Archive for Real Estate
Tax Time – Do you understand your tax return?
Posted by: | CommentsWhoa – I was amazed to see that my husband and I were getting a giant tax refund this year. Good as it feels to get that nice check from the government, mathematically it doesn’t make a lot of sense to try to get a lot of money back. You’ve just loaned that money, interest free to the government for a year.
This year, though, that rate of return definitely beats out the performance of my portfolio in the stock market… wonder if I should think of it as diversification?
Part of the reason our refund was so big is that we had a baby this year and my husband didn’t adjust his withholding at work. Also, we have a number of real estate investments in our portfolio, and we have the ability to write off the “depreciation” on these because I am a full time real estate professional. That’s a special tax status that lets you have unlimited depreciation loss, rather than capping the loss at $25,000 each year.
The more involved in real estate and business you get, the more opportunities you have to save money on your taxes. However, you’ll also be getting more and more complicated tax returns to fill out.
I discovered a few years ago that I could not efficiently and accurately complete my own tax returns and I started using a CPA which was a great decision for me. They do it much faster and cheaper than I could do it myself. That’s another form of leverage, freeing up my time to focus on revenue generating activities.
If you’ve started using a tax preparation software or other tax professional to prepare your taxes, it’s still important to review your return. It would have been easy for me to skip to the bottom line, see I wasn’t going to have to write a check for my taxes, and sign and mail my returns after my accountant sent them back to me.
Instead, I decided to sit down and review them and I found several items I had questions about. Whether you find errors and inaccuracies, or just notice items that show you’re saving money or have the opportunity to pay less tax, it’s important to know what you’re doing with your finances, and your annual tax filing is a good time to sit down and review things when the numbers are all in one place.
Look at how much you’re spending on taxes, medical insurance, interest on your home mortgage, and your retirement savings. These are some of our biggest expenses and it’s good to know where the money’s going.
Financial reviews more often are even better, but at tax time, they are a must!
Popularity: 23% [?]
Seattle Real Estate Update From Redfin
Posted by: | CommentsI just got a monthly update on the state of the Seattle real estate market from my real estate brokerage, Redfin.
Showings are up… More buyers are looking but not buying yet.
Redfin’s traffic is through the roof: up 43% in January, and probably another 30% in February. Other websites have reported similar gains.
Seattle Real Estate Market Down 13%
Year over year in 2008, the Seattle real estate market is down over 13% and down 16% from the peak. Read more Seattle real estate stats.
More Distressed Sales
According to Redfin stats man Mose Andre, 11% of the listings in Redfin’s major markets (Seattle, California, Chicago, D.C., etc.) are being sold by banks, up from 3% in April 2008.
Check out Redfin’s blog for more fun real estate statistics and a way to buy real estate without paying your realtor an arm an a leg.
Or register for a webinar on how you can take advantage of today’s distressed housing market.
Time to put out the rain buckets!
Emily
Popularity: 19% [?]
Status Report – Short Sales Abound, Even in Seattle
Posted by: | CommentsWow, in the last month, I have been surprised by the number of short sale homes in the Seattle area. I have recently started showing homes for Redfin, a low-cost, full-service real estate brokerage started by some local entrepreneurs here in Seattle. (The super-cool connection is that it was started by two guys in my high school class that I ran into last summer.)
How Does Redfin Real Estate Work?
The way it works is that clients do MLS-style neighborhood searches to find the homes they want to tour, then they sign up for a tour for free with a local neighborhood realtor. Once they identify a home they want to put an offer on, they call the “lead agent” who negotiates the deal and handles the paperwork for them.
None of the agents work on commission, so they are free from any sales pressure. It’s all about customer service at Redfin. As a result of doing their own neighborhood research and using the firm, they can save about 1/3 of the commission. Also, statistics are showing that Redfin agents negotiate better (they don’t get paid more if the buyer pays more for the house) so our buyers are getting better prices on the homes they buy, too. All-in-all clients are saving about $10,000 when they buy a home in the $500,000 price range.
Why Real Estate Agents Don’t Like Their Buyers To Pursue Short Sales
Anyway, one thing Redfin DOESN’T support is showing or supporting transactions on short sale property. Short sales don’t make a lot of sense to buy for the individual home owner because they take so long to negotiate. It can take 3-6 months in many cases to pursue a short sale, and even then, you have no assurances that the bank will say yes to your offer.
Although this long turn around time isn’t necessarily a big deal for a real estate investor, it can really slow down the average home buyer who might be looking for a personal residence sooner rather than later. Also, most realtors don’t want their clients to be tied up waiting that long (they’d rather sell them something and make a commission sooner) especially since short sale attempts frequently don’t work out.
Realtor’s don’t like the back-and-forth of the negotiating with the bank – it’s a lot of work – and they don’t like the extended time table to close. The hassle factor keeps many realtors and their clients AWAY from the short sale negotiations table.
How That Makes Short Sales A Great Opportunity For Real Estate Investors
So, what that means to us as real estate investors, is that we really don’t have as much competition for the short sale properties as we might on a regular home. Sure, we’ll have MORE competition from other investors, like us, trying to get a good deal on the home… but that’s an opportunity, too.
If the primary buyer pool for short sale homes is investors, the home owners and the banks will have to settle for working with the lower-priced offers investors are inclined to make.
Plus, in today’s economy, there are really a lot of short sales to go around. Many more than there have been in the past. I was amazed when I was out showing homes this weekend, to see how many of the homes we had to scratch off our tour list because they were involved in short sales.
And THIS in SEATTLE which has historically been a very stable market. It is still one of the strongest real estate markets in the country, so the fact that we have an abundance of short sales here, indicates to me that there are many more available elsewhere in the country.
In fact, my buddy Phil Pustejovsky has been investing in short sales for the better part of a decade and he says he’s never seen anything like this in terms of an abundance of short sales available now. In fact, he’s got the corner on the market on his state, and is partnering up with investors from out of state so he can participate in short sale deals all across the country.
If you’re interested in partnering up with Phil, you can learn more about him and the success of the people he’s started working with here. This is not some seminar salesman mumbo-jumbo… that’s HYPE. Phil is not about Hype, he’s focused on HUD-1’s. 
How Long With The Opportunity Last?
I’ve started working with Phil to help him market his short sale business. It’s going very well, as there is a lot of interest amongst active investors and promoters in short sales right now.
A lot of the techniques, like buying on terms that were big a few years ago have fallen by the wayside now… you can’t do a short sale or lease/option deal on an upside down property and still be conservative and make money, it’s just not a good idea.
This is a short sale market – that’s where things are right now. Phil doesn’t know how long this window will last, he thinks probably just 12-24 months, but for those who are working the short sale business NOW, there is a lot of money to be made. Phil is out there making it, and it’s very exciting to see! (He does about one $50K short sale deal per month since he’s cherry-picking them) and he’s making another $10K/month in realtor commissions on the short sale deals that don’t pan out with the bank.
If you want to know more about his methods, you can check out his website, Short Sale Teaching.
Hope this helps!
Emily
Popularity: 19% [?]
Is Now The Time For Getting Started in Real Estate Investing?
Posted by: | CommentsThe bloom is off the rose. The real estate market is in the tank. Foreclosures are popping up all over, real estate values are down, and you can’t find a house that will cash flow.
So Real Estate Investing Sucks!
Or does it?
If you bought property in the last few years (say 2005 – 2008), you might be thinking that real estate investing is no fun, you got sold a bill of goods by a guru, and you have no idea how you’re going to make money on your properties.
It’s easy to get impatient, especially if the current market downturn has treated your real estate portfolio to a royal trouncing. This might be a good time to bear in mind the adage: Don’t wait to buy real estate, buy real estate and wait!
Of course, it’s no fun to get rolled by a downturn in the market. If you want to avoid that happening again, and use the market to your advantage next time, I suggest you learn to take a look at market cycles and understand how they work.
However, even if you bought at the exact wrong time, don’t give up on real estate investing.
Look at the current disaster of a market as a great opportunity to get started in real estate investing (again!).
A lot of investors make money by being contrarian.
When people are fleeing the markets, they buy in.
That’s exactly what’s happening right now, so this might be a great time for getting started in real estate investing if that’s what’s going on in your neck of the woods.
Even if it’s not going on in your area, it’s going on SOMEWHERE – find out where and invest there!
However, you definitely want to make sure that you can afford to buy property before you invest.
What should you look for in your deals if you’re getting started in real estate investing right now?
1) Appreciation Potential. 
Generally speaking, appreciation is your largest profit center when you buy property. It beats out the other 3 profit centers (cash flow, debt reduction, and tax savings) pretty handily in markets where it is utilized. The challenge is that generally speaking high-appreciation market places (like California, Florida, Manhattan, Seattle, etc.) tend to have expensive property and it’s hard to find cash flowing deals there.
However, there are some great markets in Texas and other southern states where property still cash flows and goes up in value all the time. As you explore the markets you want to invest in, consider the potential for property appreciation over the next five years. You don’t want to bank on this appreciation, since it’s not a sure thing, but markets do have cycles, and if you can buy and sell at the right time, you stand to drastically increase your profit.
2) Price or Terms. A good price means 80% of the “market value” of the home or less. The more volatile/flat/falling your market place is, the LOWER I would insist on getting the price in order for the investment to make sense. Good terms are things like buying the property with a lease option or subject to the existing financing so you can get in with little/none of your own money and credit. (For information about investing with your IRA or getting private investors who want to do so, check out my IRA Real Estate Investing Series at www.TheRealWealthBlog.com)
3) Cash Flow. What is cash flow? In many markets around the country, this is an elusive beast. It seems that here in Seattle you have to put 40-50% down on a property in order for it to cash flow. In other areas of the country, you can break even month-to-month even when a building is 100% financed.
Personally, I like for a property to be able to cover all of its own expenses, including vacancies and repairs. This is easier to say, than to actually find these deals, but here’s the situation: What if you are doing well financially right now and want to make an investment? That’s great, even if the property has negative cash flow, you earn enough that you can feed it, right? So, no problem. However, what happens if you lose your job, get sick, or become disabled? You may no longer have the disposable income you need to feed your alligator (alligator is a nickname for property with negative cash flow) each month. If you have equity you could sell your property, but you may not want to do that, especially if the market is depressed when your financially emergency hits, like it is right now.
For those reasons, I like to see a property make a good rate of return from its cash flow without my having to feed it each month. If you live in an area where negative cash flow properties are the norm because property values are so high, you can consider your options.
- Use a higher down payment to get your mortgage payments down.
- Have a large emergency reserve fund to cover the negative cash flow on the property for several years, so you’ll be safe in the event of a loss of income.
- Invest in another part of the country. Personally, this is what I do…
If Your Personal Finances Allow It, Consider This A Great Time To Get Started In Real Estate Investing
Raw beginner or experienced pro, don’t let the current market conditions rattle you. Interest rates are low, buyers are scarce and sellers are motivated. Don’t worry about putting together a “power team” or spending too much time creating your perfect entity. Now’s the time to go out and take action!
Talk to real estate agents (like me!), call FSBO’s and FRBO’s from the newspaper, get a mentor if you need one, and start taking action – a little bit every day – that will move you in the direction of your goals.
Emily
Popularity: 21% [?]
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