The Liz Moore Market Watch Blog

Despite what you may watch on late night TV infomercials, don’t expect to “get rich quick” in real estate.  There are many ways to build wealth by creating a profitable real estate portfolio, but it takes investment savvy, patience, research, and time.  We would love to help you get there!

Here are the 10 most common mistakes that novice investors make:

#1    They begin their investment adventure without a plan. 
They buy a piece of property, convinced that it’s a “good deal” and then go about figuring out what to do next.  That’s working backward, and it’s likely to result in trouble.

Begin by creating an investment strategy, based on your individual goals.  That might be building long term wealth, or it may be realizing some quick profits in return for some sweat equity, flipping houses.  Our investment experts can guide you in establishing a plan based on your particular objectives. 

#2    They tend to be emotional. 
Investing in real estate is very different than buying a home as a personal residence.  It’s important as an investor to be detached, and stick with the formula that produces the return on investment objective that you’ve set.  If you find yourself in a bidding war, you should be able to walk away when the price exceeds the established parameters in your formula.

#3    They fly solo. 
Novice investors try to pinch pennies by wearing all the hats in a transaction.  Successful investors work in teams, where they have surrounded themselves with a circle of professionals who are all working together to deliver a common goal.

At a minimum, you’ll need an experienced investment REALTOR, an accountant, an attorney, a lender, and access to a reliable network of contractors, including a home inspector and a handyman.

#4    They pay too much. 
Again, stick to your formula.  A carefully prepared analysis can tell you exactly what your return will be, based on certain criteria.  You must be willing to walk away if the seller is unrealistic or unwilling to work within your parameters.

#5    They avoid doing homework. 
You wouldn’t think that you’re qualified to perform brain surgery without years of education and specific training.  So, why is that so many would-be investors jump right into major financial purchases without investing any time at all in research and knowledge?

There are many great books available on the subject, many on our bookshelf.  There are also hundreds of great articles and case studies available to you online.

#6    They skip due diligence. 
No matter how sweet the deal appears, you should always perform due diligence before getting so far into the transaction that you’re committed.  At a minimum, that means getting a qualified home inspector to do a thorough review of the property, to alert you to any condition issues that you’ll need to account for in your proforma.

#7    They underestimate tax consequences. 
There are many different ways to build wealth through real estate investing.  Understanding the ways that you can capitalize on tax benefits is an income stream in and of itself.  You should thoroughly understand the ramifications of capital gains, as well as the opportunities presented by 1031 tax deferred exchanges, before you pull the trigger.

#8    They ignore timing. 
Although the buzzwords in real estate have long been “location, location, location”…savvy real estate investors know that the real key to building wealth is “timing, timing, timing.”  All real estate is cyclical, and understanding the dips and peaks can mean the difference of thousands in your pocket.

Be a student of the market.  Understand inventory levels, absorption rates, days on market, and appreciation percentages for the areas that you’re focused on.

#9  They don’t do their financing homework. 
Having the right lender on your investment team is an ace in the hole.  By understanding your long term investment objectives up front, an investment lender can make sure that you are qualified for the right loan programs to meet your objectives, as well as making sure that you have funds available when you need them.  Sometimes an investor is better served by a banking relationship, and sometimes a mortgage loan officer is a better fit…all depending on the scope of the investment plan.

#10  They don’t have a Guide. 
Creating a team, resources for knowledge and case study review, help to determine investment goals, and a plan to get there, access to a network of experienced professionals…all of those things add up to successful investing.  And, all of those things are delivered by a seasoned investment counselor, someone who is experienced and knowledgeable and connected.  We would love to be your Guide!

Download our FREE eBook, Field Guide to Real Estate Investing, and find out what every investor should know!

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Click below to subscribe to our blog!

 

Putting Your Money to Work

By Brian D. Lytle, Esq. 

Typically when a property owner sells his or her property, he is taxed on any gain realized from the sale. However, when a Section 1031 exchange is utilized, the tax on the gain is deferred until some future date.

1031 Tax Deferred Exchanges

Section 1031 provides that no gain or loss shall be recognized on the exchange of property held for productive use in the trade or business, or for investment. A tax deferred exchange is a method in which a property owner trades one or more relinquished properties for one or more replacement properties of “like-kind”, while deferring the payment of federal income taxes and some state taxes on the transaction.

If you own investment property and are contemplating a sale then you should consider a Section 1031 exchange. Lytle Law, my law firm, can help you plan your strategy for the exchange, and then locate what is known as an intermediary to hold the money until such time as the exchange is completed with the purchase of the replacement property. Sometimes, particularly in a volatile real estate market, it can be hard to find a replacement within the 45-day designation time period, so you can also consider a reverse exchange whereby you actually purchase the replacement property first and then sell the relinquished property afterwards.

For the savvy investor, this tax deferment strategy should be a part of your arsenal.

If you are interested in finding out if a 1031 Exchange is the right fit for you, email us and we'd be happy to help! 

Download our FREE eBook, Field Guide to Real Estate Investing, and find out what every investor should know!

Q: How Do I Know if an Investment is a Good Deal?

A: Great question! To some extent, it depends on what your investment objectives are. If your goal is to flip the property for a profit, for instance, then you will need an experienced realtor to be able to give you a market analysis showing what you realistically can net after fixing up the property and re-selling it. If your goal is long term appreciation, that's a little more difficult to predict.

You can find a great deal analyzer calculator at www.TheSavvyRealEstateInvestor.com, that calculates return on investment.

Interested in learning more about real estate investment strategies?  Download our free eBook!

By Brian D. Lytle, Esq.

If you are looking to buy investment property and are unable, or unwilling, to obtain new financing, or if you are looking for ways to sell property you now hold and want to open the market to non-traditional buyers in order to get it sold, then the savvy investor should consider alternative financing options, these are as follows:

Land Sale Contract

A land sale contract is an agreement, or contract, between the buyer and the seller whereby the buyer agrees to pay the purchase price for the property over a period of time. The buyer does not receive title to the property until such time as the purchase price is paid in full, but the land sale contract gives the buyer exclusive use and possession of the property (i.e. it can be rented, renovated, etc.) and the right to sell it while the buyer makes the payments. When Lytle Law handles these transactions for investors we have the seller execute a deed to be held in escrow in order to minimize the buyer’s exposure, and of course, one can record the land sale contract to protect against future liens and encumbrances (and having it sold out from under the buyer).

WRAP Deed of Trust.

A wrap-around mortgage, or deed of trust, is a seller-held second deed of trust that subsumes the first mortgage. In other words, you as the purchaser receive title to the property and your agreement to pay is secured by a deed of trust (a second mortgage if you will) in favor of the seller. The well-drafted WRAP deed of trust will require payments to be made on the first, etc.

Assumption.

While we have not seen many assumptions over the last several years because of low interest rates, an investor does have the ability to assume many loans. Moreover, even those loans that are not thought of as being assumable may well in fact obtain the consent of the mortgage company if the buyer is at risk of defaulting or foreclosure is imminent. In other words, under those circumstances where there is no other option than it simply does not hurt to make this effort.

Seller Financing.

There is always the opportunity for traditional seller financing. That is, you as the purchaser execute a note in favor of the seller that is secured by a deed of trust against the property, and you receive title in exchange. Of course, this option may not always be available because in most cases the seller will need to pay off a loan secured by the property, but there may be ways to help a seller accomplish that goal.

Each of these options can trigger a potential due-on-sale clause in an existing deed of trust. Both the purchaser and the seller of the property need to understand the risk of the due-on-sale clause, and that is something we would need to discuss in person.

If you are interested in finding out if any of these alternative financing options are the right fit for you, email us and we'd be happy to help! 

Download our FREE eBook, Field Guide to Real Estate Investing, and find out what every investor should know!

 

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Click below to subscribe to our blog! 

 

By Susan Liniger, Goodman & Company

You have moved to another residence, but find it difficult to sell your present home.  One way to weather a soft residential selling market is to rent out your present home until the market improves.  You should be aware, however, that renting out your personal residence carries potential tax pitfalls.

You are generally treated like a regular real estate landlord once you begin renting your home to others.  That means that you must report rental income on your return, but also are entitled to offsetting landlord-type deductions for the money you spend on utilities, operating expenses, and incidental repairs and maintenance (e.g., fixing a roof leak).  Additionally, you can claim depreciation deductions for your home.  You can fully offset your rental income with otherwise allowable landlord deductions.  However, under the tax law passive activity loss (PAL) rules, you may not be able to currently deduct the rent-related deductions that exceed your rental income unless an exception applies.  Under the most widely applicable exception, the PAL rules won't affect your converted property for a tax year in which your adjusted gross income doesn't exceed $100,000, you actively participate in running the home-rental business, and your losses from all real estate activities in which you actively participate don't exceed $25,000.

Potential tax pitfalls may arise from the rental of your residence.  Unless your rentals are strictly temporary and are made necessary by adverse market conditions, you could forfeit an important tax break for home sellers if you finally sell the home at a profit.  In general, you can escape taxation on up to $250,000 ($500,000 for certain married couples filing join returns) of gain on the sale of your home.  However, this tax-free treatment is conditioned on your having used the residence as your personal residence for at least 2 of the 5 years preceding the sale.  So, renting your home out for an extended time could jeopardize a big tax break. 

Even if you don't rent out your home so long as to jeopardize your principal residence exclusion, the tax break you would have gotten on the sale will not apply to the extent of any depreciation allowable with respect to the rental or business use of the home for periods after May 6, 1997.  A maximum tax rate of 25% applies to this gain (attributable to depreciation deductions).  Some homeowners who bought at the height of the market may ultimately sell at a loss.  In such cases, the loss is available for tax purposes only if the owner can establish that the home was in fact converted permanently into income producing property, and isn't merely renting it temporarily until the home can be sold.  In this situation a longer lease period helps the owner.  However, if you are in this situation, you should be aware that you probably won't wind up with much of a loss for tax purposes.  That's because basis (cost for tax purposes) is equal to the lesser of actual cost or the property's fair market value when it's converted to rental property.  So if a home was bought for $300,000, converted to rental property when it's worth $250,000, and ultimately sold for $225,000, the loss would only be $25,000.

The question whether to turn a principal residence into rental property isn't easy to resolve.  It's important to fully understand the ramifications of your decision, and so you should consult your tax advisor to help guide you to the right answer for your situation.

Email us at concierge@lizmoore.com and we can get you in touch with a great tax advisor.

Download our FREE eBook, Field Guide to Real Estate Investing, and find out what every investor should know!

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Click below to subscribe to our blog! 

Yes, you’re reading it correctly. No, it’s not what you think.  This is the term classifying investors that are making a dent in the housing market by purchasing a short sale, a pre –foreclosure, and sometimes bidding against the banks at auctions. If you’re a first timer, savvy investor, experienced investor, or simply a collective group of  individuals , you should consider these properties.

The one downside is dealing with the banks, or as we call them REO or Real Estate Owned Corporate, which can turn in to a rather complicated situation.

However, since 2009 real estate investors have grown  from the large wholesale conglomerates to individuals starting out to take advantage of the bargains. Not content with investing in stocks and bonds, the new savvy investor gets a greater satisfaction from a “hands on” approach .

The investor has several  options with his properties. Once owned , it can be rehabbed and sold for a profit. Depending on its condition, it can be flipped with minimal improvements and sold for a profit. Another option is to hold on to the property if it is in fair condition and rent it for a monthly cash flow.

Whatever avenue you choose to be a savvy investor in Hampton Roads, it does not take an expert to make good return on investment from real estate.

Interested in learning more about real estate investment strategies?  Email us at concierge@lizmoore.com or Download our free eBook!

Are you interested in hot real estate topics, tips and trends?  
Click below to subscribe to our blog! 

 

Despite what you may watch on late night TV infomercials, don’t expect to “get rich quick” in real estate.  There are many ways to build wealth by creating a profitable real estate portfolio, but it takes investment savvy, patience, research, and time.  We would love to help you get there!

Here are the 10 most common mistakes that novice investors make:

#1    They begin their investment adventure without a plan.  They buy a piece of property, convinced that it’s a “good deal” and then go about figuring out what to do next.  That’s working backward, and it’s likely to result in trouble.

Begin by creating an investment strategy, based on your individual goals.  That might be building long term wealth, or it may be realizing some quick profits in return for some sweat equity, flipping houses.  Our investment experts can guide you in establishing a plan based on your particular objectives. 

#2    They tend to be emotional.  Investing in real estate is very different than buying a home as a personal residence.  It’s important as an investor to be detached, and stick with the formula that produces the return on investment objective that you’ve set.  If you find yourself in a bidding war, you should be able to walk away when the price exceeds the established parameters in your formula.

#3    They fly solo.  Novice investors try to pinch pennies by wearing all the hats in a transaction.  Successful investors work in teams, where they have surrounded themselves with a circle of professionals who are all working together to deliver a common goal.

At a minimum, you’ll need an experienced investment REALTOR, an accountant, an attorney, a lender, and access to a reliable network of contractors, including a home inspector and a handyman.

#4    They pay too much.  Again, stick to your formula.  A carefully prepared analysis can tell you exactly what your return will be, based on certain criteria.  You must be willing to walk away if the seller is unrealistic or unwilling to work within your parameters.

#5    They avoid doing homework.  You wouldn’t think that you’re qualified to perform brain surgery without years of education and specific training.  So, why is that so many would-be investors jump right into major financial purchases without investing any time at all in research and knowledge?

There are many great books available on the subject, many on our bookshelf.  There are also hundreds of great articles and case studies available to you online.

#6    They skip due diligence.  No matter how sweet the deal appears, you should always perform due diligence before getting so far into the transaction that you’re committed.  At a minimum, that means getting a qualified home inspector to do a thorough review of the property, to alert you to any condition issues that you’ll need to account for in your proforma.

#7    They underestimate tax consequences.  There are many different ways to build wealth through real estate investing.  Understanding the ways that you can capitalize on tax benefits is an income stream in and of itself.  You should thoroughly understand the ramifications of capital gains, as well as the opportunities presented by 1031 tax deferred exchanges, before you pull the trigger.

#8    They ignore timing.  Although the buzzwords in real estate have long been “location, location, location”…savvy real estate investors know that the real key to building wealth is “timing, timing, timing.”  All real estate is cyclical, and understanding the dips and peaks can mean the difference of thousands in your pocket.

Be a student of the market.  Understand inventory levels, absorption rates, days on market, and appreciation percentages for the areas that you’re focused on.

#9  They don’t do their financing homework.  Having the right lender on your investment team is an ace in the hole.  By understanding your long term investment objectives up front, an investment lender can make sure that you are qualified for the right loan programs to meet your objectives, as well as making sure that you have funds available when you need them.  Sometimes an investor is better served by a banking relationship, and sometimes a mortgage loan officer is a better fit…all depending on the scope of the investment plan.

#10  They don’t have a Guide.  Creating a team, resources for knowledge and case study review, help to determine investment goals, and a plan to get there, access to a network of experienced professionals…all of those things add up to successful investing.  And, all of those things are delivered by a seasoned investment counselor, someone who is experienced and knowledgeable and connected.  We would love to be your Guide!

Download our FREE eBook, Field Guide to Real Estate Investing, and find out what every investor should know!

Are you interested in hot real estate topics, tips and trends?  
Click below to subscribe to our blog!