Numbers are important, make no mistake about that. But, numbers tend to fall into clear cut categories of black and white… or red. And, as we all know, there’s plenty of gray in real life and, presumably, your investment properties will include people living their real lives and will be surrounded by others doing the same. Successful real investors realize there is more to investment decisions than merely running the numbers.

In addition to looking at the numbers, it is important to determine whether or not the property under consideration fits into your overall investment plan. Hopefully your investment strategy is more sophisticated than just amassing properties, if not, you may to address this issue with an investment consultant before buying any further investment real estate. Seek professional help if necessary, but get yourself a plan. Having an investment plan is essential to the type of organization that separates amateur level money from professional profits.

Part of determining whether or not a particular property fits your investment plan is looking at such factors as – yes, the old adage is about to appear – location. However, today’s real estate investor has a bit of a different strategy on real estate’s most ancient adage, and that strategy is emerging markets. Developing the skill to take advantage of the potentials of emerging markets is a significant distinction between the real estate dabbler and the successful investor.

Emerging markets have the potential to offer a strong return on investment, as these are not the already discovered desirable locations. These markets are on the cusp of a shift in rate of growth. Some are even almost bad areas about to go good. When investment properties are bought by future thinking investors, investors that are selective in their tenants and careful in their property upkeep, they contribute to the overall value of a particular market segment and can be a valuable part of the growth process. Experience, research, and familiarity with local growth trends and patterns can position an investor to be able to step into a given market at the right moment and maximize profit potentials.

Other factors to consider when thinking about location and tenant quality are what is in the local area – colleges, employment opportunities, etc. – and how that is going to affect the demand for rental units and the vacancy rate potentials, as well as how those factors will influence the type of people seeking those units. The set up of the building, its age, and its structural integrity are going to affect the amount that will have to be spent on maintenance and remodeling, and should also factor into the decision making process.

These are things that can be difficult to assign a specific number value to and can influence numbers in ways that are hard to predict, but they are essential considerations to savvy investment real estate decision-making. Numbers should serve as a foundation to the decision on whether or not to buy a particular investment property, but should not be the only consideration. After all, a building can have a strong foundation, and still have a leaky roof that unexpectedly caves in and sucks the profit right out.

What do you do if you don’t get paid on time? Well, let’s see the approach this “drug dealer” takes by listening to the lyrics of the hook.

I’ll tell ya one thang dont play about mine
i be bangin on your front door wit da nine
ima come see ya (see ya)
ima come see ya (see ya)
i need all my dough not a dolla short
and if u dont have it then u gotta go
ima come see ya(see ya) hey hey we put our hands
in da sky let em know that we bout that
cash flow..i need it on time im
talkin bank roll my money my money my money
cash flow…i need it
on time im talkin bank roll my money my money my money…

As a law abiding citizen you shouldn’t be “bangin on your front door wit da nine” (nine = 9mm gun reference), at least I hope not. So how can you, the investment property owner , ensure that you receive your “cash flow”, “bank roll”, “rent check” or whatever you want to call it on time?

The best way is to avoid being in this situation in the first place is by properly screening your potential tenants. They should know from the get-go that you will be charging late fees if they don’t pay on time, they should also know that you will start the eviction process as soon as the lease and local ordinances allow it. As a last resort….you can always flash your “nine”.

There are multiple national trends that affect real estate, but I’m only going to touch upon two for this post; inflation and the psychology of the masses.

Real estate cycles are partially shaped by these national trends and they can directly influence if your next real estate investment is successful or an opportunity cost. Don’t get me wrong, you can go against the grain and invest successfully when these trends are not favorable, but great care must be taken.

More often than not inflation occurs on a national level and if you are a real estate investor, most often inflation is your friend. If prices of building material (lumber, steel and other raw materials) go up, then the cost to build a home or building will rise also. This obviously helps your investment to hold its value or more likely appreciate.In addition to appreciation, during times of inflation we can usually raise rents.

You might be thinking “so far so good”, but one of the key measurements most inflation loving investors forget is wage inflation. If wages aren’t inflating accordingly you have a bad situation on your hands, and that my friends is part of the reason most real estate markets aren’t finished correcting at the time of this writing.Their values simply aren’t inline with local wages and historical price to rent ratios.

The second trend I want to talk about today is the psychology of the masses. There are many reasons our country recently experienced probably the greatest national real estate boom in our history, but one of them was the phychology of the masses. From the year 2000 to 2005, no matter where you went people were talking about real estate. Everybody thought they were Donald Trump and money was pouring into real estate as if it was impossible for values to go down. Fast forward to today and we obviously know how that story turned out. Try talking about real estate today and most people treat you as if you have the black plague. The psychology has shifted. The proverbial pendulum swung too far in favor of real estate during those heady times and I believe it will swing too far the other way (at least in some markets) as time goes on (some markets will “over-correct”).

In summary, don’t believe the hype, while there are many trends that affect real estate on a local level, remember there are national trends that affect values too.

P.S. If you are reading this John, I will see you on the court on Monday, be prepared to be schooled again (just kidding).

I’ve found that most people really don’t understand that tax sheltering benefits of real estate investments.Your investment property can actually shelter its own income and sometimes income from other investments.>How can that be?

When it comes time to do your taxes, you have to figure how much rental income you have received and how much tax deductible operating expenses you have paid out (examples are insurance and repairs).You are left with what is known as your Net Operating Income (NOI) on which you are expected to pay taxes.One of the great things about being a real estate investor is that Uncle Sam has written the tax codes in your favor, he allows multiple deductions on your investment, so you can save money; he does that because he wants to spur on the economy.

One of these deductions is for mortgage interest.Mortgage interest on your investment property is considered an operating expense and the IRS allows you to deduct it.

Another deduction is cost recovery (official name), but is widely known by real estate investors as depreciation.Most people associate the term depreciation with decling property values, but in this case the term is associated with the tax code.Given enough time you can probably bet your real estate investment will increase in value, but you can also bet that it is in fact “wearing out”, the IRS allows you to take a deduction for this presumed decline in value.(This concept combined with a 1031 exchange is a very powerful wealth building technique)

The deprecation deduction is the most exciting part of the tax code.Out of all the deductions involved in your investment this is the only one that doesn’t require you to have written a check thus it does not affect your cash flow ( it is not an operating expense).This powerful deduction can shield most, if not all of your investment’s year to year income from being taxed.Sometimes this deduction can be so large it can cover all of your investment’s income and then in turn provide tax shelter for other real estate investments as well.(We are seeing this with our GO Zone investors)

Here is a simple formula to help you figure this out.

Rental Income less Operating Expenses = Net Operating Income

then

Net Operating Income less Mortgage Interest less Depreciation = Taxable Income

Let’s look at example of how a real estate investor can realize the tax sheltering benefits of real estate investing.

Let’s say you invested in a fourplex that had a rental income of $128,000 and operating expenses of $46,000

Rental Income = $128,000 less Operating Expenses of $46,000 = Net Operating Income of $82,000

Your mortgage intrest for the year was $64,000 and your deprecation deduction was $16,000.

Net Operating Income $82,000 less Mortgage Interest of $64,000 less Depreciation of $16,000 = $2,000 in Taxable Income

Wow! Only $2,000 in taxable income! As you can see, other investment vehicles just can’t compare with the power of properly chosen real estate investments.

When it comes to investing in real estate, many newbie investors prefer to play it safe by sticking to markets that they are familiar with. Many of the so called real estate gurus that charge for their “real estate course” say only invest in your backyard.If you are trying to do a fix and flip then you should stick to your area, but if your investing strategy is like mine you might want to consider investing in other emerging markets.

For a real estate market to be considered “emerging” it must have certain trends.>There are four major trends that we like to identify before placing our investors in a new market.

-Job Growth
- In and Out Migration
- Path of Progress
- New Construction
These four trends need to be thoroughly researched before investing in your new income property.
While it sounds very simple, there is a lot of a complex research that goes into identifying an emerging market. Our company takes the time to find the markets and do the research.Call us for for a free consultation.

A traditional form of real estate investment is to purchase a home and hold it until the value rises, then sell it for a profit. These days, with so many bargains homes on the market, the patient investor has the potential to realize a much larger profit margin should the property bought in today’s struggling economic climate be held until values rise to a more typical level (assuming the market you buy in has “over-corrected”). People always need a place to live no matter how the markets flow, and properties held in this manner can bring income as rentals until the time is right for selling.

Among the most popular routes to profit in real estate investment in recent years is home “flipping”, where investors buy a home, rehab it, and sell it for a profit. While this may be a bit more difficult in the current real estate market, an investor can realize a substantial profit margin with the many low cost homes available on the market today. While homes may move more slowly than at the height of the housing boom, again, housing is a commodity that is always needed, so patience can bring profit.

Another one of the many benefits of real estate investment lies in the tax advantages that can come with such ventures. Deductions for depreciation of your investment property can be quite lucrative. Since the IRS requires that investment properties be devalued on paper by a standard formula, depreciation can also reduce the amount of capital gains tax you will be obligated to pay when the property is resold at a profit.

There are also tax benefits for investors who are eligible to be designated as real estate professionals. To qualify for these tax advantages, one must spend at least 750 hours managing real estate investments per year, or more than half of total annual working hours. If you meet these requirements, your real estate investing venture can become eligible to claim a long list of business related income tax deductions.

Aside from profit and tax advantages, real estate investing offers more freedom than the typical nine to five job. Residual income from rental properties can offer much in the way of financial security and quality of life by allowing one to work fewer hours for as much income or even more than that steady office job offers.

As with any form of self-employment, hard work and self discipline are required for success. However, those willing to spend some time educating themselves in the basics of real estate investing can find a great deal of satisfaction in controlling their own destiny while enjoying the many benefits of investing in real estate.

In the midst of the housing boom, many inexperienced investors were able to stumble into highly profitable real estate investments with little real knowledge about the housing market. However, times have changed, with markets in many areas recently experiencing significant slumps. In some of these areas, the markets have begun to recover, while in others the downward slide is still well underway. In this market climate, knowing how to judge the viability of a particular real estate market is crucial to successful real estate investment.

The standard mantra for investors of any kind has always been “buy low, sell high.” Sinking real estate prices in many areas may seem to create the right atmosphere for that rule of thumb, but low priced real estate won’t be much of a bargain if property values in the market continue to fall. The sell high part of the equation can present some difficulty in a market that has yet to hit bottom, making it essential to know in which direction the market is moving before you commit your capital.

Basic supply and demand trends are important indication of the direction you can expect a real estate market to travel. If the supply of homes is far greater than the demand for them, downward pressure on home values is the most likely result. On the other hand, if demand is rising in a market that has been depressed, your investment has the potential to rise in value as the market moves towards recovery.

Housing inventory statistics can be the best way to judge the supply and demand in a particular housing market. Released monthly, these numbers track how many homes are on the market waiting for a buyer. By examining these statistics over several months, you can determine whether supply is on the rise, which can indicate that the market that has yet to reach its lowest point and one the wise investor will avoid. If inventory is diminishing, the market has likely hit bottom already and is beginning to rebound, a condition that is ripe with investment potential.

Gone are the days of the housing boom, when nearly any real estate purchase was bound to appreciate in value, making profitable investment as easy as shooting fish in a barrel. However, learning to research and evaluate real estate markets effectively can help you choose your investments wisely. Armed with a bit of basic knowledge of how the housing market works, you can learn to recognize the signs that experienced investors use to avoid the pitfalls of today’s unsettled markets and follow them down the road to successful real estate investment.

Toyota, JPMorgan Chase, IBM, and Goldman Sachs are among some of the large corporations that have made the switch into “green” buildings and Bank of America has plans to build a 52 story “green” skyscraper close to Times Square.

While these investments will pay off from Mr. McKinney once he finds a buyer and for these corporations through better corporate image, will it prove profitable for the average real estate investor to go green?

The exact cost of building “green” depends on how “green” you go.Many sources estimate it usually costs about 10% more than traditional building to go “green”, so you will usually pay a higher price for your real estate investment.The upside is you can usually command higher rent because “green” buildings average a savings of 10% in utility costs per year (tenants usually pay utility costs).

It’s been my experience that most investors usually “lose” a little cashflow by investing “green”, but they feel great about their new real estate investment.
So…yes, it can make prove profitable for you to invest green….if you have a conscience.

Remember the lovable Johnny 5 from the movie Short Circuit? One of my favorite things he’d say is “Need Input! Need Input!” while reading a 500 page book every 10 seconds.

Investors, we should all take a cue from Johnny 5 while examining the next real estate market you invest in. I’d like to talk today about some of the crucial data (input) needed before investing in a property.

Timing is everything when it comes to real estate investing. You have to be able to determine the speed and direction of the market place, and the relationship between supply and demand. These factors will give you a fairly clear picture of whether it’s the right time to invest.

Your local real estate agent will likely not tell you this, but there are investments that you may want to avoid investing in. When you determine real estate supply and demand trends, you need to look at how many months worth of housing supply there is on the market. This supply of housing is the measure by which you need to test your real estate market. The prospect of overpaying is high if you don’t pay attention If the supply of housing continues to expand faster than the demand for new housing (supply is greater than demand), values will drop.

For instance, a market with a nine-month supply of housing reveals that there is an over-supply of houses on the market in a given area. It does not reveal whether it is a good time to make an investment - it only tells you the market status as of now. However, if we go back to housing supply trends in the past and compare them, we begin to get a better picture of what’s going on. For instance, if we were aware that there was a 10 month supply of housing last month, and an 11 month supply a month before that, and a 12 month supply the month before, this would be an indication that the housing over-supply is being absorbed. What this tells us is that this is a market on the rebound. So, while a housing supply of 9 months may not look that great, the additional information about past months trends provide a different angle from which to see the bigger picture.

To recap, look at the data before you making your real estate investment. Need Input!