revenue Code mean that while most people shouldn’t have pay taxes on the profit from selling their home, many do pay taxes.



And don’t even get me started on dealing with the unrelated business income tax you’ll pay if you use a self-directed IRAs for real estate. Or on the pitfalls of creating a daisy-chain of like-kind exchanges. Or about depreciation recapture if you segregate property costs into real and personal property components.



Here’s the reality sandwich. For many small investors, real estate so complicates your income taxes that you’re faced with two bad choices. Bad choice number one: Winging it on your tax return or relying on some infomercial, the real estate agent, or your brother-in-law for accounting and tax planning. (This approach means you’ll make all sorts of expensive tax accounting mistakes.)



Bad choice number two: Paying an experienced tax practitioner perhaps a $1000 a year or more to make sure you don’t foul yourself up. This of course pretty much eats up the extra profits you hoped to get from real estate. Which means that while you will have the satisfaction of doing your tax accounting right, only your accountant and real estate agent make money.



My advice to you? Learn how the real estate tax laws work and how to do real estate accounting before you start investing. Then, after you truly understand this stuff and do start investing, do as much of your own accounting as you possibly can.



I really don’t think you’ve got any other good choice as a small real estate investor. Sorry.



Summing Up



As I said in the first paragraph of this little essay, real estate can be a good investment. But the investment is way trickier than most new investors realize. And in order to make a decent return, I think you must understand way more finance, tax and accounting than the typical real estate investor.

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Real Estate Investing is Just Like Weight Loss…

October 27, 2008 at 6:31 pm · Filed under Real Estate Investing

It amazes me how many people get started in real estate investing, only to fail when the going gets tough. As soon as someone discovers they can’t get rich in a week or two, they are on to the next “hidden guru” secret. It’s the same as weight loss – everyone talks about it, many try it, but few succeed. There are thousands of “get rich quick” and “get slim quick” gimmicks. No wonder both the real estate investing information and weight loss products industries make BILLIONS!

Weight loss isn’t easy… ask anyone who has tried it. However, the concept of weight loss is very basic – burn more calories than you ingest and your body will react accordingly. Unless you have a medical disorder, this formula works for just about anyone. Simple as it may be, the formula is HARD, meaning it takes a lot of DISCIPLINE AND HARD WORK. So, the weight loss industry has offered us thousands of ways to make it easier. Many of these solutions do work, but they only work if you put forth effort.

Now, let’s start with the premise you don’t need any of these “solutions” to make real estate OR weight loss work for you. You can eat less calories, go walking or jogging every day and you will lose weight. But, having knowledge of the caloric content of different foods is relevant. Also, for many people, knowing the carbohydrate content is relevant. Having the advice of a physician, dietician and personal trainer will help you prevent injuries and maximum your effort.

Same principle applies to real estate – you can go out and make hundreds of offers to motivated sellers and find a good deal. However, having information about how to solve the seller’s needs and construct an offer will help. Having an attorney, real estate agent or “guru” to assist you with constructing the offer and the paperwork will make it easier. Having advice from other people who have already done hundreds of deals will also make it easier for you to learn from other people’s success (and failures). However, whether it’s weight loss or real estate, the bottom line is not just knowing, but DOING. You can’t blame the diet if you don’t stick to it. Many people have successfully lost weight using the ZONE, WEIGHT WATCHERS, ATKINS and other similar plans. Many people have succeeded with the famous “guru” plans, but many have failed, likely because they didn’t give the required effort, NOT because the plan isn’t effective.

Both real estate investing business and weight loss are simple, but neither is easy. It takes a lot of work. Having a proven “system” or plan helps, but only if you stick to it. If the diet plan says, “exercise 3x times per week”, you can’t be sloppy about it and expect results. It’s like the people reading a book on the treadmill at the gym – if you can read a book, you’re not working HARD ENOUGH. Likewise, people call newspaper ads and say “hey, you wouldn’t want to sell me your house cheap, would you?” This is not DOING it is TRYING. You have to give 100% to a particular plan or formula before you say, “this stuff doesn’t work.”

Many people who are interested in weight loss join a gym or hire a personal trainer. From personal experience, I can say that both are great for weight loss. But, the weeks I didn’t show up, it was a BIG WASTE OF MONEY! The same thing goes for a real estate training system or mentor program – if you don’t put forth any effort, it won’t work! And, of course, you’ll likely get bitter about all the money you spent and blame the guru. After all, it can’t be YOUR fault!

That brings us to another topic – the “scam” side of the real estate and weight loss business. Sure, the “magic pills” that melt off fat are probably a scam. These snake oil salesman are offering the lazy and desperate people a solution – no work and results. Hah! If you bought into this scam you deserve to be parted from your money. Likewise, any real estate guru who promises riches with no work is also a scam. My favorite promise is “no selling involved” – that’s the biggest lie ever told. No business can be successful without a certain amount of selling of their product or service to customers – period! So, while there is a dark side to the weight loss and real estate investing information businesses, I assert that most people fail at both because of their own lack of action, not the fault of the “systems.” If you aren’t willing to work, another weight loss program or real estate seminar won’t get you any more results than you are currently getting – save your money and take MORE CONSISTENT ACTION with what you are currently doing.

However, if you are willing to work hard and take a lot of consistent action, a guru or program will likely give you more results. If you bought a book, course or program and already have results, another program, course or book will likely give you tools to get MORE RESULTS. I often hear about successes people have with my real estate programs, but a lot of them are not FIRST TIME successes. They are most often people who have already been successful, and, using my tools, became MORE successful. If someone asks me whether my program will make them successful, I ask, “what other programs have you bought?” If they have already spend thousands on other programs and have done NOTHING, I discourage them from buying mine. These people are looking for the elusive “holy grail” that all the other programs left out. More than likely, the missing element is lack of action on their part.

If you aren’t willing to take action on a massive scale, you won’t get more results by buying more products. If you have the discipline to work hard and take consistent action, then products and services will help you get there faster. Whether you are looking to get rich or lose weight, the bottom line is YOU!

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