Clear Choice Mortgage

Scott F.

What To Think About Before Investing In Real Estate

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What To Think About Before Investing In Real EstateDo you want to invest in real estate? If you are buying property as a real estate investor, there are a number of important factors to consider. Take a look at some of the most important factors to think about before you decide to sign your closing papers.

Location, Location, Location

Just as with your primary residence, it is important to think about the location of your investment property. Location is the most important factor in the value of just about every property, and your investment property is no different. You need to think about the proximity of your property to amenities, the safety of the area, and its proximity to major highways and interstates. Pay close attention to what property values in the local area have done recently, as this could give you an idea of what to expect moving forward.

Your Investment Horizon

How quickly do you need access to the money? You may think that the property is going to go up in value, but this is an unrealized gain until you decide to sell it. How long can you wait before you sell the property? Do you want to purchase the property and lease it out to long-term renters, rent it out to short-term renters, or simply repair the house and flip it for a profit? Different properties are better for different situations, so think about your investment horizon before you purchase a property.

Expected Cash Flow

As a property owner, you still have to cover the overhead expenses. This includes your mortgage, homeowner’s insurance, and real estate taxes. Therefore, make sure you understand how much rental income you can generate if you decide to purchase that property. Keep in mind that you may have some tax deductions you can claim as a rental property owner that might make these overhead expenses a bit more affordable.

Find The Right Property For Real Estate Investing

These are just a few of the many factors you need to think about if you are looking for real estate investment opportunities. The right property for one person is not necessarily the right property for someone else. Think about these key points before you decide which property you want to buy. 

 

How To Finally Become A Real Estate Investor This Year

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How To Finally Become A Real Estate Investor This YearInvesting in real estate remains one of the best ways to accumulate wealth in America. There are six ways to get started in real estate investing. One way does not require any investment capital, just an investment of your time. Ways to get started include investing in a REIT, buying an incoming-producing property, using a buy-and-hold strategy, flipping houses, crowdfunding, and wholesale deals.

Investing In A REIT

A real estate investment trust (REIT) is an investment instrument that offers a proportional ownership interest in a real estate portfolio that follows a particular investment strategy. A private REIT has a minimum investment that could be $1,000 to $25,000. A publicly-traded REIT sells in shares, just like stocks on the stock exchange. The investment minimum is just one share and some REITs have share prices under $100.

Income-Producing Property

Buy a home and rent it out. For this strategy to work, you do have to deal with the tenant headaches, unless you can afford to outsource the landlord’s work to a property management company.

Buy-And-Hold Strategy

Buy raw land for cheap on the outskirts of a growing town and wait the time necessary for the town to overtake your land for the opportunity to subdivide and develop it for a high price.

Flipping Houses

For those who like doing contracting work, or who partner up with a contractor, there may be profit in buying some fixer-upper homes to renovate and sell for more than the acquisition price plus the renovation costs.

Crowdfunding

Crowdfunding is a way to participate as a small investor in real estate deals and also to fund your own deals.

Wholesale Deals

Wholesale deals can be accomplished with no money down. You work for other investors and secure properties at lower than market prices by controlling them with an offer that is accepted and then assigning the deal to the investors for a fee.

Summary

If you have been thinking about becoming a real estate investor, now is the time to do something about it. Even if you start with only $100 by buying shares in a REIT, at least you got started. Once you get your real estate investment strategy going, you will find it to be a very rewarding experience, if you are careful and make wise decisions.

Be sure to associate with an expert REALTOR® in your marketplace area to get sound advice and information.

If you are in the market for an investment property or interested in refinancing your current home, be sure to consult with your trusted home mortgage professional to discuss financing options.

What Is A 1031 Tax Exchange?

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What Is A 1031 Tax ExchangeA 1031 tax exchange is a legal way to defer paying capital gains when selling a property and then buying a “like-kind” property within the allowed period. The time limits allowed are 45 calendar days after the close of the sale of the first property to identify the like-kind property for acquisition and then close the purchase transaction to complete the 1031 exchange within 180 calendar days.

Like-Kind Property

The property’s broad characteristics determine if it is a like-kind property, not the quality of the asset. In real estate investing, there is a wide variety of things that qualify for like-kind exchanges. For example, vacant land is exchangeable for a commercial building, an industrial site, or a portfolio of residential rental properties.

Since all these properties are types of real estate investments made in commerce, they are like-kind properties. It is not permitted to make like-kind exchanges of property for personal use. The properties that qualify for 1031 exchanges are for investment purposes only. Investors need to hold them for at least two years for them to qualify. A 1031 exchange cannot be used to “flip” a property purchased and then resold more quickly.

Equal Or Greater Value

The property for the acquisition side of a 1031 deal must have a value that is equal to or greater than the property sold. There are three ways to identify the property with the sufficient combined value needed for the acquisition, which are:

  1. Identify up to three properties for the acquisition regardless of their individual values.
  2. Identify an unlimited amount of properties that have a combined value of up to 200% of the value of the property sold.
  3. Identify an unlimited amount of properties that exceed 200% of the value of the property sold as long as the acquisition equals 95% of the total value of the identified properties.

Reverse 1031 Exchange

In a reverse 1031 exchange, the property acquisition occurs first and then within 45 calendar days identify the property to sell as part of the 1031 exchange and complete the entire transaction in 180 calendar days.

1031 Exchange Intermediary

A qualified intermediary is necessary to complete a 1031 exchange. The intermediary holds the funds in a segregated escrow account from the sale of the first property and then uses those funds in the acquisition transaction of the identified property.

It is extremely important that the owner of the first property never has direct control over the proceeds from the sale. If the owner takes direct control of those funds, for even just a moment, this triggers a tax event and the capital gains taxes will be due.

Conclusion

A 1031 tax exchange is a very convenient way to defer paying capital gains tax. Use competent legal counsel for the transaction and an intermediary to hold the funds that has a perfect reputation for successfully working with this process.

If you are interested in buying a new property for personal or investment purposes, or in refinancing your current property, be sure to contact your trusted home mortgage professional.