What Entrepreneurs Need To Know Before Investing In Real Estate...
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Why
should entrepreneurs invest in the first place? The answer is: to have
enough money to live on when we no longer can or wish to work. To put
that money aside, however, we have to accumulate enough to offset
inflation and the taxes that erode our savings. And for that purpose,
real estate is an excellent solution..
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The great thing about real estate is that even in a bad economy, it will usually fare better than stocks. Land, after all, is a finite resource. People need a place to live, work, shop, and play—so real estate is really just a matter of supply and demand. - ''Visionaire Business Center+''
The great thing about real estate is that even in a bad economy, it will usually fare better than stocks. Land, after all, is a finite resource. People need a place to live, work, shop, and play—so real estate is really just a matter of supply and demand. - ''Visionaire Business Center+''
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What's more, real estate will continue to appreciate despite occasional slow-downs in the economy. In fact, it's proven to be the best way to create wealth, and an investor need not be a genius or a millionaire to succeed. Here are some tips, then, for entrepreneurs on getting started and succeeding in real estate investing:
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Plan your financial goals.
Before
you buy that first property, or do your first analysis, determine what
you expect from your investments. What are your financial goals?
You
absolutely do need to learn some basics before venturing into
investing. So, be sure to do some studying, but don’t let “buying and
collecting” information become your endgame. Again, having goals in mind
will make the process much more straightforward. It’s easy to get
so tied up in the “research” phase that you never actually take action.
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Look at plenty of properties.
Don’t
just grab the first property you look at. Too many investors buy
properties because they “look nice,” or the investors don’t want to put
the work in to look at what’s really out there. Remember, you won’t be
living there, so don’t make your investment decision based on your
personal preferences. While you shouldn’t fall into the trap of analysis
paralysis, make sure you are thorough in looking through properties =
' Millionaire Lover Google+'' - '' Florida Real Estate Guide+''
' Millionaire Lover Google+'' - '' Florida Real Estate Guide+''
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Plenty of beginning investors suffer from “a-better-deal-may-be-just-
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Be
wary of sellers that try to over-estimate the value of the property
through pro-forma (estimated) data. While you can certainly use a
pro-forma to start the conversation, make sure you know the real numbers
before closing. Look at previous years’ tax returns, property-tax
bills, maintenance records, etc. to get a good idea of the real income
and expenses.
The most important figures you should know are:
• Net income (income/expenses)
• Cash flow (net income/debt financing payments)
• Return on investment (cash flow/investment)
• Cap rate (net income/property price)
• Cash-on-cash return (cash flow/investment)
'' Knowledge Financial Group+'' - '' Buyheremarket Enterprise'• Total ROI (total return/investment)
• Cash flow (net income/debt financing payments)
• Return on investment (cash flow/investment)
• Cap rate (net income/property price)
• Cash-on-cash return (cash flow/investment)
'' Knowledge Financial Group+'' - '' Buyheremarket Enterprise'• Total ROI (total return/investment)
In
each case, “investment” refers to how much you invest in the
property. "Debt financing" refers to any loans you may have to take out
to buy the property. And "total return" refers to cash flow, equity
accrual (i.e., equity gained from your tenants paying their
rents), appreciation and taxes.
Once
you have understood these figures, you should have enough information
to determine whether or not acquiring the property fits with your
financial goals.
Don't—try to buy property that the seller is not motivated to sell.
If
the seller is motivated to sell, you’re not likely to get the price
best aligned with your financial goals. So, how do you know if a seller
is motivated? Look at the asking price. For example, If the property has
been on the market for a year for, say, P5 million, with little-to-no
price reduction, the seller is clearly not very motivated to move the
property. However, if that same property has been on the market for
a year and has had its price moved down considerably, the seller most
likely wants to do whatever it takes to get the property off his or her
hands
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Attending open houses
• Looking for vacant/unattractive properties that are for sale
• Spreading the word about yourself and what properties you are looking for—truly
• Going the old-fashioned route and looking in the classifieds of your local paper
• Looking for vacant/unattractive properties that are for sale
• Spreading the word about yourself and what properties you are looking for—truly
• Going the old-fashioned route and looking in the classifieds of your local paper
These
are just a few ways to find sellers, but there are potentially dozens
of other methods, depending on what type of property you’re looking for.
know the difference between real estate investing and the business of real estate.
As an
entrepreneur, you already have a business, and real estate investing is
best used to support that business, not replace it—unless that’s your
intention. In other words, don’t get so caught up in executing
transactions that your core business falters. If that happens, you’ll be
facing a bumpy road to get back to stability. Unless your business is
itself real estate
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Real Estate Investing 101
/ Our Philosophy /-/ Our Passion /-
Why You Should Be Investing Your Money In Real Estate
1.
. Gain more leverage. Real
estate is one of the few investment vehicles where using the bank's
money couldn't be easier. The ability to make a down payment, leverage
your capital, and thus increase your overall return on investment is
incredible.
2. Grow, tax-free. Buying
rental property based on speculation of its value is a dangerous tactic
since cash flow is the key. However, appreciation over the long-run is
certainly realistic and at the least you should be considering a
tax-deferred strategy. In the future, you may even consider a 1031
exchange, charitable trust, or an installment sale to lesson your tax
liability further.
3. Tax free cash flow. It's
no secret that because of depreciation and mortgage interest deductions
(if you leverage your capital), your cash flow should be tax-free.
That's right! The far majority of the time an investor will never pay
taxes on their cash flow and can wait for capital gains on the sale of
the property in the future
4. The tax write-offs against your other income. Depending
on your classification as an Active Investor or Real Estate
Professional and your income level, there is a good chance your rental
property will not only give you tax-free cash flow, but an overage of
tax deductions you can use against your other income. With that said,
this is something you want to discuss with your tax professional before
investing so your expectations are realistic.
5. Increased tax deduction strategies. Rental
property affords investors with another incredible opportunity to
convert personal expenses to potentially valid business deductions.
Don't forget that rental real estate is a business.
This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.
This means that travel expenses to check on your properties and payments to family members who manage your properties (such as students away at college) can be deductible and increase the tax benefits when it comes to cash flow and the future sale of the property.
6. Rental real estate is a forced retirement plan. Americans
are terrible savers. We lack the self-discipline to put a monthly
deposit into our IRA, SEP or 401k as small-business owners. However,
buying a rental property is a significant commitment that you are
required to commit to and maintain. You will always be grateful in the
long-run when you don't give up on it and build future cash flow and
wealth.
I
meet with a lot of successful entrepreneurs, and almost every one of
them has taken profits from their businesses over the years to invest in
rental property. Based on this fact and the list above, I have
consistently urged my clients to buy one rental property a year and
already have clients with rental properties earning them money they
never imagined they'd have.
