Minnesota Investment Properties

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THE HOW-TO GUIDE ON MAXIMIZING YOURREAL ESTATE INVESTMENT.

SMART INVESTOR

For more information on investing in real estate, visit remax.com.

REAL ESTATEINVESTING

AND THEBENEFITS

What Does ‘Investment Real Estate’ Mean?Common examples of investment properties are apartment buildings

and rental houses, in which the owners do not live in the residential

units, but use them to generate ongoing rental income from tenants.

Those who invest in real estate also expect to generate capital gains

as property values increase over time.

The Benefits of Investing in Real Estate

1. Huge Tax BenefitsProperties typically appreciate while the IRS allows you to write your

properties off as depreciating.

2. Using “Good Debt” to Build Wealth“Good Debt” is debt that makes you money whereas “bad debt”

does not. The benefit of “good debt” is LEVERAGE because you don’t

need to have a lot of money to get started—you can start with the

equity from your home.

3. A Balanced Investment PortfolioYou’ve heard the expression, “Don’t put all your eggs in one basket.”

Well, the same applies to investing. By investing in real estate (in

addition to other investments such as your IRA, 401K, stocks and

bonds) you will have a stronger and more stable investment portfolio.

4. A Personal Retirement PlanWhen managed correctly, investment properties are a very good

potential source of passive income for when you retire.

5. Deferment of Capital Gains TaxWhen you sell an investment property, if you made more money than

you bought it for, that’s called your “Capital Gains” and Uncle Sam

will tax you on that gain. However, the government allows you to

transfer that gain into another “like kind”property by using a 1031

tax exchange. This allows you to bypass taxation by deferring the

financial gain into your next investment.

6. Instant EquityIt’s possible to find investment properties that are $5k, $10k, $15k

(or more) below market value. When an investor buys properties like

this, he or she can instantly use the equity from this for additional

buying leverage.

7. Long Term GrowthReal estate investing is about buying and holding properties for the

future because their value will almost invariably continue to increase.

(Source: Alex Anderson http://www.greatinvestmentproperty.com)


Basics of Residential Real Estate Investing

• Become aware of the market.

• Approximately 98 percent of the world’s millionaires made their

fortunes in real estate property. Find investment properties that

are undervalued, and do your research before you make your offer.

• The location of a property can drastically affect its market value.

Likewise, take note of the features of each property.

• Keep track of how long properties are on the market before they

sell, and the price that they sell for.

• Do not renovate according to your own personal tastes; make your

upgrades as market-friendly as possible. Concentrate on the most

profitable renovations, such as kitchens and bathrooms. Updated

lighting can also be a good investment. And new paint is a given.

• Set, and be constantly aware of, your own budget. Know how much

you can spend.

(Source: http://www.finweb.com/investing/

basics-of-residential-real-estate-

investing.html)

Decade / Appreciation*

1970-1979 / 142%1980-1989 / 52%1990-1999 / 45%2000-2008 / 42%

LONG TERMAPPRECIATION

*U.S. Nationally, Source: The National Association of Realtors

(http://rismedia.com/2009-03-01/to-appreciate-the-appreciation-in-real-estate-long-term/)

PREPARING TO INVEST


There are, indeed, ways to buy property with very little or no money down. No-money-down deals typically involve a considerable amount of risk and, as such,

deserve a great deal of evaluation and care. But they can be put together, and here are just a few methods:

Option ContractAn option contract is simply a contract between a prospective buyer and seller that provides the buyer with an option to purchase the seller’s property within

a given period of time. An option is a unilateral contract, which means that all rights to buy or not buy the property belong to the option purchaser. You don’t

want to lose your opportunity to buy the investment property in the meantime, so you use an option contract to gain control of, or tie up, the property.

Lease With Option To Buy.A property owner who’s highly motivated to sell may consider leasing his or her investment property to a prospective buyer and giving the buyer an option to

buy the property at an agreed-upon date in the future. The purchaser agrees to lease the property for a specified period of time, while preparing financially to

purchase it.

Contract For DeedInstead of optioning it, the buyer agrees to purchase the property, but typically doesn’t have the necessary cash to do so. The balance of the required down

payment will come from the lease payments that the buyer makes to the seller.

Distressed PropertiesA property in substandard condition should always be purchased at a price well below current market value. You can try to convince the owner to sell you the

property with no money down and carry back a mortgage for the difference between the existing financing and your agreed-upon price. However, you should

expect to incur temporarily higher expenses in order to turn the property back into a profit-generating investment. Many investors have made huge sums of

money by specializing in buying distressed properties at below-market prices, fixing them up and selling them at a large profit.

Profit SharingA prospective buyer can offer the seller a share of the profits generated by the property as added incentive to sell the investment with no down payment

requirement. The method of determining the profit distribution and the length of time that it’s to be paid are negotiable.

(Source: http://www.finweb.com/investing/buying-investm ent-real-estate-with-little-or-no-cash.html)

BUYING WITH LITTLE OR NO CASH

Know Your Time HorizonAs with any other investment, you should have a good idea how long you

plan to own a rental property before you buy. The longer you plan to own

the property, the more you’ll probably need to invest in maintenance,

repairs and improvements.

Develop A NetworkExperienced landlords find their properties in a variety of ways. Some

hunt for foreclosures, making friends with city hall clerks or bank

employees who know which properties are about to be sold. Some run ads

in local newspapers. Others work with real estate agents who keep their

eyes peeled for possible buys.

Get Your Finances In ShapeThe better your credit, and the less credit card and other consumer debt

you have, the better your prospects for getting a decent loan. Lenders

usually require bigger down payments, higher interest rates and

generally stronger finances when you’re buying rental property. That’s

because they know people are more likely to default on investment

property than they are on their own homes. Also, landlords say it pays

to have a substantial cash reserve left over after buying a property.

This can help pay for unexpected repairs and vacancies.

Avoid OverpayingAs one experienced landlord put it: “You make your profit when you buy a

property, not when you sell it.” Some landlords use formulas, such as not

paying more than six to eight times the rents they expect to make the first

year. Others try to estimate what the property could be worth after needed

repairs and upgrades are made, and they don’t pay more than 70% of

that price, less the cost of those repairs

Cover Your CostsMake sure your rental income will cover your out-of-pocket costs.

That includes the mortgage payment on the property, as well as taxes,

insurance, maintenance, repairs and a vacancy rate of around 5%.

If you can at least break even, you’ll be able to profit from any price

appreciation as well as from tax breaks available to rental property. You

can typically deduct the cost of a repair, such as patching a roof or fixing

a leaking pipe, on your tax return for the year in which the repair is made.

Replace that roof or those pipes, yes, but such things typically are

considered an improvement, which means the costs can’t be deducted.

Instead, they are added to the amount you paid for the property to

determine your tax basis when you sell.

(Source: Liz Pullman Weston

http://articles.moneycentral.msn.com/investing/realestate/howtofindgoodinvestmentproperty.aspx?page=all)

KNOW YOUR GOALReal estate is a tangible asset with built in value. It’s an asset that, in

addition to the ability to generate spendable cash now, can also provide

a very effective means of long-term appreciation. Through the years, real

estate has proven time and time again to be a solid method of investing

money, and it is the fundamental source of financial security for

countless individuals and families.

The basic ways in which to profit from real estate investment:

Cash FlowProperty rental is the primary method of generating cash flow.

This, needless to say, is the most direct and immediate return-on-

investment, since it consists of “usable money now.”

FlippingQuickly resell property for a tidy profit. Some investors buy properties

needing extensive rehabilitation; others specialize in properties that

require only cosmetic repair.

AppreciationAppreciation is typically the largest return-on-investment (or ROI) that

the real estate investor receives. When held over time, properties can

experience dramatic increases in value. This is the fundamental

attraction of raw land as an investment.

Forced AppreciationForced Appreciation is the kind of appreciation you can influence,

even control. When you improve a property, you are in effect forcing its

value higher.

AmortizationWith leverage, or the use of other people’s money, comes a repayment

schedule. Part of each payment goes to interest (applied first) and part

of your payment goes to principal. The principal reduction is called

Amortization. As your debt is being eliminated or reduced your equity is

being increased. Amortization can make you wealthy. Slow and steady.

Return On TaxesThere a several sections of the Internal Revenue Code (IRC) you can

use to your advantage as you assemble and disassemble your Real

Estate empire.

(Source: http://www.finweb.com/investing/profiting-from-investment-real-estate.html)

MAKE A PROFIT


• Building substantial wealth in real estate is virtually always

accomplished over time.

• Tax records for all real estate are in the public domain.

• Some of the best real estate investment properties are

located in blue-collar areas.

• One of the keys to making money with rental property is to

avoid changing tenants often. And one of the best ways to

keep tenants in place is to charge rents that are slightly less

than market rates.

• It is not necessary to buy a property at a low price to make a

profit if you’re willing and able to wait it out for a while.

• Experienced real estate investors will often maintain a

reserve fund for cleanup, rent loss, and rent-up.

• When financing investment property, it’s nearly always

better to opt for the longest-term mortgage that you can get

your hands on.

• It’s important to remember that, when calculating profit or

loss, rental expenses must first be offset by rental income.

• Real estate taxation can be so complex and involved that it

could often qualify as a subject unto itself.

(Source: http://www.finweb.com/investing/some-handy-rental-real-estate-tips.html)

Most real estate is purchased, at least in part, because of the tax benefits that

accrue for the owner. Ownership of real estate can produce substantial tax savings

that can transform a fair investment into a very good one. Investment real estate

can be very effective at doing this. Available deductions for most real estate

investments include:

• Mortgage loan interest can be deducted to offset an equal amount of income.

• Property taxes levied against investment real estate and paid to state or local

governments can also be deducted from taxable income.

• Insurance premiums for coverage of real estate investments are deductible

from taxable income. Insurance premiums are not deductible for homeowners.

• Maintenance expenses are fully deductible for a real estate investment.

• Depreciation accounts for the decline in value of an asset over time, including

most real estate.

(Source: http://www.finweb.com/investing/profiting-from-investment-real-estate.html)

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