How to Make Money in Real Estate Investing

Lower Your Taxes when wanting to make money with real estate investing.

Tax incentives for real estate investing can often make the difference in your tax rates. Deductions for rental property can often be used to offset wage income. Tax breaks can often enable investors to turn a loss into a profit.

For which items can investors get tax breaks? You could claim deductions for actual costs you incur for financing, managing and operating the rental property. This includes mortgage interest
payments, real estate taxes, insurance, maintenance, repairs, property management fees, travel, advertising, and utilities (assuming the tenant doesn’t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes. Of course, these deductions cannot exceed the amount of real estate income you receive from your real estate investing. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow while real estate investing.

There are two kinds of positive cash flows with real estate investing: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is difficult to find, but they are usually a strong and safe investment. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pre-tax positive cash flow.

Regardless of what kind of real estate you choose to invest in, timely collections from your tenants is absolutely necessary. A positive cash flow — whether it be pre-tax or after-tax — requires rental income. Be sure to find quality tenants; a thorough credit and employment check is probably a good idea.

Use Leverage while real estate investing.

One of the most important factors in determining a solid real estate investing plan is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage.

Benefit from Growing Equity with real estate investing

While real estate investing  is relatively complex, it is often worth the extra work. When compared to other financial investments, like bonds or CD’s, the return on real estate investing purchases can often be greater.

The key to real estate investing is equity. Determine an amount of equity that you want to achieve. When you reach your goal, it’s time to sell or refinance. Determining the proper amount of equity may require the assistance of a real estate professional.

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A few points about interest rates.

Less is more when it comes to interest rates.

If you’re new to investing or real estate and don’t know the first  thing about interest rates, here’s a good tip: the higher the interest  rate, the more expensive it’s going to be. High interest rates mean
you will have to pay back more on the money you borrow. Another good  rule of thumb is that affordability increases if you use an adjustable rate mortgage (it’s easier to qualify this way). Of  course, there will be a wide range of prices that you can choose  from, depending on what kind of financing you choose..

Not even the Fed knows for sure what they will do with interest rates.

The Fed holds a considerable amount of power, but they can’t control  everything. Mortgage interest rates are affected by many unpredictable  political, economic and social events. So there is no guarantee what  direction interest rates will go, despite the forecasts of the  experts. Therefore, make your financial decision based on where  things are today including your budget, your needs and your future plans.

Locking in interest rates assures your lowest interest

If you do decide you want to lock in at a certain interest rate, you  will need to complete a loan application and send it to your lender as  soon as possible. This must be done so that your commitment doesn’t  runout before your loan is approved. Follow up and be se sure that  the lender is receiving all of the necessary documentation. Get a  property appraisal, which usually costs about $300, through your loan  agent as soon as possible.

Don’t obsess and miss a good real estate deal because of fluctuating interest rates.

Although rising interest rates can create more problems for home  buyers, waiting and hoping for low rates is not necessarily a smart  move. You may end up paying a higher price. Also, refinancing is  always an option in the event that interest rates come down.

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Showing the House to Potential Home Buyers

Your house should always be available for show, even though it may occasionally be inconvenient for you. Let your listing agent put a lock box in a convenient place, to make it easy for other agents to show your home to home buyers. Otherwise, agents will have to schedule appointments, which is an inconvenience. Most will just skip your home to show the house of someone else who is more cooperative.  Most agents will call and give you at least a couple of hours notice before showing your property. If you refuse to let them show it at that time, they will just skip your house. Even if they come back another time, it will probably be with different buyers and you may have just lost a chance to sell your home.

Why You Should Not Be Home

Home buyers will feel like intruders if you are home when they visit, and they might not be as receptive toward viewing your home. Visit the local coffee house, yogurt shop, or take the kids to the local park. If you absolutely cannot leave, try to remain in an out of the way area of the house and do not move from room to room. Do not volunteer any information, but answer any questions the agent may ask.

Lighting, Fragrances, Pet Control and More

Lighting

When you know someone is coming by to tour your home, turn on all the indoor and outdoor lights – even during the day. At night, a lit house gives a “homey” impression when viewed from the street. During the daytime, turning on the lights prevents harsh shadows from sunlight and it brightens up any dim areas. Your house looks more homey and cheerful with the lights on.

Fragrances

Do not use scented sprays to prepare for visitors. It is too obvious and many people find the smells of those sprays offensive, not to mention that some may be allergic. If you want to have a pleasant aroma in your house, have a potpourri pot or something natural. Or turn on a stove burner for a moment and put a drop of vanilla extract on it. It will smell like you have been cooking.

Pet Control

If you have pets, make sure your listing agent puts a notice with your listing in the multiple listing service. The last thing you want is to have your pet running out the front door and getting lost. If you know someone is coming, it would be best to try to take the pets with you while the home buyers tour your home. If you cannot do that, It is best to keep dogs in a penned area in the back yard. Try to keep indoor cats in a specific room when you expect visitors, and put a sign on the door. Most of the time, an indoor cat will hide when buyers come to view your property, but they may panic and try to escape.

The Kitchen Trash

Especially if your kitchen trash can does not have a lid, make sure you empty it every time someone comes to look at your home – even if your trash can is kept under the kitchen sink. Remember that you want to send a positive image about every aspect of your home. Kitchen trash does not send a positive message. You may go through more plastic bags than usual, but it will be worth it.

Keeping the House Tidy and Neat

Not everyone makes his or her bed every day, but when selling a home it is recommended that you develop the habit. Pick up papers, do not leave empty glasses in the family room, keep everything freshly dusted and vacuumed. Try your best to have it look like a model home – a home with furniture but nobody really lives there.

The Listing Agent – Marketing Your Home to Other Agents

The Multiple Listing Service

Even before the sign is up and the brochures are ready, your agent should list your property with the local MLS (Multiple Listing Service). The MLS is a database of all the homes listed by local real estate agents who are members of the service, which is practically all of the local agents.  Important information about your property is listed here, from general data such as square footage and number of rooms, to such details as whether you have central air conditioning or hard wood flooring. There should also be a photo, and a short verbal description of what makes your house “special.”  Agents search the database for homes that fit the price range and needs of their clients. They pay special attention to homes that have been recently placed on the market, which is one reason you get a lot of attention when your house is first listed. Many agents will want to preview the home before they show it to their clients.  The main point about having your house listed in the MLS is that you expand your sales force by the number of local MLS members. Instead of having just one agent working for you, now you may have hundreds or more, depending on the size of your community.  The listing agent’s main job to make sure that the other MLS members know about your house. This is accomplished through listing your house in the Multiple Listing Service, broker previews and advertising targeted toward other agents, not home buyers.

Office Preview

If your listing agent belongs to a fairly sizable office, an “office preview” will introduce your house to other agents working in the same office. In effect, they get a “head start” on selling your property. Once a week, the office’s agents will get together, share vehicles, and “caravan” to all of the new listings. They generally pull up in front of your house at about the same time (some even use a bus) then file quickly through your home like some bizarre “follow the leader” game.  It can be amazing to watch.  They go through very quickly, since most of them are familiar with similar models of your house. They are usually looking for anything memorable or different and to determine if your house is one they would be proud to show their clients. Then they all pile back into their cars and move on to the next house on the tour.  But some of them come back…with buyers.

Broker Previews and Culinary Delights

Broker preview is very similar to an office preview, except it is open to all the members of the local multiple listing service. It usually occurs within the first week your house is placed on the market, just after the office preview. However, there are lots of new listings to choose from, and not all the agents preview all the new listings each week. You may not get as many agents visiting your home as there were on the office preview.  Unless your agent “entices” them to come. This is where you could provide some help, if you are so inclined.  Though it may seem funny, nothing seems to attract a real estate agent like the offer of free food. So if your agent offers “free eats” at a broker preview, you are likely to get more visitors than if nothing is offered. Realize that many agents have been on this weekly circuit for years, so “boring” food does not really accomplish much. In other words, sandwiches supplied from the local grocery chain are not very enticing.  If you want to help your agent sell your home quickly, try and help them be creative and original in the choice of a culinary treat.  Of course, some agents will actually come to look at your house, too – whether food is offered or not.

Office Flyers

Your agent will undoubtedly prepare flyers about your property so that prospective home buyers can be informed about the attractive features of your house. These flyers (or similar ones) should also be sent to all the local real estate offices, too. Most areas have a weekly flyer service that delivers advertisements to all of the local offices. Since agents get these flyers every week, they do not always look at them. However, a large percentage of them do. Some agents will keep the flyer and bring buyers to your house.  The flyer should be done professionally and photocopy well. Ask your agent to show you copies of office flyers they have done in the past.

Marketing Sessions

Your agent probably belongs to a local association of Real Estate Professionals and they often have meetings once a month. At these meetings there is often a “marketing session” where some agents stand up and tell about their listings and other agents stand up and tell about their buyers. Your listing agent has an opportunity to “pitch” your house at these marketing sessions.  At the same time, these sessions may not be as effective as they were in the past. One reason is that they are often more social occasions than serious business meetings. Another reason is that, as technology has expanded, local associations have tended to merge and create larger Multiple Listing Services and Associations. Local meetings have become poorly attended gatherings.