CHAPTER THREE:
Investor Tools
What are some of the tools and knowledge that you will need to become a successful investor?
- Knowledge of financial Instruments
- Assumption
- Seller Carry back
- No Money Down
- Build your team
- Realtor (Experience is key. Also, do they invest themselves?)
- Mortgage Professional
- Attorney
- Contractors
- Software Programs (Analyze your investment)
- Title representative
- Escrow Company
- Warranty Company
- Taking Title on your new purchase
- In your name?
1. The easiest way to take tile and this is what the lender will require when you have a loan on the property.
- LLC (Limited Liability Corporation) & Partnerships
1. Lenders will NOT let you record in the above instruments. It will need to be a CASH transaction or you will need to deed it over to the LLC after escrow closes in someone's name. What I do with my business partners is that he qualifies for one property and I qualify for next one. When we close, we then transfer it into the name of the LLC.
- Joint Tenants or Husband and Wife
- Tenants in Common
- Your Skill Set
- Can you make repairs to your investment?
1. This alone can save you hundreds, if not thousands of dollars. At the very least, find someone who is responsible, responsive, and inexpensive to work with.
- Extended Home Warranty Insurance
1. For those of you who cannot make repairs. This is cheap insurance, with usually a $50 deductible that can make those major repairs for you. Leaking water values, broken appliances, garbage disposals, etc. It will not take care of maintenance items as painting and carpeting.
- Property Management
1. If you cannot do it by me teaching you, or there is a distance issue, then just hire someone like me to manage your property.
- Keeping good records
- Landlord/Tenant Relationships
- Truth, Honesty, Paperwork
- Verify, Verify, Verify
- You and the Tax Man
- 1031 Exchange
1. A way to acquire property, sell that property and make another purchase without having to pay capital gains taxes each time. This is an excellent way to create wealth/equity.
- Professional Investor/Agent
1. If you spend more than 400+ hours, working on Real Estate, you can have the "professional" designation for tax purposes. It allows you to write off more of your losses (check with your CPA.) However, in this market I only recommend positive cash flow properties.
- $25K Limit on losses for non-professionals
- Depreciation deductions
- Can you complete your own personal & corporate tax forms?
1. Turbo Tax is a great and easy to use program. Use it and you will never go back to your accountant again. Is your return simple? Do you only have a few properties on your Schedule E? It is not that difficult. I also use the Turbo Tax version for my LLC return. It saves me about $1000.00 a year.
Great Points Joe!
ReplyDeleteConfirmed with my CPA the amount of hours you would need to document and prove in the event of an audit would 750+ hours performing real estate related activities and would require over half of the hours working(per year) to be towards real estate related activity so if you have another job you would need to perform predominantly real estate related activities in order to qualify.
As for those LLC and partnership returns that's where the CPA's get you so that's really good stuff because those can be really expensive to do up to 1000-1500 per return.
25k is max passive loss from rental real estate if you make less then 150k AGI(Adjusted Gross Income) if you make more then it is phased out, from 100 to 150k the deduction is prorated till it hits 150k AGI in which it phases out.
As a Real Estate Professional the losses do not count as passive any longer but rather they are considered "active," losses and all losses stored up over the years can be used to offset your income until used up or you loss the real estate professional designation.
cheers