Real Estate Investors buy insurance to protect their property from loss, but if you stop there, you could still lose if you don’t protect your assets.
Attorney Scott Smith is the principal at Royal Legal Solutions, a law firm specializing in working with real estate investors.
Insurance is a good first step to protect you from loss when you are first starting out. Once your portfolio grows and you have multiple properties, and significant equity, there are additional asset protection steps you need to take to protect yourself from loss.
Insurance vs Asset Protection
Insurance protects you from negligence. If you are sued for more than the insurance you have, the balance owed can be taken from your assets. If you lose it all, how long will it take you to recover?
Rule #1, don’t lose capital. Getting a poor return is far better than losing capital. If you lose capital, it can ruin you.
Insurance is inexpensive. Don’t skimp on insurance.
Protect Your Assets
Asset protection is not a singular event. It’s a plan that provides protection that creates separation between your investments and from your personal wealth. This structure isolates properties and the operation from you. It’s a way of creating moats with alligators and drawbridges to protect your castle.
Work with a legal professional to create a structure that will provide you the appropriate protection for your investment strategy. Your plan will likely include creating an LLC. When creating an LLC, consider the state you file it in. Certain states provide significantly more protection based on the charging order, compare CA vs TX.
If you do it right, you can compartmentalize your properties and protect them from actions at other properties, and hide your personal information from the ability to be found.
“If you have more than $50k in assets and equity, spend the money to protect your assets.”
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Multifamily investors rely on brokers to find deals. Beyond the broker relationship, investors look online; LoopNet, Costar, etc.
Scott Furman is an experienced multifamily commercial real estate broker that created ApartmentBuildings.com to compete with LoopNet and Costar.
The name says it all. Unlike LoopNet or Costar, ApartmentBuildings.com is exclusive to Multifamily, any size, from land for sale to fully occupied apartment complex.
The pain of change is the price of progress. The number one challenge for Scott and his team has been to gain brokers attention and confidence. Scott & his team’s persistence has paid off. Today, ApartmentBuildings.com is actively marketing properties in 5 states: CA, AZ, TX, FL & NY. The brokers listing their properties are getting results.
Brokers that commit to list on ApartmentBuildings.com are provided a marketing boost not available on other sites. If they will list their property on the site first, before listing on other sites, Scott and his team will present the property immediately to the users whose investment profile matches! This instant list of interested buyers has created numerous sales for brokers.
While the current footprint is not nationwide, the focus on multifamily is valuable to both brokers and users due to the focused nature of the platform.
You can create a free ApartmentBuildings.com account in just 30 seconds by going to apartmentbuildings.com/login. Once you establish a login, you are able to create an investment profile for the type of property you are looking for.
After you set your parameters, you will be receive first notice for all newly listed properties that meet your investment profile.
Users can specify:
Additional support built into the sites. Get professional advice and input regarding numerous matters involving multifamily investments. Including:
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The new Tax Plan will affect Real Estate Investment Strategies mostly for the better.
President Trump signed the revised Tax Plan into law effective for tax year 2018. There has been a lot of speculation up till now about how it will affect real estate investors. I spoke with Jonathan McGuire, CPA from the Real Estate team at Aldrich Advisors to sort out the changes, good & bad.
Tax Plan Summary Highlights
1031 Exchange remains unchanged for real estate investors. The deferral of gain on like-kind exchanges is only allowed with respect to real property that is not held primarily for sale.
Tax Pass Through:
Owners of certain pass-through businesses, S Corps, partnerships, & sole proprietorships, will be allowed to deduct up to 20 percent of qualified business income for tax years beginning after December 31, 2017.
The new tax law requires that in order to qualify for Capital Gains, the investment must be held for more than 3 years, compared to the prior 1 year standard. This could affect your plans if you originally planned to get out after one year.
Equipment purchased to operate & maintain a property can be expensed at 100% of the purchase price up to $1,000,000. This does not include real property; land & buildings.
Previously, individuals could write off all mortgage interest and local property taxes against income to lower the federal tax obligation. This is no longer the case.
Now, the portion of mortgage interest attributable to the first $750,000 is all that will be allowed. These buyers already are treated differently with jumbo loan rates and terms.
Additionally, deduction for home equity loans has been repealed. This could reduce the pool of investors looking to deploy equity held in their residence.
State & Local taxes
The new tax caps the state and local tax write off to a maximum of $10,000. Unless you live in one of the six states without a state income tax, you will pay between 2.9% (ND) to 13.3 (CA) of your income in state tax. When you add property tax to this, it is not difficult to breach the $10,000 cap.
IE: If you live in Portland, OR where the state tax rate is 9.9% and the Median household income is $58,423, your State Income Tax will be: $5,784. If in addition, you own a median priced home in Portland, $319,400 you can expect to pay roughly 1% of the retail value or $3,194 in property tax.
This may not affect a first time buyer if they are able to purchase a home. However, it may cause potential buyers of larger properties to rethink their purchase.
Any additional reduction in demand for single family homes to be built, will likely push the demand for more lifestyle rental options.
Pass Through Deduction:
Owners of certain passive income businesses will be allowed to deduct 20 percent of passive income. Limitations apply.
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Real Estate Investors buying government backed tax liens take little risk and can make great returns.
Every property in the United States has a property tax owed against it to support local government and services provided. An estimated 2% of all property tax bills are in default and go unpaid every year. Meaning, every year, there are more opportunities for real estate investors to buy tax liens.
Ted Thomas is a former commercial airline pilot and apartment investor. After he lost big in the crash in 1986, Ted got into tax liens, deeds and certificates and has never looked back.
Every property, residential, bare land, and commercial has a property tax assessed against it.
The taxes go to support the local government and services provided by the local government; schools, roads, police, fire, etc. In some jurisdictions, they are liens and others they are certificates. In both cases, they represent tax that is owed.
The tax rate and percentage of value varies by municipality. At a minimum, for residential property, the property tax represents 1% of the value of the property.
When a property is sold, or a change is made on title, the tax lien is the first lien that must be satisfied. Tax liens have priority over any first mortgage, second mortgage, or lien.
When the property tax does not get paid, the government sells the tax bill to willing investors. If after a determined amount of time the property owner does not pay the taxes due, you, the investor, become the owner of the property.
The local municipality has the authority to tax and sell the unpaid tax liens to a willing buyer. If the property owner does not pay the tax owed, the tax liens are sold at an auction. In many cases, the opening bid is for just the tax owed.
The annual interest rate charged against a tax lien can be as much as 18%. When the property owner elects to pay the tax, refinance, or sell the property, you get paid the tax plus accrued interest direct from the local municipality you purchased the tax lien from.
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Problem properties are the answer when looking for true opportunities in commercial real estate.
The marketplace is full of buyers chasing large properties with compressed cap rates and thin margins. To compete and win, you need to become an expert in identifying problems.
Sellers with problems want to be rid of their problems. These property owners are the focus of Tyler Sheff’s commercial real estate investment strategy. He has found there are multiple opportunities in every market, if you recognize the problem and can offer a solution.
Tyler’s team has identified multiple problems that are clues that the property owner wants out of the property. The following are some treasures of opportunities:
Find out what the tenants want and need. Remember, if they are upset and telling the internet about it, they probably have not been asked by the owner or management what they want.
Spend a little time getting to know what the tenants want can go a long way to making the property more enjoyable for them. This is an excellent opportunity to establish good will with the tenants and make certain your efforts get the reception you want.
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Multifamily success is the dream for many real estate investors.
Jake Stenziano & Gino Barbaro, the drug rep & restaurateur, better known as Jake & Gino are proof that hard work and the right mindset can propel you to amazing success in multifamily real estate.
In 2013, the investor team had almost given up the dream of owning a multifamily property. Then their persistence paid off. They landed their first 25 unit multifamily property. It was rough, but they were finally in the game.
In just a little over 4 years, Jake & Gino’s real estate investment strategy of mom & pop multifamily has led to an impressive 850 units in Knoxville, TN. The following are some of the keys to their success.
Mindset: It all starts in your mind. If you want your circumstances to change, the easiest thing to change is your mindset. Once you change your mind, you need to find like minded people, because the herd will try and bring you back to the pack.
Education: Take some time and invest in yourself. Learn the lingo, talk to people, and get to know how others are doing it.
Motivation: If you are comfortable, it is tough to find the motivation to change. If you really want to change, you have to be uncomfortable
Market: You don’t have to be in a primary market to grow in real estate. Real estate is everywhere. What is important is to know the basics in the market. Is there job growth? Are there people moving to the area? Is there more demand than supply in the housing market? These are keys in any marketplace.
Hard work: If you are willing to work hard and go through some pain for a few years, you will reap the rewards that others only dream of.
From there it’s Buy Right, Finance Right, Manage Right and repeat!
For more go to: https://jakeandgino.com/
Know the Seller’s story and you have the keys win with any real estate investing strategy.
Whitney Nicely is a real estate investor from East Tennessee. Her real estate investing strategy focuses on connecting with sellers hearts and minds. This takes time, but once connected, the sellers want to sell to Whitney because they know her and she knows them.
Instead of grinding through thousands of calls, this southern gal has fun getting to know the sellers and what they are about. She also tells her story. She leverages Facebook to let all her contacts know what she is doing and what she is about. She is a real estate investors!
The story is where you will find the seller’s secrets. The answers that don’t show up on a spreadsheet, what they want and what they need from the sale. When you start with the answers to their problem, it’s a whole lot easier to reach a creative a solution that meets yours and the sellers goals.
Secrets like they:
So remember, as you race around to find the property, don’t forget to take the time to get to know the story of the seller and share your story. The more you connect, the more memorable you are to the seller. And, you might just get a deal.
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Marketing is a part of any successful real estate investment strategy. Whether you pass business cards, mail letters, make cold calls, network, or go cyber, marketing is key to long term success
Tom Cafarella is a CPA turned real estate investor. What separates him from his competition is marketing.
After he got fired from his CPA job because he was spending all of his time learning about real estate, he started selling single family homes. He had some success, but realized he wanted to be an investor.
He recognized to be a profitable investor, you have to start with a purchase price that allows you to rehab, rent and refinance to a number that is agreeable with the bank. Meaning, you have to buy at a discount.
Marketing is the key to getting in front of owners who aren’t known to the marketplace. They don’t realize they want to sell. Then something happens, and because of your marketing, you are top of mind to solve their need to sell.
Tom started a real estate brokerage that has 200 agents. They use a marketing program that involves, mailers, calls and appointments. The mailings are sent out monthly and go to specific property owners with properties fit their sweet spot. This sweet spot includes: area of town, length of time they have owned the property, estimated remaining balance on their mortgage and age of the owner.
Mailings are followed with calls to cell phones. Their system allows an agent to call as many as 500 - 700 names per day depending on how many conversations they have. The purpose of the call is to set an appointment.
At the appointment, they have developed a set of questions that help identify if the seller is a prospect for selling at a discount for Tom’s investment team, or if they are a retail listing option for the agent. Either way, the agent has a potential sale.
For Tom, he has a team of 200 agents hunting for investment opportunities.
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Warren Buffett, the CEO of Berkshire Hathaway, made his considerable fortune investing in the stock market. Last year Fortune magazine ranked him as the third wealthiest person on the planet with a net worth approaching $80 billion. But unknown to most people are Mr. Buffett’s two small real estate investments that he made long ago that have amply rewarded him for his willingness to invest outside his area of expertise.
And far more important than their profitability were the five common sense principles he learned from his real estate investments. And before I get into what those were let me give you a brief explanation of his real estate investments.
REAL ESTATE INVESTMENT #1
In 1986, he purchased a 400-acre farm located outside of Omaha, Nebraska. He purchased the farm from the Federal Deposit Insurance Corporation (FDIC) who had inherited it from a bank that failed. Mr. Buffett admits that he knows nothing about farming but he has a son who loves to farm so he turned the day-to-day operations over to him.
Although Mr. Buffett admits his lack of farming acumen he could easily recognize that purchasing the farm was a good investment decision. As he said, “I needed no unusual knowledge or intelligence to conclude that the investment had no downside and potentially had substantial upside.” Three decades later, the farm has tripled its earnings and is now worth five times what he paid for it.
REAL ESTATE INVESTMENT #2
In 1993, he purchased a retail property located adjacent to New York University that the Resolution Trust Corporation (RTC) was selling. A real estate bubble had popped and the RTC had been created to dispose of assets of failed savings institutions. His investment analysis was very rudimentary. The property had been poorly managed by the previous owner and then by the RTC. The vacancy at the property was well above the market’s vacancy rate for no apparent reason. The largest tenant’s rent was $5.00 per square foot compared to all the other tenants’ rent averaging $70.00 per square foot. He realized that when the current lease term expired for this tenant that the new rent on this space would improve the property’s cash flow dramatically.
And like the time he purchased the farm, he realized that he needed to turn the management of the property over to an experienced property manager, which he did. Over a relatively short period of time, the new property manager was able to lease the vacant space and to raise to market the rent on building’s largest tenant. As a result, the property’s net cash flow tripled and annual distributions currently exceed 35 percent of his original investment.
So those are Mr. Buffett’s two attempts at real estate investing. Both were highly successful. But as good as his results were the principles he learned were priceless.
LESSONS WARREN BUFFETT LEARNED FROM INVESTING IN REAL ESTATE
So what did Mr. Buffett learn from his two real estate investments? He learned five things that we as real estate investors should try to emulate.
For more go to: http://marshallcf.com/
Violent crime is a sad reality in America. If you watch the news, you know it happens daily at work, nightclubs, homes and church.
Regardless of the cause, guns, mental health, drugs, domestic or other, it can happen anytime, anywhere. Denial of this will not prevent if from happening, but rather make you a potential victim.
Real Estate investors nature is to look for an opportunity to make money. They may consider rough properties in crime ridden neighborhoods and may not realize the potential danger to violent crime they or their representatives might encounter.
James Holman with 540 Tactical works with property owners and professionals to provide training on what they can do to keep themself and their tenants safe.
Violent crime prevention is key to making your property an unattractive option to crime. The following are some basic proven steps that will encourage criminals to look elsewhere when plotting a crime:
Awareness is the best tool available to avoid violent crime, and you can take with you everywhere. In a survey of over 1000 criminals, the number one thing they look for is an unaware person. If a criminal thinks you are aware of what is going on, they will move on to another potential victim.
Be intentionally aware of your surroundings. Put down your phone, take out your earphones and be aware of your surroundings. 540 Tactical gets it name from 540 degrees of awareness: in front, to the sides, behind and above you is what James recommends. This simple habit can keep you from being a victim of a crime.
Don’t wait until something happens to you, have a conversation and train your staff to keep everyone safe.
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