Depending on what kind of news you’re consuming these days or how much you’re paying attention, you might not have been noticing the inflation signals that are popping all over the place. This does have implications for taxpayers of all stripes — and we will certainly be keeping an eye out for you.
One aspect of this is an increase of the economy-wide “money supply” — i.e. there’s just more cash flying around out there right now. This is why we’re seeing these weird bubbles begin to inflate (sports memorabilia, art, digital currencies, etc.) … investors are looking for places to park their cash.
Those can all be rather risky.
And so people turn to the tried and true … real estate. So, if that’s something you’re looking at, I have a basic primer on getting started in real estate investing for you today.
But before we get there, now that the “extension” deadline is behind us (it was October 15th), it’s time that you took seriously the shortness of the days ahead. We only have 2.5 more months (less!) to make any tax-saving moves on your behalf.
Let’s make sure to not let this year just … end … without being proactive.
But now, onto RE.
Getting Started in Real Estate Investing: Some Tips for Investors
“Don’t wait to buy real estate. Buy real estate and wait.” -Will Rogers
Why is real estate always so popular? Well, ever heard of “alternative” investments? Usually, this means coins, gold, art, and so on. Real estate is a kind of alternative investment – and a good one, too.
For one, real estate isn’t hitched to the stock market. Wall Street’s one-off bad days (and boy are there a lot of those) often don’t faze real estate holdings.
You can also get a lot of tax breaks with real estate (we can help with this).
In short, real estate can be a good place to park your money. Let’s look at some options for getting started in real estate investing.
It’s your choice
RE investing is like the buffet at a rich cousin’s wedding: Everybody can find a favorite. It all depends on how much money and time you’ve got, your taste for risk, and how much you want to learn new ways to invest.
Buy and hold. The name says it all – purchase property and keep it for a while. Would-be real estate moguls often start with this one.
See, the value of real estate rarely goes down. You can buy and hold any real estate from a single-family home to whole apartment complexes to commercial property. Do your homework and find out the target market, what appeals to your prospective renters, and how much time it’ll take to bump up your property’s value.
Not all ways to put money in real estate are created equal
When you sell, you can also avoid capital gains taxes with a 1031 exchange by sinking the profit right into more property of equal or greater value. (Warning: This break might be in real danger right now from Washington. Check with us.)
Renting. The basic rule is really basic: Good tenants give you a good shot at stable income. Screen ’em well.
Again, study the market. What’s a good rent range in the area? What amenities do tenants want? Study other landlords’ rental ads: They’ll show you what your competition is offering – and give you a good idea how to write these darned things.
You can use a property management company to sift through prospective tenants (and handle other icky stuff, like evictions – a growing danger today), but this company will also want a slice of your pie.
And of course, the just-enough maintenance rule applies: All the leaky roofs are on you. So are the property taxes. Turning a profit from rental properties sure sharpens your math skills…
A quick word about Airbnb and renting your vacation home: If you believe the headlines, they seem like quick ways to make money off property. True, these arrangements give you the flexibility of short-term rentals, like higher rents and openings if you want to use the property now and then.
They can give you all the headaches too: spotty cash flow, tough local laws on these types of rentals, and the risk of tenants who are passing through fast and maybe aren’t too fussy about the damage they leave behind…
Flipping. This is the one made famous on TV shows like “Flip or Flop,” and they make buying property dirt-cheap and selling for a fortune look as easy as driving a nail.
Not so fast – real estate investors who do well in this area are usually all set up from access to inexpensive cheap materials to having a repair crew ready to go.
If you’ve got all that, give flipping a whirl. It’s worked for many folks (“work” being the keyword) if they were careful to improve only enough to sell and if they eventually got a price that produced a profit.
REITs and REIGs. Sounds like a German board game, but they’re actually Real Estate Investment Trusts and Real Estate Investment Groups.
What’s the difference? Many REITs are traded on stock exchanges like stocks, pay a lot of their profits to investors, and are maybe the easiest way to start investing in real estate. REIGs, which are groups of private investors who pool finances to invest using different strategies, generally require more sophistication (and more money).
Lien investing. You invest in property tax liens (outstanding taxes plus any interest and fees) either by buying the liens or investing in special property tax lien investment funds. You have to be particularly sharp with this strategy – if a property’s been dumped by its owner until there’s a tax lien on it, you’d better find out exactly why.
These are just a few ways of getting started in real estate investing. Though, hold off on jumping into any of them until you’ve checked with experts on the subject. And on that note, we’re here for you and…
We’re on your team,
Emelia Mensa EA, CPA