Real Estate Investing Tips
Real estate is a great way to make money, reduce taxes and diversify investments…if you understand a few basics about smart real estate investing. Late night Guru’s make real estate look easy but don’t underestimate the amount of strategy, hard work and risk involved in buying or selling real estate as an investment. If you are interested in real estate as an investment tool then take time to read these quick tips:
- Have a Strategy. Sounds simple doesn’t it? So is the stock market on the surface! The reality is a little more difficult. Deciding on what strategy works best for your individual situations requires planning, preparation and a realistic outlook of your long terms goals and short term assets. Some sample strategies to consider include:
Buy and Hold. Use this strategy if you are looking for a long term investment with the potential for tax write-offs and attractive
Capital Gains taxation rates.
Flip. Flipping real estate can generate considerable profits in a short period of time but often requires extensive time to find, renovate and sell a property. Miscalculations can be critical mistakes without adequate funding and short term gains are often taxed at normal income rates. Be sure to know how to crunch the numbers, including tax issues, before focusing effort on flipping.
- Know the Numbers. Don’t get caught up in the “asking price” of local properties – instead, review actual sales data then deduct closing costs, taxes and other transaction fees to determine if it is a worthwhile endeavor. Other calculations you will want to know include:
Return on Investment or ROI. Make sure you put your money to the best possible use by calculating the actual return on investment compared to other investments that require less work or risk.
Rate of Appreciation, Depreciation & Inflation. Appreciation, depreciation and inflation will each dramatically impact real estate investment calculations. During times of rapid price increases, appreciation can turn a money pit into a profit but don’t count on it to last forever. Historically real estate appreciates an average of 3-4 percent annually. Likewise, depreciation is primarily used for tax purposes but allows many people to show a paper loss while still realizing actual gains. Finally, inflation can work for or against real estate by increasing the value of a home while also increasing the cost to maintain and insure the property.
- Remain Objective. Real estate investing is just like any other investment that requires planning and preparation but it is easy to “fall in love” with a property and overpay, over-improve or otherwise reduce the rate of return on your money. Use qualified appraisers, inspectors and other professionals to assure you are making a wise financial decision when approaching any potential property as an investment tool.
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