Category Archives: Investment Property

“Success usually comes to those who are too busy looking for it”
~ Henry David Thoreau

 

Is it realistic to iSCALI A_Young_Real_Estate_Investornvest in real estate in your twenties?  The answer is YES!  You’re going to need to do your homework before you begin.  Learning about the market, getting your funds in order and hiring the right people are just a few items that need to be on your checklist.

There are a few options for people who have little to no money but want to invest.  You can set up an investment account with a brokerage firm, and invest in Real Estate Investment Trusts (REITs).  REITs is a company that owns and operates many types of real estate that range from apartment buildings, warehouses to hotels and shopping centers.  Investors purchase stock in the REITs and in return the REITs must distribute most of its profits as dividends to them.  Once you have a sizeable amount of money you can sell your investments and use the cash as a deposit on your first property.

Another option is called Crowdfunding.  Crowdfunding is a method of raising funds through a collective effort of family, friends and individual investors.  First time investors who use a crowdfunding platform such as “Fundable” or “Patch of Land” have access to thousands of investors.  Create a campaign for your real estate project (for example a single family rehab) so investors can see for themselves if it’s a cash-flowing investment that they might be interested in funding.

Last but certainly not least option is borrowing money from your parents.  Although this may not work for everyone it is another option.

Now that your funding is in order, the next step should be establishing a business plan.  In order for you to stay organized and achieve your short and long term goals this should be a necessity.  Then you can build a budget to track all of your expenses that comes with owning a property.  Keeping track of where your money is being spent will help you learn where you can eventually cut back.

Learning about the types of properties you want to invest in is key.  Whether it be multi families or rehabbing single families you need to drive around to look at properties and the surrounding neighborhoods.  Getting yourself familiar with listing and sold prices will help you learn what to pay for property without overspending.  Also, work with an experienced, reliable real estate agent.  SHE will keep her eye on the market for new listings and promptly set up appointments for you.  She can check the MLS for comparative properties in the area as well and this will help you calculate your numbers to see if the property is right for you.

Staying on top of current trends such as mortgage rates, consumer spending and unemployment rates is important.  Remember being educated in all areas of real estate investing is the key to a profitable return on your investment.  One great way to learn about the business is to talk with other investors.  They may offer some tips and strategies that can help you with your new business venture.  Ask them about the process and the best way to get a great return.  Ask them how they started out as an investor.  Some people invest in real estate for appreciation but smart investors invest for cash flow.  Cash flow is the money you make from rental properties every month after all the expenses are paid.  Cash flow should increase over time without ever eating away at your principle investment.  Rents will increase with inflation while your mortgage payments stay the same.  Eventually you will pay off your loan and your cash flow will increase significantly.

Last bit of advice but not least is to hire a competent accountant who is familiar with current tax laws.  In the long run you will save yourself money and a lot of headaches.  By aligning yourself with the right people, you are putting yourself on the right path.

As you can see being a real estate investor can be profitable if you put in the time and effort.  Remember that there will be ups and downs in the market over the years.  If you make well thought decisions when buying properties your investments will pay off in time.

Jennifer ScaliJenn Scali is a Realtor at RE/MAX Legacy and she enjoys working with investors and buyers who are looking to purchase real estate property. You can reach her at (617) 905-7211 or on her website at www.jennscali.com

 


house fireI recently had an experience that I felt I should share with others.  It was a first time experience and I truly hope it’s my last of its kind.

I manage a small number of apartments for a family trust.  All of the apartments are in Woburn and are spread out over 4 buildings.  I handle collecting the rents, overseeing maintenance projects, addressing and coordinating repairs needed, bookkeeping and a few other related duties.  My duties changed big time when I got a call from one of the owners telling me there was a fire in one of the homes.  And so my experience begins…

On my way to the property I received a call from a restoration person who was at the site.  He introduced himself and proceeded to explain his role in the process.  He was very thorough and so before I got to the scene I was beginning to understand what I was in for.  When I got there, the fire department was actively fighting to get control of the fire.  As I watched from the sidewalk, I realized there were more “support” people there.  I was soon introduced to a public adjuster, a person who boarded up and winterized, another person who did the clean out and restoration, a police detective, a fireman, a second public adjuster, a second boarder up person and on and on it went.

I began to realize I had a responsibility on site to hire the person from each category that I would be working with that would ultimately result in the home being habitable again. I listened attentively as each person offered their advice as well as promoted their skills above all the others.  Overall it was like a fraternity meeting.  Everyone knew everyone else and each seemed as qualified as the next for the function that they performed.

I spoke to the owner who lives out of state and shared my experience.  My decision was made easier by several factors.  The public adjuster had a history with the home and had been involved with a past incident.  Hired!  The restoration person was already known to me and I have known and used his father for years.  Hired!  And the final choice for the company to winterize and board it up was based on name recognition of the company and the information shared by the representative on site.  Hired!  Just in a matter of minutes, I had hired the 3 main components of the restoration process, signed contracts for each under an umbrella as the rain poured down and I had a comfort level that we were moving forward as best we could.  All of the non-hired representatives left the scene in a flash!

The whole process, at least until we can begin the repair and rebuild process will take a few months at minimum.  At least I am confident that the people working with me will make it easier to get to that point.  I hope that this never happens again, but if it does, I now know what to do.

Roland Crop 2011 jpeg (1)About the author: Roland Spadafora is one of the broker owners of RE/MAX Legacy and wears many real estate hats. One of them is property manager. You can learn more about him on his website www.spadaforateam.com


exchange1031 Tax Deferred Exchanges have been a tool that savvy real estate investors and business owners who hold real estate to operate their business from use to defer capital gain taxes when they sell property and “exchange” it for another, or many others, as the case may be.  The basic theory behind such exchanges is pretty simple: encourage the property owner to grow its business or holdings, which in the long run helps us all, without having to stagnate and not grow for fear of paying those capital gains taxes that we all dread.

Here’s an example of a typical exchange that even the novice investor or start-up company can benefit from.  Over the past decade of hard work and sweat equity, Joe the Plumber has built a nice portfolio of five multi-family homes in various towns across the state.  But Joe’s wife wants him to spend more time with her and the kids and less time running around to these various properties making repairs and tending to tenant issues.  His Ford F150 is getting a little tired too from all those extra miles!  Joe, however, fears the huge capital gains tax bill that will come if he sells these properties and puts the money in the bank, thereby eating up all of his accumulated sweat equity.  1031 to the rescue!  Because a 1031 Tax Deferred Exchange is available to Joe, he can now “exchange out” of the several residential buildings he has scattered about the state (these are referred to as “relinquished” properties) and buy that desirable single building containing eighteen two bedroom units or that strip mall (called the “replacement” property) he’s had his eye on.

Don’t think that any good government program will come without rules–there are some basic rules that need to be followed.  A typical exchange must be completed within 180 days (approximately six months) with the replacement property you’d like to purchase identified by midnight of the 45th day after closing on the sale of the relinquished property.  So Joe can now sell all the scattered multi-family buildings and purchase the single larger building, putting all of the proceeds of those sales into the transaction, without paying a single penny of capital gain taxes, preserving 100% of his equity.

And it doesn’t stop there.  Let’s say Joe has had his eye on that special building and it’s finally come up for sale, but he still has all those other properties to sell before he can benefit from an exchange.  A “reverse exchange” allows Joe (who’s got super credit and a commercial bank waiting in the wings willing to lend on the new building) to purchase the replacement property before closing on the sale of the relinquished properties.  In this example, Joe does not need to deal with the 45 day identification rule.  For all you late night infomercial fans, “But wait, there’s more!”–there are still other options for Joe to make his dream come true: the replacement property parked option, the relinquished property parked alternative, the partial exchange and the reverse-improvement exchange.

In order to complete any successful exchange, the services of a “Qualified Intermediary” are required.  The QI is that person or entity that will hold the proceeds of the sale, because Joe cannot actually touch or receive the money from his sale that will be rolled into the acquisition of the new property.  Once the proceeds touch his hands, even for a day, the tax man cometh.

Thinking of doing an exchange?  Well, think fast, since more often than not, all good things come to an end.  There is word on the street that our friends on Capitol Hill are seriously considering doing away with 1031 Tax Deferred Exchanges sooner rather than later.  But for now, if you do want to complete an exchange, be sure to contact a lawyer experienced in handling exchanges who can provide you with specific legal advice, a CPA who can provide solid tax advice, and finally, retain a Qualified Intermediary that has specific security measures in place to protect the funds that they will be holding on your behalf (oddly enough, there is no entity at the Federal level that oversees or regulates QI’s and how the proceeds are to be invested and kept safe) and who will facilitate the exchange for you.

Tedesco headshotAbout the author: Robert W. Tedesco, principal and founder of Tedesco Law Offices, P.C., is a Woburn-based Attorney with twenty-five years of experience handling all types of transactional matters including representing buyers, sellers, exchangers and lenders in residential and commercial real estate transactions.  He also works with clients assisting in the sale and acquisition of small businesses, property management and tenant matters, condominium conversion, as well as estate planning and settlement.  His offices are located at 88 Main Street, Woburn, Massachusetts and can be reached at:  781-933-9293 or via email at: rwt@tedescolawoffices.com.   You can check out his website at: www.tedescolawoffices.com.

 


Owning real estate is the American Dream.  Part of the dream is to own income property that will complement your investment portfolio.  Owning income producing real estate with someone else paying for it, doesn’t get any better for you as an investor.  There are many benefits to owning investment property such as growing equity and gaining tax benefits.  But beware and be aware;  there are pitfalls  too.

Income property could be as simple as a two family, owner occupied home where you live in one unit, and the other is occupied by a tenant paying a fair market rent for the apartment.   Perhaps you might be more aggressive and buy a 3 or 4 family home.   It could even be a condo that served as your first home, and you kept it to use as a rental property after you moved out.  These options are a great way to get your feet wet as an investor.

So what can go wrong?  A lot!

No property or component of that property will last forever, so expect that there will be repairs.  It could be simple or it could be major.  You should maintain a reserve fund for these occasions and have a list of “expert” maintenance people that you can call.  “Must haves” are electricians and plumbers, as these are the most common emergency calls.

Vacancy is a part of business.  A tenant gives notice and moves out.  Ideally you want to have a seamless transfer of occupancy but that may not happen.  You definitely need to get the apartment cleaned and you may need to paint it.  You may need to shampoo the carpets or even replace them.  At minimum you may lose that time as rental time.  If you ask too much for the rent, you may not get potential tenants applying for tenancy, so being realistic will help minimize vacancy times.

Bad tenants happen.  Sometimes you can know it ahead of time and sometimes it just happens.  It’s important to make a good choice up front.  Having a qualified real estate agent handle the rental process for you is a good idea.  The agent will screen applicants to determine qualification.   The agent will check credit reports, verify employment and contact previous landlords and other references.  In the end, as a landlord, you want to be certain that the tenant can not only pay the rent on time, but be able to pay the utility bills for their unit.

No matter how hard you try, what resources you use in the rental process, or how strong a tenant might appear on paper, it is inevitable that you, as a landlord, will eventually go through the eviction process.  There are several scenarios that one might go through in this process, but ultimately you could end up in court.  Be prepared to incur legal fees, lost rents and a drawn out process.  Keep good records and notes.  Document everything as it pertains to the problem tenant, gather witnesses as needed, and the outcome, when it occurs, will more likely be in your favor.

So don’t be afraid to invest in income property.  It is a great way to build equity, and expand your investment portfolio.  Start small and grow.  Be patient.  We know what happens to real estate over time, regardless of the corrections that occur.  It moves higher in value!  Be in it for the long haul and you will be glad you did!

About the author: Roland Spadafora is a Broker Owner at RE/MAX Legacy.  Over the years, he has owned a few investment properties with success.  Currently he manages 15 units in Woburn for a Trust.  He is hoping to grow that portion of his business. He can be contacted through his website at www.spadaforateam.com