Real Estate “Investing,” Is Your Home an Asset or Liability?

If your real estate purchase is costing you more money than it’s earning, it’s a liability. It’s taking money out of your pocket, and putting it in someone elses. From property taxes to maintenance, there’s hundreds of reasons your home might not be a good asset for you - and you may wish to consider renting.

One of the most common and easiest ways to consider your home an asset, is to check if it’s appreciating. Are the value of the homes around yours, or similar to yours increasing faster than you’re spending money to maintain proper ownership over your home? If not, you’re still losing money and better do something to convert it to an asset.

Rent out a suite, a basement suite, a room, whatever. This is a common strategy that is best applied to those with homes within walking distance of a good bus route, or in a town with a strong college/university, which people from all over flock to and are in need of renting space. If you’re investing in properties, making them rental properties is a good way to have them pay for themselves without you doing any work - past the time they pay for themselves, the majority of the rental income is profit: this is a good asset, especially if the home is still appreciating in value.

Don’t have the extra space to rent? Can you call your home part of your job? Whether you’re self employed or not, you need somewhere to live in order to work - if the home is costing you less than it would cost to reasonably rent in the area, it might be totally suitable for you to write off your home as part of your job - in which case it can be recorded in your assets column as part of your living expenses.

Offer a service at your home: be it a gallery of art work, a regular garage sale, etc., etc. If you’re doing this and flipping good coin, there’s a good chance your home will end up paying for itself in terms of being an area for you to provide this service. Again: a good asset, which will be mostly entirely profitable once your home is paid off.

Discover If Real Estate Investing Is For You

Is real estate investing for you? This is a very important question that should take much thought as you read through this article. It?s not a get rich quick scheme. Real estate investing can be rewarding and profitable relatively quickly, and you need to understand how to make it work for you. It takes hard work and often long hours. It?s not for the faint hearted or the lazy. To be a successful real estate investor you must enjoy it. You must have a passion for the business. A real estate investor must be committed. You must do the work. Time is of the essence. How you spend your time in this business will determine if you are successful or not. You must plan what to do every day, week, as well as every month, and follow that plan.

Learning the industry is essential to become a successful real estate investor. Never stop learning! Your education in real estate investing never ends. You must keep up with the ever changing market and market trends. Becoming knowledgeable about real estate investing is most important. Also, you must gain the correct knowledge or education. There are different courses offered in different areas and you may not be interested in certain segments of investing. Choose the areas that interest you and enjoy.

The true real estate investor must be willing to accept rejection and face that rejection head on. Every rejection is one step toward acceptance. In other words, every no you encounter is one step closer to a yes. Fear is the biggest deterrent of many not getting started in real estate investing. Fear of rejection, fear of people saying that it can?t be done, fear of making a mistake, and fear of not having the financing to do the deals. Fear of an offer being rejected, fear of the appraisal coming in low, fear of inspections, fear of the loan may not go through, any number of things associated with the industry. All of these fears can be overcome, and must be to become a successful real estate investor.

There are many different areas of real estate investing that involve various strategies, types of properties and techniques and methods in acquiring properties. My recommendation is to choose one or two types of properties in which to invest in and become an expert in those areas. It?s very difficult to become an expert in all areas of investing. Remember, you must enjoy what you are doing. You may be interested in preforeclosures, foreclosures, wholesaling, property management, tax deeds, tax liens, mortgage notes, mobile homes, commercial real estate of a myriad of other areas. You are the one that has to be comfortable in the areas you choose. I have touched on many areas for you to ask yourself the question, ?Is real estate investing for me?? Think about it. Is it something you want to do? If it is, and I know you can do it. Then, you will need to go forward and become educated on the many steps in real estate investing, the different strategies, techniques, types of properties and funding avenues that can be found in the myriad of tapes, compact disks and books available in book stores, online and in your local library.

Real Estate Investing Myths - Busted

Myth 1: It is too late to invest. I?m too old to wait for an income.

Fact: It is never too late. The focus should be on positive cash flow and not on the mortgage pay off date. It is easy to own several rental properties that will pay you enough to not only pay the mortgage, but also give you a nice income.

Myth 2: I can?t afford to buy property now. I?ll wait until my house is paid for, then I?ll look into it.

Fact: Your house has equity in it already. You can use that equity as a down payment on an investment property and realize a positive cash flow from the rent.

Myth 3: The Real Estate bubble will burst and I?ll be left holding an empty balloon.

Fact: It is possible that interest rates will rise causing fair market values to lower, but that isn?t likely. The economy has been very stable. Rent rates have been predictably low in most markets. As markets correct themselves there will be some areas that rent inflation will occur and can only mean more money in your pocket. The key is finding the right location for investing.

Myth 4: Interest rates must rise and keep rising.

Fact: The Federal Reserve Board has been doing an excellent job in keeping inflation at so low an incline it is almost flat. Hurricanes Katrina and Rita, and the recent spike in oil prices have caused a slight increase in rates, but the tide turned in the oil prices and inflation seems to be checked. Without going into complicated economics, the Federal Reserve has been keeping inflation clipped by tiny hikes in interest rates. The job market and labor force has maintained balance, therefore the slight increases are actually good for the economy and for investment security. Consumers are utilizing equity loans for their spending and huge spikes in interest rates would basically collapse the growing economy.

Myth 5: I don?t have any extra cash so a $0 down payment loan is the best route to start my real estate investment career.

Fact: If you don?t use any of your own money, your mortgage will be higher. $0 down means 100% of the loan equals 100% of the value. That kind of ratio means a negative cash flow. While negative cash flow is not a huge problem for someone who has available cash, negative cash flow for someone who lives from paycheck to paycheck is financial suicide.

Myth 6: A fixer-upper is a cheap way to riches.
Fact: A fixer-upper can put money in your pocket but there are so many pitfalls that you need to be very careful. Buying well below market value for a house that needs a new roof will only be profitable if you just put the new roof on. Thinking that you need to not only fix the roof but put in another $20,000 of refurbishing to make it perfect is not good strategy. The more money you pour into a fixer-upper, the less profit you?ll realize when you sell it. Buying a fixer-upper, making it perfect all for under market value, then renting it is a better way to make money on that type of project.

Real Estate Investing Tips On The 4 Ways You Can Profit- Do You Know Your Real Estate Mathematics?

Profit is the main reason we invest in real estate so it’s important to understand how and where your profits come from. We’ll call this the mathematics of real estate profits. The four basic ways you will profit from real estate are:

1. Appreciation
2. Principal Reduction
3. Tax Deductions
4. Cash Flow

Appreciation - Calculating your return on investment (ROI):

We can calculate the appreciation in the value of the property over time in dollars or as a percentage of the cost. Let’s say you bought a house for $100,000 a couple years ago with a down payment of $10,000 and now it’s worth $120,000. The appreciation is $20,000, or $10,000 per year.

Since $20,000 is our appreciation amount over two years we divide it by two to get an average annual appreciation of 10% based on the original property cost. The ROI is the percentage of profit you have earned based on the down payment you made. We divide the appreciation amount of $20,000 by the down payment amount of $10,000, showing that you return on your investment from appreciation is 200%.

Principal Reduction:

Principal reduction is the amount of your mortgage that has been paid off. A small part of your mortgage payment goes toward paying the principle and the rest goes toward interest, insurance and taxes. The mortgage company keeps the interest but you get a tax deduction and the principle reduction increases your equity in the property. Our loan was $90,000 after a $10,000 down payment and $2,000 has gone towards the principle in the first two years leaving you with a $98,000 debt.

To figure out your equity return simply divide the equity by down payment. Your total equity is $22,000, your down payment is $10,000 so the return on your equity is 220% after 2 years. Pretty good ROI in this example.

Tax Deductions:

Real estate investing has some of the best tax shelters compared to anything else. If your gross income is under $100,000 and you’re in the 33% tax bracket the government gives you back 33 cent for every dollar of tax deductions you can create. So, for every $1,000 in tax deductions you’ll get back $330 in cash or in reduced taxes. Your appreciation and equity will be long term but your tax deductions create cash flow in the current year.

Cash Flow:

Dealing with rental property investments means dealing with cash flow; neutral, negative, or positive. We all hope to have the positive kind but that’s not always possible. Even so, it can still make sense to invest in a property that has neutral or slightly negative cash flow because of the tax deductions and long term equity you can eventually cash in on. A common mistake from investors with good intentions is to get in hot water with unexpected maintenance costs, vacant properties, and non-collected rents. Not having a contingency plan in place for covering negative cash flow can leave one scrambling for co-investors or worse; foreclosure. Some negative cash flow can be offset by tax deductions. Keeping expenses down together with rent increases can eliminate negative cash flow and this should be an obvious long term goal.

Real Estate Investing ? 1031 1033 exchange free tax Finding Cheap Houses

Real estate investing expertise can certainly accommodate the luxury home market. In some ways, the upper end of the housing marketplace produces easier success than the lower end. More skill, however, is required to sell the luxury home. But more important, supply and demand is critical in selling the luxury home. To get “stuck” with any home that does not sell easily can be treacherous, but sluggish sales for the luxury home can be disastrous.

“Cheap homes” are at the other end of the housing spectrum. “Cheap homes” abound everywhere. Every community in the country has cheap homes, because the predominance of the population lives in inexpensive housing. More people comprise the middle and low income bracket than the high income bracket.

“Cheap homes” is a very ambiguous term that is relative to an area. For example, “cheap homes” have lower value in a rural community than in a populous area like New York City. But even adjoining counties in any State may maintain different definitions of “cheap,” even though separated by only a few miles.

“Cheap homes” do not reference slums or ghettos necessarily. Real estate investing in these areas might embrace federal grants or HUD Section 8 housing.

My focus in this article is the use of “cheap homes” as a starting place for a real estate investing career. “Cheap homes” in this article is NOT the bank “red lined” crime area, or where drugs and prostitutes are rampant, or where housing has been severely abused or neglected by property-owners and/or tenants. And “cheap homes” in this article is not the burned-out or dilapidated building.

My definition of “cheap homes” for the beginning real estate investor is the less-expensive housing that accommodates the middle or middle-low class citizen. The demand for this housing is usually high and constant. The risk for real estate investing is usually low. And the effort needed to penetrate this marketplace is easiest.

1031 bank exchange red tax

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Real Estate Investing Myths - Busted

Myth 1: It is too late to invest. I?m too old to wait for an income.

Fact: It is never too late. The focus should be on positive cash flow and not on the mortgage pay off date. It is easy to own several rental properties that will pay you enough to not only pay the mortgage, but also give you a nice income.

Myth 2: I can?t afford to buy property now. I?ll wait until my house is paid for, then I?ll look into it.

Fact: Your house has equity in it already. You can use that equity as a down payment on an investment property and realize a positive cash flow from the rent.

Myth 3: The Real Estate bubble will burst and I?ll be left holding an empty balloon.

Fact: It is possible that interest rates will rise causing fair market values to lower, but that isn?t likely. The economy has been very stable. Rent rates have been predictably low in most markets. As markets correct themselves there will be some areas that rent inflation will occur and can only mean more money in your pocket. The key is finding the right location for investing.

Myth 4: Interest rates must rise and keep rising.

Fact: The Federal Reserve Board has been doing an excellent job in keeping inflation at so low an incline it is almost flat. Hurricanes Katrina and Rita, and the recent spike in oil prices have caused a slight increase in rates, but the tide turned in the oil prices and inflation seems to be checked. Without going into complicated economics, the Federal Reserve has been keeping inflation clipped by tiny hikes in interest rates. The job market and labor force has maintained balance, therefore the slight increases are actually good for the economy and for investment security. Consumers are utilizing equity loans for their spending and huge spikes in interest rates would basically collapse the growing economy.

Myth 5: I don?t have any extra cash so a $0 down payment loan is the best route to start my real estate investment career.

Fact: If you don?t use any of your own money, your mortgage will be higher. $0 down means 100% of the loan equals 100% of the value. That kind of ratio means a negative cash flow. While negative cash flow is not a huge problem for someone who has available cash, negative cash flow for someone who lives from paycheck to paycheck is financial suicide.

Myth 6: A fixer-upper is a cheap way to riches.
Fact: A fixer-upper can put money in your pocket but there are so many pitfalls that you need to be very careful. Buying well below market value for a house that needs a new roof will only be profitable if you just put the new roof on. Thinking that you need to not only fix the roof but put in another $20,000 of refurbishing to make it perfect is not good strategy. The more money you pour into a fixer-upper, the less profit you?ll realize when you sell it. Buying a fixer-upper, making it perfect all for under market value, then renting it is a better way to make money on that type of project.

Shortsales Training… What to say distressed homeowners

One of the most difficult things about find a good Real Estate deal is what do I say to distressed homeowners?
What do I say if they are calling me and asking for help?
What do I say if I found them on a NOD list and I finally have them on the phone?
What do I say when I am contacting them for the first time and I am standing at their front door?
We will be showing you just that at our next workshop.

Tuesday June 2nd
6:30 pm
Python Investments
9135 South Monroe Plaza (150 West)
Sandy, 84070

RSVP Kenny@richdadinvestor.com

7 Steps To Make Money In Real Estate Investing

7 Steps To Make Money In Real Estate Investing Submitted By: Larry Haines

#1 Know that you can do it too! Have you ever stopped to think about who owns all the downtown buildings? Or how about all those apartment complexes you see everywhere? When you see a “For Rent” Sign on a house do you wonder how many more rental houses that guy owns. Well, the point to these questions is to say that you can be one of the millions of people that own rental real estate too? That actually comes as a surprise to some people and that is why the title above says KNOW that you can do it too! You can and you should. Let me repeat that. You can and you should. There are plenty of excuses people use to say; “well, I can’t do that” and as the saying goes - “You either can or you can’t, either way you are right!” Here’s what I want you to do. Just below write out the first few “I can’t” reasons. I’ll even get you started… What if you could turn it around so there were no excuses, no more “I can’t”? Wouldn’t that allow you to achieve your goal of financial freedom? Wouldn’t that allow you to create the result of buying properties below market value so you could make money time after time? What we intend to do is what we will ultimately get. The more clear the intention, the better chance we will do the things necessary to get it. For instance, if you say; “I want to invest in real estate”, that intention is very vague and not easily acted upon. However if you can describe what kind of real estate you want it becomes much clearer and much more likely to happen. As an example, if you say; “I want to own a rental duplex in the hospital district with each side being 3 bedrooms and 2 baths and it needs to cash flow at least $150 per side and I don’t want to pay more than $10,000 down and would love owner financing”, you are much more likely to find what you are looking for. Is it easier to believe that you can own a duplex in the hospital district or that someday you want to be rich? Your mind will help you be successful if you truly believe and articulate what you want in detail. #2 Begin with the end in mind In Stephen Covey’s book “The Seven Habits of Highly Effective People”, habit number one is “Be Proactive”. You’re being proactive just by reading this article. You’re taking action. Habit number 2 is “Begin with the end in mind”. Set a goal. Know what you want and plan how to get there. So many would be investors don’t have a road map to where they want to end up so they don’t end up anywhere. THIS IS A CRITICAL STEP!! There is a major difference between investing in real estate and being a real estate investor. By inheriting a property or buying a house that pays you $2 per month, you are an owner of an investment property. (Many people actually loose money each month because they didn’t buy right but that is another story). Technically, they are invested in real estate. But they are not real estate investors. They don’t have a plan of accumulating wealth with strategies and tactics that get them there over time. (Sorry, this is not a get rich quick opportunity…lottery tickets sold elsewhere). A plan should have realistic goals. For instance, if your desire is to retire wealthy, what do you mean by “retire wealthy”. Be very specific. I have one client that defines it as “I want my wife to be able to stay home and I don’t want to have to work. I need about $6,000 to pay my bills and I want to be able to do some traveling so I want $10,000 per month” You should have a long term goal of 10 - 15 years or more; medium term goals in the 5 - 10 year time horizon and shorter term goals in the 2 - 5 year range and immediate goals that define what you are going to do this year. Let’s take a look at a sample of this… A 52 yr. old working male with a wife that works as a teacher might start with basic goals as follows: 10 year goal retire at 62 with no reduction in lifestyle [so they need to replace $82,000/year income ($6,834 per month) which might take 10-12 free and clear houses generating cash flow in the $500 - $600/month range] 5 year goalOwn 15 housing units (could be apartment or duplex generating at least $150/unit in free cash flow ($2,250) to retire my wife to be looking for real estate full time). Own Real Estate in my self Directed IRA - grows tax deferred or even tax free if using a ROTH 2 year goalBe buying 3-4 housing units/year (one per quarter? in appreciating areas). ImmediateGet in depth education from local investors doing deals in my area. Join the local REIA - Real Estate Investors Association. Understand my financial situation - set a household budget, savings & Investment plan, income statement and balance sheet (which you will need for loans anyway). Develop a buying criteria - (what do you want to buy, where, how much, what condition, how big, etc). Find an investor friendly real estate agent (to help me find property that fits my criteria). NOTE: this is just a summary of goals while a real plan is more in depth & detailed. #3 Model success - Another way to say this is “don’t recreate the wheel”. If 8,000,000 people have already done something and hundreds of thousands are currently doing it too, DON’T TRY TO MAKE IT UP AS YOU GO! There are many real estate investors that are happy to share their experience over a cup of coffee or lunch (you buy of course). The investors I have been privileged to know are a caring, sharing group of people that want to give back and help people. That’s how I got interested. Now let’s talk specifics. If you were going to go into the hamburger business would your chance of success be better if you were starting your own burger place or buying into a big name franchise? Assuming all things were equal, you wouldn’t have to develop all the systems and training for your own business if you went the franchise way. You would have the expertise of people that have been there and made mistakes and refined their systems and processes to improve the business. You would have the help of other franchise owners in your area to let help you get started and to talk with about local business trends and situations and on and on…. The point of this is to find out what other successful people are doing and model them. Don’t recreate the wheel. If your advertising isn’t working to generate leads, find someone that has a “lead generation machine” and copy what they are doing. (Please don’t infringe on copyrights, etc). But if they have a web page driving lead traffic, you should consider it. If they are putting signs out, you should consider it. If they are doing direct mail, you might give it a try. I think you get the point. Look at every process as you find, fund, fix and flip real estate and break down the components to business processes and then put a system around the process to help you make it more efficient and more manageable. #4 Focus, Focus, Focus Lack of focus is probably the single biggest cause of new investor failure that I have seen. Every month people are buying new books and tapes from the circuit guru that flies into town for the REIA meeting or some big name putting on their own event. I’m not saying that you shouldn’t expose yourself to different techniques to buying and/or selling property but most people have a “flavor of the month” investing technique that they get excited about and don’t ever focus creating a business (being a real estate investor). Look at your resources, network of people and resources, time you have and level of difficulty and commitment to do a specific type of transaction. You should pick one that considers your time and resources and then get really good at it. #5 Take action You don’t have to be good to begin, but you have to begin to be good. This is the shortest section here. TAKE ACTION! Do something. One of my bible study teachers used to say to me after I asked so many questions was; “Larry, Just get a mitt and get into the game!” Translation for real estate investors….”Just get out there and make offers”. You can’t make money until you get a contract that is signed by the seller, right? #6 Build a team of experts You’ll want to have a team of experts on your site and should have a title attorney, CPA, property manager, appraiser, and contractor all in place. #7 Make offers! You can learn a lot and not make money. You can plan a lot and not make money. You can network with hundreds of people and not make money. You can attend meeting after meeting and conference call after conference call and not make money. Start making offers and start making some money. How many? How about 1 a day to start and then get up to 50-100 per month? Believe it or not, at some point someone will accept one of your offers and you’ll be “off to the races”. Article Tags: make, people, real Tags: Apartment Complexes, Baths, Bedrooms, Better Chance, Duplex, Financial Freedom, Intention, Invest, Investing Money, Larry Haines, Money Investing, Money Time, Nbsp, One Of The Millions, Owner Financing, People, Rental Houses, Rental Real Estate, Surprise, Time After Time Real Estate Investing Workshop May 28, 2009 by Kenny Santos   Filed under Real Estate Investing Leave a Comment We are having a special investor Raul Campos come and teach us about short sales. Wednesday June 3rd 7:00 PM Thanksgiving Point 3003 Thanksgiving Way Utah room (Just above the Harvest Restaurant) Lehi, UT 84043 RSVP: Send an email with your first and last name to Kenny@richdadinvestor.com Raul Campos spent over 20 years as an Independent Investment Advisor managing money for clients and himself. After selling his practice in the year 2001 and after taking a few years off from Wall Street he began investing in real estate with limited success. He realized his lack of success was due in large part to his lack of education in this arena. Raul studied and educated himself and now aquires 45-50 properties a year for his own portfolio. Today he enjoys mentoring others all over the country with this powerful knowledge and experience so they too can go out and succeed in real estate. In this workshop he will be teaching exactly what he is doing to take advantage of the amazing opportunities available in this marketplace. Tags: Email, Harvest Restaurant, Independent Investment Advisor, Investing In Real Estate, Investor, Lack Of Education, Limited, Managing Money, Marketplace, Raul, Success, Thanksgiving, Thanksgiving Point, Wall Street, Year 2001 Next Page » eNews & Updates Sign up to receive breaking news as well as receive other site updates! 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