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Secrets of Real Estate Investing (“GRQ”)

September 1, 2006

Episode #15 of the Money-Guy Podcast

GRQ? “Get Rich Quick” with Real Estate Investing = Fool’s Gold

Stay up late at night and you can not miss the following claims:

  • Use our exclusive Real Estate program and you can be a millionaire, and all for the cost of $2,495 to attend our intense 3 day seminar
  • Need a leg up on everyone in Real Estate? Buy our 8-CD Set

Most of these promotions speak of fancy financing, “no money down”, flipping properties, and buying distressed low cost foreclosure properties.
The draw to these advertisements is that there is a chance you are going to quickly change your life through a few simple actions. Some even state that this can be done on a part-time basis without much impact to your lifestyle.
There is some truth to the fundamentals of the strategies, but they are usually packaged in a way that makes everything appear much easier then in reality.

Examples Include:

  1. Foreclosures – Sure you can make a nice profit by buying a fixer upper off of the court house steps or from a bank, but the reality is that there are usually very few foreclosures available in your community. And as you can imagine with all of the strategies out there, interest by other investors is not lacking.
  2. Flipping Properties – Large rewards are available through this strategy as well, but know what you are committing yourself to before you start. The biggest committment is the amount of time you will spend on the project. Typical considerations that take mega chunks of time include the approval process, the paperwork, getting lawyers, travel time, local zoning, and unexpected events and setbacks.

The Healthy Time Tested True Ways to Make Money in Real Estate:

Rental Property (excluding vacation rentals with seasonal markets)Renting residential property can help lower your taxes in the beginning (depreciation & expenses) and serve as a great future wealth builder. Below are some great tips and strategies on being sucessful:

1). Make sure you are handy or have someone that is handy that can repair and fix the damage caused to your rental property

2.) Buy in an area that is close to your community. This is more powerful advice than you realize. It is not uncommon for prospective renters to stand you up for scheduled walk throughs of your property. When the property is close you can also drop by to check on the property and protect your investment.

3.) Rent Rule of Thumb = 1% of purchase price. For example if you buy a $100,000 house you would try to rent it for $1,000/month

1031 Exchange (The Holy Grail of Real Estate Investing) – How great would it be if you could sell the Microsoft you purchased in the 80s and avoid taxes just by buying other investments and diversifying your investment portfolio. Unfortunately, that is not possible with traditional investments, but with Real Estate you have incredible tax benefits.

What is a 1031 Exchange? In 1990 the IRS issued rules on Deferred Exchanges (Code Section 1.1031). The new rules allowed owners of Real property to sell their property and buy other like kind property without paying the Capital Gains Tax. The provision for Real property is quite broad and includes Land, Rental, and Business property. Any can be exchanged for the other. Without getting too complex into the 1031 process you need to know the following:

1). When you sell property the proceeds must be held by a “Qualified Intermediary” meaning you can not take a check at closing or the tax deferral is not possible
2.) You must identifiy replacement property within 45 days of selling (closing date) your property

3.) You must purchase a new piece of property within 180 days of selling (closing date) your property

Research and Know What the Government is Doing In Your Community – The most basic rule of real estate investing is of course, “Location, Location, & Location”. If you can be the first to buy in an area before expansion and the Wal-Mart shows up you will make yourself very wealthy. The easiest way to know what is going on in your area is reading the minutes to your local government’s meetings (most communities now publish this information on the Internet). Property values can appreciate rapidly if zoning rules change in an area, sewer service is expanded, or a big shift in the areas future land use.

Use the Internet for Property Research – As I already mentioned you can usually pull the minutes from your local government from the Internet and use the information to build wealth, but most do not appreciate the other benefits our local governments offer. Now it is also possible to research property on the Internet through your local government to find tax map locations, amount of acreage, tax value, purchase date, purchase price, and current and past property tax records. This information is pure gold when it comes to buying real estate. Imagine how much better you can negotiate if you know what the current owner paid for the property and when they originally purchased it.

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