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- fast sale
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alisa@2cre.com
Should you personally invest your hard earned money in Real Estate or
not?
Only you can decide. There are disadvantages to owning income
property. Write down both the positives and negatives.
Consider all your options before contracting for a property. Here are a few
negatives:
Potential loss of property value: Real estate is
cyclical. What goes up must come down at some point in time. Some markets
have taken a recent nosedive, and others will in the future. If forced to
sell, some owners could face a less than desirable outcome. And take a hit
in equity and/or the monthly budget.
Repair and Maintenance Costs: There will always be
something to fix or replace. Build a repair savings into your monthly rent
along with taxes and insurance.
Tax Law Changes: A good CPA or Tax Attorney is a
good person to have on your team. Remember the current climate is
favorable to investors. Capital gains can be deferred with a 1031
exchange. But congress can change the tax laws in the future.
Property Management: Sometimes it is better to
have someone else to handle the details and send you a check. They will
answer the phone when the toilet runs, or know exactly how to evict a tenant in
that county. They also know who to call in case of repairs. Plus they are
available to show the property, days evenings and weekends.
Lack of Liquidity: Unlike stacks and bonds, real estate
takes a while to sell even in the hottest of markets. You can always re finance,
or take out a equity loan. Remember in a refi, Federal Law say you wait 72
hours after closing to receive funds. Day of closing, bank holidays and
weekends don't count.
Ready for some positives?
Appreciation potential: Markets do vary. But most
have seen more up then down over a 5-10 year period. There is more to be gained
than lost if you do your homework.
Financing: Up to four units are considered residential
for financing, and interest rates are very favorable. In many case 80% loan to
value ratios get great rates and you can borrow the 20% from your personal or
other residence. I have seen a few 10% down loans for those investors with great
credit.
Hobby or Professional Involvement: The property
owner is in control. You select the property, the tenant (based upon
credit worthiness), the rent. Occasionally, you can set up the tenant to do any
repairs needed, for a little less rent. Be sure to ask that they send a
copy of any professional work done to you with their rent check. Because
you want to do business with people who do good work, and any warranty available
stays with the house/
Taxes: Oh how we love to not pay taxes legitimately!
Depreciation is not good when it comes to cars, trucks, and SUV's. It is
very good when we are talking about real estate. Of course wherever there
is a benefit it comes with a caution. Cost recovery must be taken,
annually When the property is sold, taxes get paid on the recovery amount
totaled over the years (see tax deferred
exchanges) That is exactly the reason for these 1031 exchanges. Thank
you members of Congress.
Sale ability: In general there is more of a market for
residential than commercial properties, so houses are easier to
sell. Duplexes can be considered as owner occupant properties for first
time owner/investors. Keep track of your end of lease dates. In
Colorado the lease stays with the property when ownership changes. So, the
best time to sell is when the property will soon be vacant. Remember to
ask your tenant if they would like to buy first. Ask your tax advisor
about a 1031 exchange, and call your favorite real estate broker or
attorney. In the past I have given my tenants a rent reduction equal to
$10 for every showing that was held as an incentive, and $150 if there was a
contract presented within the first month. The more responsive they are
for showings the quicker the sale.
Housing Tenants: Tenants are the reason that investing
in real estate is profitable for you. You can get more money for a shorter
term. Turnover can be expensive. You can also get more money if you choose
to accept less than perfect credit renters.
Everybody buys real estate. The investors get the tenants to make the
payments for them!
Disclaimer: Alisa Hagner is a licensed real estate broker, and
knowledgeable investment consultant in the state
of Colorado. This is not legal advice. Please seek out and listen to
your own Attorney, Real Estate Agent/Broker, CPA, accountant, contractor,
property manager and
spouse. | 
