6 REASONS for Investing in Florida Real Estate Investment Property NOW

Secured Loans Let Accepted.co.uk search over 350 loan plans to find you a great deal! www.accepted.co.uk

I invite you to take the next few minutes to learn the truth about the real estate market, how it compares to other methods of building assets and why it is such a lucrative form of investing. Many potential investors will say, 'I need to get into the Florida Investment Property market', especially taking into account current stock market fluctuations and the HOT market for investment properties, but simply don't know the facts about Orlando property investing and how to use sale and leaseback method of property management.

When is the last time your financial advisor or stockbroker tried to convince you that moving a portion of your assets into the Florida Investment Property market might be a good idea? Never Right? The 'why' is simple. They don't earn commissions when you buy Florida Investment Property. It is also likely that you have probably never had an 'apples to apples' comparison of stocks versus Florida Investment Property quite like the one you will see here.

Reason 1:

Leverage: Banks will not typically loan money to buy stocks. Banks will however, compete fiercely to loan money to buy Florida Investment Property. Your first question should be, 'why is that'? It has to do with risk management, which we will discuss later. The fact that banks want to loan you money to buy Florida Investment Property creates a situation which we will call LEVERAGE.

Let's assume that you have $10,000 to put into some type of investment. If you choose to buy $10,000 worth of stocks, you will own exactly $10,000 worth of stocks. Pretty straight-forward. However, suppose you choose to invest that $10,000 into Florida Investment Property using a 90% mortgage (which in many cases can go up to 95-100% mortgages in today's market), you will own $100,000 worth of Florida Investment Property. If both of your investments were to appreciate by 10%, your actual gain with your stocks would be $1000 where your actual gain with Florida Investment Property would be $10,000. That equates to an actual 10% return on investment vs. a 100% return on investment. That's what we call leverage.

Leverage: Florida Real Estate vs. Stocks

The traditional argument against Florida Investment Property Investing (mainly from Stock Brokers) has always been 'I can get an average of 10% from stocks with little effort so why would I invest in Orlando Investment Property that only appreciates 6-7% per year'? This point-of-view is not taking leverage into account.

If you take the above statement to be true and compare the REAL numbers, the stock investment gained 10% of the initial $10,000 value (or $1000) and the Orlando Investment Property investment gained 6% of the initial $100,000 value (or $6000). That is still an actual return of 10% versus 60%. It is not hard to see which investment provides a greater immediate return on investment. Additionally. these numbers do not take into account any income from your property during the course of the year, or the substantial tax advantages to owning property, which we will discuss later.

Reason 2:

Value: As we mentioned previously, if you invest $10,000 into purchasing stocks, you own $10,000 worth of stocks (a fairly obvious point). If you invest $10,000 into purchasing Orlando Investment Property using the leverage of a 90% mortgage, you own $100,000 worth of Orlando Investment Property right? Well, only if you paid retail for your property. Any savvy investor will tell you that there are excellent deals to be had in Orlando Investment Property, you just have to find them.

What if you purchased a $100,000 property that happened to be worth $110,000 the day you bought it? Does it happen? The answer is yes, all the time. If you have your eyes open and are willing to 'go through the numbers' to find good deals, they are all around you. You may be asking yourself, why would anybody sell a $110,000 property for $100,000?

Value: Making money when you buy.

The reasons are endless as to why a quick sale is desired, but just to name a few: job relocation, divorce, an estate is being settled or maybe a current appraisal on the property simply wasn't done prior to selling. By 'finding this deal' you have accomplished two things.

You have added $10,000 to your asset column in the form of equity.

You have created additional LEVERAGE for yourself as the value of your property increases (a 6-10% gain on $110,000 is better than a 6-10% gain on $100,000!) Remember, you make money in Orlando Investment Property when you buy, not when you sell.

Reason 3:

Control: Let's take our assumption one step further. When you buy your $10,000 worth of stocks, what can you do to increase its value? If we follow the previous assumption, you have invested $10,000 using a 90% mortgage to purchase a $100,000 property that has an actual value of $110,000 because you 'found a good deal'. So what can you do to further increase the value of your new $110,000 property?

It is amazing what a cleanup, a little landscaping and a paint job can do to increase the value of a property. Only a few hundred dollars well spent can result in huge value gains in Orlando Investment Property. Your $110,000 property with a little effort could easily be worth $115,000, $120,000 or more virtually overnight! Do you have to do any of this work yourself? Absolutely not! If you like to do that sort of thing then have at it, but if not, simply hire it done and accept a little lower net gain.

Reason 4:

Superior Tax Position: The tax code in the United States is geared to reward Investors who make housing and other property available to the population. When you invest in stocks, you are taxed at some of the highest rates in the tax code. When you invest in Orlando Investment Property, you put yourself in one of the best tax positions in the business world. Remember the wealthy that hold substantial portions of their assets in Orlando Investment Property? Tax advantages are one of the main reasons this is true.

Continuing with the above example, let's say that you have completed your 'deal' with the $10,000 invested with a 90% mortgage to purchase the $100,000 property that appraised for $110,000 (because you 'found a good deal'), which you improved to say, $115,000 by spending another $1000 on cleanup etc. Assume that one year passes and the Orlando Investment Property market grew by 6%, your property would now be worth $122,000. So far, so good right? If you are like most people, you may want to spend some of your hard earned money.

Let's do the numbers. You have a mortgage at current rates that started at $90,000 and after a year worth of payments (the majority of which are tax deductible) you still owe approximately $89,000. However, your property is now worth approximately $122,000. If you were to refinance at 90% once again, you would take out a new mortgage of approximately $110,000. This will leave you with approximately $21,000 in cash in your pocket. Now, the BIG question; do you have to pay tax on that money? Absolutely Not! You have not sold the property or realized a 'capital gain'. You have simply borrowed money from yourself. You are able to do what you wish with that money, free from any tax whatsoever. Obviously, a good strategy might be to purchase two more properties just like your first deal!

Also, we have not taken into account the fact that ALL of your interest payments on this property are tax deductible. In addition, you are also able to depreciate the property itself and all of its contents for additional tax advantages if you choose to do so.

Let's be fair and compare the Orlando Investment Property tax position with the stock scenario. Assume that the $10,000 initial stock investment grew by 10% in the first year, creating a gain of $1000 and you wish to access it. If you draw it out, you will pay from 20-28% (or higher) in capital gains tax in order to have access to this money. This reduces your net gain to $800 (actual 8%) or less, depending on your tax situation. Compare that to Orlando Investment Property and you are beginning to get the picture.

Reason 5:

Limit Your Exposure To Risk

Risk Management: Do you remember at the top when we said that banks would compete fiercely to loan you money on Orlando Investment Property? The answer to the 'why' is very simple. Low Risk. Banks incur little if any risk when loaning money on Orlando Investment Property due to the steady, solid growth rate of the property market, as well as the fact that if you default on your payments they will simply sell the property to somebody else. This is in direct contrast to the volatile stock market, which can vary daily with sharp increases and decreases in value. Furthermore, banks realize that a property isn't going anywhere, whereas many investors know all too well about .com and other types of companies that were there yesterday and gone today.

This is all not to say that Orlando Investment Property markets don't go down from time to time, however the dips are much less dramatic than that which can take place in the stock market, proven out by the banks' willingness to loan money on property.

Reason 6:

Protecting your peace of mind.

Finally, Now that we understand the value of leverage and risk management we realize that a 6% Orlando Investment Property gain 'beats the pants off' a 10% stock gain in actual return on investment by a wide margin (approximately 50%, not taking into account several factors that can increase this number such as tax advantages, income on property etc.) Owning good, solid Orlando Investment Property allows you to sleep at night, or go on an extended vacation without worrying about your asset column. This is directly opposed to holding a substantial percentage of your assets in stocks.

Rental Real Estate

Secured Loans Search 100s of secured loans right now to find the right deal for you! www.accepted.co.uk

Understanding Your Rental Property

Adding real estate to your portfolio can be a smart thing to do. Many do this by converting their first home into a rental when they can afford to acquire another principal residence. As I have discussed before, every portfolio should have 20% invested in the alpha rim (see “Do What the Hell I Tell You-Guide to Portfolio Building”). The alpha rim is the part of a portfolio that is not invested in stock market products. Therefore, it is not subject to market fluctuations and provides some risk protection to a given portfolio. When adding any new investment to our portfolio, we should take time to learn the basics so that we can make informed decisions over time. Adding real estate to a portfolio definitely requires an understanding of the fundamentals.

Let’s begin by taking our first town home. It was purchased right after we were married with the intent that we would one day live in a larger home. Because we were so good at saving, we did not need to sell the first home to get into the new place. We have made contributions to retirement plans and have savings on the outside of the retirement plans. The decision has been made to keep this town house and convert it to a rental property in order to begin investing in the alpha rim. It becomes necessary at this point to understand how a rental property works from its beginning, during its operation, and when a decision is made at the ending its existence in the portfolio.

Putting the Property in Service

If the property is being converted from personal use, as it is in this situation, we must take the lower of cost or market value in placing this property into service as a rental. If we purchased the home originally for $200,000 and its fair market value is $300,000 when we are ready to make the conversion, we will use the $200,000 original cost as our basis. If the fair market value was $150,000 at the conversion date, then this would become the basis for the rental property. Placing a property in service in this case means establishing how much will be available for depreciation and how much will be allocated to land. Let’s assume that $200,000 is our basis. We will need to allocate this basis to determine what can be depreciated and what must be land (not depreciated). I like to use the property bill assessment as it normally breaks down the property into what is building and what is land. After reviewing the property assessment, it is determined that 80% of the property’s value is building with the remaining 20% representing land value. This means that we will depreciate $160,000 over a 27.5 year life, or $5,818 per year. If we were to purchase this rental property as opposed to converting, our basis would be calculated based on cost plus settlement charges. Remember, each year that we take depreciation, we are reducing our tax basis in the property. This is important to know as we consider disposition of the property.

Operations of the Rental Property

As one might imagine, everything that relates to the property becomes a tax deduction. Mortgage interest, real estate taxes, repairs and maintenance, insurance, property management fees, and the like become ordinary and necessary expenses for the rental property. It should be noted here that the ideal situation is to have the rents charged to tenants equal not only debt service on the mortgage, but some built-in factor for repairs and upkeep. This of course, will be subject to fair market value rents in the neighborhood, but the goal should be to cover these expenses. In the event that the property operates at a loss, this loss will be able to offset other income on a tax return to the extent that adjusted gross income is $100,000 or less and the loss itself is not greater than $25,000. If adjusted gross income is $150,000 or more, the $25,000 loss limitation is reduced to zero which would make suspended any losses realized. Suspended losses are then carried forward to offset passive income in future years or to be recognized upon termination of the property. When starting a rental property, it is important to know the rules of the game as one might not get the tax benefits expected. If your adjusted gross income exceeds $150,000, you will not currently get any tax benefit from losses unless you have passive income from other sources. If you have a series of suspended loss carry-overs, you might consider adding a passive income generator to your portfolio (see my article, “The Most Complete Real Estate Article on the Internet”).

Disposition of the Rental Property

Now we are considering the disposition of our rental property. At the time, it is believed that we can get $400,000 for our investment. Do we have exposure to income taxes due to the gain of this property? Of course we do, don’t be silly. Let’s first calculate what our gain will be. We know our selling price, so we need to calculate our adjusted in the property. If the property has been depreciated for 10 years, our accumulated depreciation will be $58,180 ($5,818x10 years). This would bring a depreciable basis of $160,000 down to $101,820. We will add $40,000 to this for un-depreciated land basis bringing the adjusted basis up to $141,820. The gain exposure for this property is then calculated to be $258,180. This gain is section 1231 gain which will likely mean that it is long-term capital gain. However, this gain will have two tiers of tax. Because of the depreciation taken in prior years, the accumulated depreciation of $58,180 will have a 25% tax rate application. The balance of the gain, $200,000, will be taxed at the long-term capital gains rate of $15%. There is the potential to do a 1031 (like-kind) exchange on this property which would allow for the postponement of the gain providing that a property of greater or equal value is acquired. There is also the potential for netting the capital gain of this transaction with capital losses that might be in the portfolio. Does it make sense to sell outright or do a 1031 exchange? It depends on the facts and circumstances of this particular portfolio. If the alpha rim is well above the 20% mark, and with long-term capital gains at just 15%, it might make sense to just recognize the gain and pay the taxes (see my article on netting capital gains and losses). If we need to buy another property to maintain 20% in the alpha rim, the 1031 exchange could be the right solution. See what I mean when I say one must understand the fundamentals of owning real estate? My way is better.

1031 Deferred Exchange - Real Estate Investment Property Qualifications And Rules

Secured Loans Compare 100s of secured loans with Accepted.co.uk. www.accepted.co.uk

A 1031 exchange is a strategy used to defer or eliminate the payment of capital gains taxes arising from selling a real estate property used for investment or for "productive use" in a business or trade. It is named as such because "1031" is the IRS code section 1031. "Exchange" refers to the core of the strategy in which one investment property is sold (relinquished) and a new investment property is purchased (acquired) and intended to replace the sold property.

*Review of Capital Gains*

A capital gain is known as the profit from selling an investment. It is the difference between the cost basis of purchasing the investment and the amount for which it was sold.

Capital Gain Tax Deferral Through a 1031 Exchange

A 1031 Exchange would enable the investor to avoid paying tax on the capital gains realized from the sale of an investment or business property. A third party intermediary, an entity not related to either party, would retain the capital gains (profit) from the sale until a replacement investment property is found and purchased by the investor.

The capital gains realized from the sale of the investment property will be applied to the purchase of the newly acquired property, thus avoiding the payment of capital gains taxes. Very specific requirements must be met and only certain properties qualify for a 1031 exchange.

Determining If Your Property Qualifies For a 1031 Exchange

The detailed process of a 1031 is somewhat complex and it's always advised to seek out a tax professionals' guidance throughout this process. Any errors will disqualify the investment property exchange and the investor would be required to pay the capital gains tax.

Summary of 1031 Property Qualifications

Certain qualifications of the existing property and the replacement property in question must be met. These qualifications include:

1. Type of Property

2. Intended Use of Property

3. Like-Kind Property

4. Specific Requirements

Type of Property

Two types of Real Estate Properties qualify: Business Properties and Investment Properties that are owned for the purpose generating income. This may be revenue from a business or income generated from the investment itself (ex. Rental income).

*Key Point: Personal Property Does not Qualify

For example, rental properties or a Plumbing business would generally qualify for a 1031 exchange.

This is a very specific requirement and excludes any personal property. While most homeowners consider their home an investment, its primary purpose is a place of residence, not to generate investment income.

Summary of Properties Excluded

1. Inventory

2. Dealer Inventory (Flipping is excluded)

3. Personal Property held for sale

4. stocks, bonds and notes

5. Interests in Partnerships

6. Vacation homes

7. Certificates of Trust

Intended Purpose

The intention of current property and the replacement property must be for a business or investment purposes.

* This may sound obvious, but there are some situations where intent will come into play. For instance, an investor wants to buy a rental home in Florida as part of a 1031 exchange. The investor currently owns apartment rentals and is looking to sell and replace them with the vacation home.

Intended purpose will determine if this situation qualifies for a 1031. For instance, the vacation home will qualify if the intent is to collect monthly rent from tenants. However, if the investor intends to reside in the vacation home, even if only in the winter, it does not qualify for a 1031 exchange.

*Key Point: Personal Property AND Vacation Homes are Excluded from a 1031 Exchange.

Like-Kind

The properties to be exchanged must be of "Like-Kind". According to the IRS, the investment properties must be of similar character and nature. However, the grade and quality of the new property does not have to be similar.

For instance, an investor may have own a landscaping business and wants to sell it in exchange for a residential home that he or she wants to fix up and sell for a profit. Would this qualify for a 1031 exchange? The answer is No.

Purchasing homes with the intent of flipping' them does not qualify for 1031 exchanges because they are considered "Inventory". Inventory is not eligible for a 1031 exchange.

However, a shopping center can be exchanged for an apartment complex, or raw land intended for business can be exchanged for a department store.

Summary of Specific Requirements and Safe Harbor Provisions

1. Both Properties are held for investment or use in a trade or business.

2. A Replacement property must be identified within 45 days of the sale of the relinquished property.

3. Replacement property must be purchased within 180 days of the sale of the relinquished property.

4. A qualified intermediary must be designated to hold the proceeds of from the sale of the relinquished property until the closing date of the replacement property.

5. To remain tax free, capital gains received from the original sale must be utilized for the purchase of the replacement property.

In closing, the 1031 Exchange is an excellent strategy to protect business profits, yet it's a complicated endeavor that requires the assistance of professional guidance and planning.

Real Estate Trends Report 2008

Secured Loans Compare secured loans to find the perfect deal for you! www.accepted.co.uk

A cold chill has blown on the real estate market and sales are down across the country. When the market was hot, every Tom, Dick and Harry wanted to be in the kitchen and sell real estate. Why? Because it did not take any skill or premier quality customer service. Now that the housing market has been on a steady decline for just over two years we have an opportunity to separate the good from the bad and the ugly.

There are actually agents that expanded their market share, added more clients to their portfolio or received higher customer service acknowledgment during the last year. Those are the agents that understand that in a down market true real estate professionals actually can do better.

According to the Swanepoel Trends Report, published by RealSure, there are five strategies that will not only keep the real estate agents afloat until the next upswing but could actually place them in a better position for rapid growth when the market turns. In summary they are:

1. Maximizing Technology and the Internet

Google should be a part of every real estate professionals online lead strategy as placing high on organic search results has become very important to any serious agent. At the same time integrating your key activities such as marketing, MLS, customer management, etc. need to be integrated into one easily accessible web-based system. Agents should use this year to make sure that when the next boom arrives they will be able to process the entire home buying and selling transaction digitally.

The Report discusses dozens of new innovative Web 2.0 initiatives, encouraging agents to explore these services and see which may be added to strengthen their online portfolio.

2. Building Teams Correctly

The creation of smaller more effective business units or teams within larger companies has been around for awhile, but during the last decade the concept has gained momentum. RE/MAX now estimates that 27% of their affiliates are working on a team. According to the Report there are basically two different kinds of teams. The first is where two or more producing agents combine their practices under one banner to provide greater coverage for themselves and their clients and the second where a lead agent starts building a business inside the brokerage operation. The lead agent then hires administrative staff to increase his or her time in more productive and income generating sales activities.

No matter what the size or how a team is structured, the key to building a successful team requires following the correct steps, getting the right chemistry between all team members and executing on a deliberate business plan.

3. Solidifying Your Business Plan

In todays competitive and complex marketplace, an entrepreneurs success is far from guaranteed. Moving into 2008 or 2009 without a well thought out and implemented business plan is a disaster waiting to happen. Yet so many agents fly by the seat of their pants.

A good business plan should include:

• An assessment of your current situation.
• A definition of your business focus and strategic intent.
• A clear vision of what results you want to achieve by objectives.
• A list of action steps that you will utilize to achieve your goals.
• An understanding of why you need regular analysis and occasional revisions of your game plan.

4. Using Virtual Assistants

The ways in which Virtual Assistants (VAs) can help real estate agents become more productive are limited only by ones imagination. And there are few, if any, support functions that cannot be handled by a VA - including functions such as:

• Transaction Coordination
• Listing Marketing Coordination
• Staying in Touch
• Online Lead Management
• Operational Management
• Screen Email and Phone Messages
• Ad Writing
• Website Maintenance

5. Diversifying Your Business

Diversification is the order of the day. For our industry there are two types of diversification - geographic and product or service. In these slow times it may be wise to view the needs of your customer base to see if there are other profitable products that may be a good fit to offer past clients. It is also a perfect time for agents to expand their skills and knowledge by getting educated on other transactional aspects such as mortgage, escrow, home owners insurance, home warranty, remodeling, repairing, painting, landscaping, etc. The advantage of bringing some of these services in-house is the ability to eliminate the expense of redundant overhead and to derive additional income from the same client.

Full Service Real Estate

Debt Management Compare debt management plans using our calculator - Search online now! www.trapped.co.uk

You always hear companies and agents say they are "Full Service" Realtors. Unfortunately, there are too many agencies calling themselves "Full Service" and not living up to their clients' expectations. So, what should you expect from your "Full Service" agent? In addition to your personal expectations, here are some aspects you should require before choosing who you do business with:

Education-
Before entrusting someone to fulfill your real estate needs, you want to ensure you are selecting an agent who is dedicated to continually educating themselves about their industry and the current market. Unfortunately, obtaining a real estate license isn't the most difficult of things to do. There are too many agents in this industry who skate by with the minimal continuing education courses required to keep their license. A "Full Service" agent should continuously be educating themselves and staying on top of current market trends. Ask your agent how often they update themselves on new market data. If their answer is anything other than daily (or at least weekly), move onto another agent.

Communication-
One of the biggest complaints from both buyers and sellers is the lack of communication from their agents on even a basic level. You should be receiving some form of contact from your agent every week. Even if it's a simple email to tell you that there hasn't been any new activity on your property. What's worse is when agents fail to return clients phone calls and emails in a timely fashion. If your "Full Service" agent doesn't determine your preferred method of contact and doesn't have a steady system for keeping in contact with you, you should question if they are providing you with "Full Service."

Company Image-
There are several fly by night companies out there that try and pass as "Full Service" agencies. The company you choose should have guidelines in place that require a level of professionalism and dedication from all their agents. There are many companies (including well known chains) that will take on any agent who comes through the door. Find out how extensive of an interview process the companies you're deciding on have, and do they retain the cream of the crop in your market.

Long term-
Study shows that 50% of all licensees are gone within a year, and that 80% leave the industry by their second year. Of the 20% who remain, many still lack the work ethic and devotion it takes to survive in a down market. As a result, many agents will put their license on ice until the market rebounds. Within the last two month we've seen a large increase of agents coming back into the market that originally changed their license to inactive over the last couple of years. So even if the agent you're speaking with has several year of experience, find out what amount of it was spent with an inactive license. You'll find only a handful of agents have what it takes to be to deliver results to their clients no matter what the market conditions are.

Systematic-
Every agent you speak to will tell you they can do the job you're looking for. But do they have a system in place to actually deliver? You want to make sure your agent has a system in place to ensure that your needs will, (not might) be met. Studies show that less than 20% of agents have even developed a process for their original interview, let alone for an entire transaction. During your initial interview process, a "Full Service" agent should be able to provide a step by step agenda which will prove to you without a doubt that they are able to fulfill your needs.