Real estate investing is a bit more complicated because of the financial, legal, and extensive due diligence requirements involved. Be sure to give yourself a solid education before you purchase your first investment property. It is a good idea to familiarize yourself with some of the fundamentals.
The Properties
Buy low, sell high, right? It is fundamentally true in real estate investment for sure. What do you want to do when it comes to real estate investing? Opportunity. Compare current market value of the home to the ARV – after rehab value. Is there an opportunity? Look for houses priced near wholesale that are offered at a steep discounts. Run the numbers and see if the investment in rehab is worth the ultimate selling price.
True Cost
Be sure you are aware of your true cost of investment. This is probably the biggest issue we see with first time investors. Cost of the home is more than the wholesale price of the home. Think rehab costs + 20% for issues. Think taxes. Think real estate sales cost. Think cost of lending. Think Permits. Think Title work. Think Utilities. Ultimately, think time! Time is money. Be sure you have plenty of room to have worst case scenarios happen and still make a profit. In short, you will probably pass up 10 times more homes than you will ever consider purchasing. We look at over 600 homes / year and ultimately turn 30-40 homes / year. This is a model that works for us. We are conservative, but successful!
Tax Benefits
The people who run our government want private investors to provide housing for people. Uncle Sam offers significant tax benefits to real estate investors. The most significant benefit, arguably, is the depreciation write-off. When you buy an investment property that includes a building, you get to write off the depreciation of that building as a tax deduction. You’ll have to consult your tax advisor for specifics, but basically you can expect to depreciate a residential building over 27 years and a commercial building over 39 and a half years. Keep in mind that the IRS views your real estate investment efforts as a business so you also get to claim the “necessary and ordinary“ deductions that business owners take, including mortgage interest, insurance, and maintenance expenses.
Location Matters
The old adage that “location matters” is most accurate when it comes to real estate investing. Before you make that down payment, ensure that you are comfortable and knowledgeable with the location. Look for the worst house on the best street. That is typically a safe bet. You want to invest in the worst house on the best street because it gives you an opportunity to build equity.
Check Your Credit Report
You’re more than likely going to need to borrow money to buy real estate. That’s why you should check your credit report before you begin investing in real estate. If you have problems on your credit report that are mistakes, get those resolved as quickly as possible. If you have problems that are legitimate, then you’ll need to work to improve your credit.
KC Property Guys – www.TheKCPropertyGuys.com are the original cash home buyers in Kansas City. KC Property Guys buys and sells 30-40 homes per year in the Kansas City Metro Area. We provide quick close cash options for Kansas City Homes and Assist to Sell – equity financed home improvements for those needing home improvements prior to selling. Get in touch today!
