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Non-Owner Occupied Rental Real Estate As Investment

REAL ESTATE AS INVESTMENT
Non-Owner Occupied Rental Real Estate As Investment

Some investors prefer real estate as investment for long term investing, even though the work is difficult and the costs are very high. Even with property management its hard work. Property management firms are expensive, and when they quit you have to do the work until you find the next manager. You have to rely on property management to show up, tenants to pay their rent and both to properly maintain the property. Every time a tenant moves there are repair and replacement costs, sometimes those cost are huge. You get tax deductions for rental property, but not nearly as much as for owner-occupied property.

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Some owners are surprised to find that even if they a have mortgage on rental property, the rents are considered income, and the rental income is taxed.  Landlords have to file a schedule E (supplemental income and loss for landlords) to get all of their deductions associated with rental real estate. To keep tract of everything you are encouraged to keep a spreadsheet. You can get one online, free, one is google drive if you have a gmail account.

It takes a special person to own and maintain real estate as investment in the form of rental real estate. Depending on the cost, type and area is what depends on the difficulty of owning and making a profit off the real estate. Since the cost are very high (and if you get a loan – it is leveraged with debt), it could take a few decades before you see a profit.

The advantages of residential non owner-occupied rental real estate as an investment:

  • It is possible to have high returns when held long-term, if you hit a time in history when real estate is selling and is scarce.
  • You can depreciate the property (this is far more advantages for property purchased prior to 1987 though, the depreciation deduction is much less after that year).
  • You get a deduction for up-keep, but it is much less than the deduction you get for owner-occupied property.

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Disadvantages of residential non-owner occupied rental real estate as an investment:

  • Non owner-occupied mortgage loans carry a higher interest rate than owner-occupied loans.
  • Required down payment for non owner-occupied loans is much higher than owner-occupied loans. In many cases requiring 20%, compared to an owner-occupied loan of 3%-10% down.
  • You must pay capital gains tax on profits, when you sell.
  • Yearly maintenance cost for residential non owner-occupied real estate is usually much higher than owner-occupied cost. Most people simply do not properly maintain property that does not belong to them, and some are very destructive.
  • Long-term maintenance cost can be phenomenally high.
  • It is difficult to find reasonably priced properties in quality neighborhoods.
  • Neighborhoods with a lot of “four rent” signs are particularly difficult to avoid vacancies, it also sends a message.
  • Lost rents are not deductible.
  • A low quality neighborhood (that with high unemployment), brings a low quality tenant, i.e. the default rate on rent payments are high.
  • The debt carried when the rental is leveraged with a mortgage.
  • The constant turnover of new tenants is expensive due to fix up costs each time a renter moves.
  • You have to keep your fingers crossed, that when it comes time to sell, the prices in the are will be high, the type of real estate you own will be in demand, and there will be enough appreciation

Ladies, it takes skills to purchase a home and non-owner occupied rental property

The combination of an owner-occupied/non owner-occupied residential real estate can be a viable consideration for those who feel some form of non owner-occupied rental real estate is a must, as an investment. An example of a combination of residential owner-occupied and non-owner occupied real estate is a four-plex where you live in one unit, and rent the other three.

The advantages of the combination owner-occupied/non-owner occupied real estate investment:

  • You can qualify for the lower interest owner-occupied mortgage loan.
  • You can qualify for the lower down payment of 10% allowed with your owner-occupied real estate.
  • You can deduct the repairs and up keep on the rental portion.
  • You are present to monitor the repairs and encourage maintenance.
  • You can depreciate the rental portion.

You have a better probability of purchasing a property in a quality community since your initial cost are lower than a non-owner occupied property. A quality community brings a higher probability of a quality tenant. Attracting quality tenants is probably the most important aspect of residential non-owner occupied investments. Real estate as investment works when there is a high demand for rental real estate in an area. You will then have a large number of people to choose from.

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Disadvantages of the combination owner-occupied/non-owner  occupied real estate investment:

  • Your tenants may know where you live, if the property is titled in your name.
  • You can only deduct expenses for the rental real estate portion of upkeep, but not your own.
  • You will be liable for normal capital gains taxes on the non-owner occupied portion when you sell. There is a capital gain exclusion on the owner-occupied portion.
  • If you actively participate in rental activities, you can deduct $12,000 in losses if you are single and $25,000 if you are married on all properties you own.

Getting all of your IRS benefits are possible when you keep a spreadsheet of every single income item, expense and money returned to your tenants.

Laws change on just about everything,  yearly. Consult directly with current Internal Revenue publications for the latest changes
about Real Estate as Investment.

See IRS publication 527 at www.irs.gov: Residential Rental Real Estate Property (includes vacation property)
IRS Schedule E – Supplemental Income and Loss From Rental Real Estate

Lois Center-Shabazz | Course Delta Agency

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3 Big Problems When You Buy Real Estate to Flip For Profit

When You Buy Real Estate to Flip For Profit it is Tricky
3 Big Problems When You Buy Real Estate to Flip For Profit

Flipping real estate for profit seminars, advertising, and marketing is going on in my town and all over the internet and television. Since I have experience in long term real estate investing and I have friends who have tried to flip for profit, I would like to share some of our experiences.

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I, and some of my friend’s own properties out of state and we constantly get letters from people who want to buy our properties? We get letters, cards, brochures and everything in between.

Some of the letters are almost begging us to sell our property to them. Some claim they have all-cash, and others claim they are immediately qualified to buy. Here are many of the problems flippers have with those properties, so you may want to think hard before you answer advertisements to attend a flipping seminar who makes their money up-selling tapes and books after the seminar, that don’t work.

  1. It is Difficult to Find Properties That Aren’t Ready for the Bulldozer

Many of the so-called flippers are going to public records to find owners who live out of state and therefore, their reasoning is that they should want to sell. Many of the properties have family members who are taking care of the properties, living in them, and paying the rent. When you buy real estate to flip the most difficult task is finding a property that is not near condemnation.

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The fact that dozens of the flippers are going to public records to find sellers tells me the difficulty they are having finding quality properties to buy and flip. Many of the properties that are readily available are in bad shape, so after renovation there would be no profit. Properties that are held by realtors are already priced for the current market. Those that are auctioned off in foreclosure are usually bid up too high for a profit after renovation.

The surprises, especially to the amateur flippers are enormous. The missed surprises include hidden floor dry rot, floor and wall dry rot, rotten plumbing pipes buried under a slab, large holes in the roof, outside gas leaks, damaged foundation, bad electrical junction boxes in the wall or under the house, clogged main drain, asbestos in the outside shingles or inside in the walls, and mold. These are real life problems I have seen others have when buying a fixer or home to flip.

Any of these problems can take anywhere from $2000 to $20,000 or more to fix, each.

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  1. Flippers Real Estate Agents Offers That Generate Profits For the Flipper

Flippers contact homeowners and write ridiculously low offers, so they have money to flip for profit after fixing up the property. Most of the offers are rejected, even if the home is in bad shape. If the home is in an area with properties that sell quickly and the resale is high, they constantly beg for offers that are below appraisal. This process is easier in areas were homes have low sales value or with homes that stay on the market for a long time.

These homes tend to have more hidden disasters since they have stayed on the market longer. What happens is that the flipper, out of desperation takes the best offer they can get and after finding they bought a home in bad shape they will hide existing problems or get a false appraisal that is too large.

  1. Most Flippers are Forced to Get Financing from Investors

To buy real estate to flip you must have financing. Banks don’t want to do business with most of the flippers who have no assets, little experience, and may not sell the home before they run out of money for renovation, upkeep after renovation, and mortgage payments until the property sells.

After the flipper finds that the home was overpriced for profit and they find the house is in much worse shape than originally thought, then they find that after sharing their profit with their investor or pricing the home for the market, they don’t have much left after sales, sometimes nothing. Then, this is where the flip begins to turn into a flop. Because of these problems, most flips are not profitable, and many flippers constantly find themselves in deep financial trouble.

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Before you think you can buy real estate to flip you should have some command of  both real estate buying and selling, the construction process, and the tax consequences when you have to pay short term taxes. Read the FHA rules to flipping properties.

There are many more facts to consider that you will have the privilege to read when my new eBook about Real Estate Investing comes out.

You can get my sample of “The Ultimate Guide to A Great Money WorkOver” and 7 other eBooks along with expert help with my course.

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Lois Center-Shabazz | Course Delta Agency

Interested in a Free Discussion about how I can help you with Fantastic Finances? Let’s Chat – Make an Appointment Here

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Owner-Occupied Real Estate Now and in The Future as A Personal Investment

Owner occupied real estate now and in the future

Owner occupied real estate purchase as an affordable home

Your owner-occupied real estate now and in the future, is one of the best long-term investments one can make. Time has shown that owner-occupied real estate can produce tremendous long-term returns. In a few areas of the country the tremendous returns have even been short-term. In some cases, homeowners have sold homes held 30 or 40 years, for 30 to 40 times their original cost.

The least expensive for maintenance cost is the owner-occupied real estate investment, simply because most owners correct problems as they arise.

The hardest part of real estate investing is to know when prices are inflated or low. To understand this, you must do a lot of research or endure a lot of pain until prices stabilize. Residential real estate as an investment requires, skill, intelligence, research, intuition, a lot of time, very hard work, and luck.

Here are items to look for before and during your owner-occupied real estate now and in the future home search, for a successful property.

Good Credit Score

Before you start to look for a home the first steps are to;
Get a copy of your credit report
Go over it closely, make sure all the credit listed belongs to you
If you Find credit that does not belong to you, write Experian.com and challenge the reporting with them.
Stop charging, and start paying off credit you already have
Pay off anything that is past due, and maintain your bills monthly

Quality loan

Do not get a loan until your credit is cleaned up to the best of your ability, this may take months to a few years. Save for a down payment or get a no down payment loan and pay more points (or higher interest rate). Research any mortgage company you plan to use and make sure they are legitimate.

If you are a first-time home buyer consider FHA loans, or NACA (naca.com) to help with the qualifying process. Every city has a first time home buyers organization in town to help with the buying process.

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Quality home – Well inspected

Make sure you are getting a quality home, by getting quality inspections from plumbers, electricians, HVAC, and carpenters. There are many home buying nightmares where buyers used a lone home inspector who missed most if not all the problems. If you find problems in an inspection, you will know what you are up against. You can either: 1. Find another home, or 2. Ask for a reduction in price so the problem can be fixed in your increased loan amount.

Home purchased at the bottom or middle of a market

Know if your home buying market is in a bubble or if your home is over-priced. If it is you may not be able to sell the home for several years, even if you must move.

Affordable price

An affordable price is a home that fits your budget and is generally around 30% of your gross. Create a sustainable “overall budget” before you buy.

Well maintained

Look for signs the home has been well-maintained. Inspect the heating and air conditioning units well, the roof should stand the test of a heavy water hose. The floor should be level when you place a marble on the floor it should not roll, if it rolls, you may have a serious foundation problem.
Value increases over time: The more jobs or tourism there is in the area, the more valuable the area may be in terms of increase in home value over time. Then an area with no jobs or tourism can transform in several years when something valuable is added. As well as places that go under due to a decline in an area that has no jobs or amenities. It is best to look at an area with amenities at the time of sell.

No monthly house payment or rent

After the mortgage is paid off, you will have no house note or rent to pay. This is a tremendous savings. But, you will still have maintenance and taxes. It is important to factor in taxes as you age. Will your retirement check be enough for taxes and home maintenance?

The advantages and disadvantages of owner-occupied real estate is listed below:

Key advantages of owner-occupied real estate are:
• You can qualify for the lowest interest real estate loans available
• You can qualify for low down payment consideration, of 5%-10%. There are also extra low-down payment loans for first time buyers who qualify, as low as 3% down.
• You qualify for a full array of owner-occupied tax deductions. IRS Homebuyers Credit
• Most owner-occupied homeowners take pride and joy in maintaining their own home, so the long-term maintenance is usually reasonable.
• Owner-occupied real-estate profits have been tremendous when held long-term.
• There is a capital gain exclusion for taxes up to $250,000 if you have lived in the house for 2 of 5 years.

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Key disadvantages of owner-occupied real estate:

• The debt carried when a home is leveraged with a mortgage loan.
• The responsibility of up-keep, for some this is an advantage, since they enjoy the up-keep.
• You are responsible for taxes.

Your owner-occupied real estate now and in the future, has many more advantages than disadvantages.

Lois Center-Shabazz | Course Delta Agency
Author, Blogger, Course Creator, Investor, & Money Strategist

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