Category → Investing
August 24th, 2010
Five Real Estate Investing Tips
There are always new things to learn about real estate. Hopefully one or more of the following real estate investing tips will teach you something new and useful.
1. Time Your Sale For Tax Savings
We once had a December closing on a property that we had owned for a few months. By pushing the closing up to the first week of January, we were able to put off paying tax on the gain for a year. If you have a property to sell that will result in a taxable gain, you might also want to hold off the sale if it is near the end of the year. Consider also in which year you are likely to be in a higher tax bracket. If the tax will be substantially more in the following year it is better to close now and pay less.
2. Use Home Equity For Investing
Whatever people say about zero-down investing (and yes it is possible), it is easier and often more profitable to invest in real estate when you have some cash to work with. Short on cash for investing? You can borrow against your home if you have a good chunk of equity. An even safer way – if you are serious about investing – is to downsize to a smaller home to free up that equity. That way you get money to invest without having larger payments on your own home.
3. Check For Code Violations
Check for any code violations or problems before you buy (or put a contingency in the purchase agreement). Once, while looking at a property, we learned that in order to keep using a property as a triplex, we would have to provide two parking spaces for each unit. That just happened to be the rule in that particular community, and there were only three spots total at the time. Problems like this don’t have to be deal-breakers, but you need to know what the costs of bringing a property into compliance will be before you make an offer, or adjust your offer before you close the deal.
4. Crucial Clauses Your Offer Needs
If you are buying through a real estate agent they will most likely provide a purchase agreement for you to make your offer with. These normally cover the important points, but be sure you have the few truly important clauses in the contract. These include a financing contingency (unless you are paying cash) specifying that the offer is only valid if you can obtain a loan (and specify the terms you need on the loan). There should be a clause that gives you the right to an inspection and to renegotiate or cancel the contract if the results are not satisfactory. There should also be a “liquidated damages” clause (common in many pre-prepared contracts now), which says that if the deal falls through because of some fault of yours, the seller only gets to keep the good faith deposit. If there are other obvious issues, like junk that needs to be removed, be sure to address these in the offer as well.
5. Learn A Few Negotiation Techniques
This is one of the more important of these real estate investing tips, because your profit is often determined by how you buy a property. You might use the “limited authority” ploy, for example, to get a lower price when negotiating directly with a seller. This involves hesitating and saying something like, “Well, I would have to check with my wife to go any higher than this.” Hopefully the seller then imagines the wife saying no to the whole deal, and so agrees to what you are offering. There are dozens of great techniques used by master negotiators, but even learning and using just a few can boost your profits.
By admin • Posted in Investing • No Comment
June 30th, 2010
The Best Stocks to Buy Right Now
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By admin • Posted in Investing • No Comment
March 2nd, 2010
Tax Lien Investing Faqs
Recently I sent an e-mail out to my subscribers asking them some questions. I wanted to find out what it is that most people want to know about tax lien investing. I got a lot of good questions and I won’t be able to answer them all in this article, but I want to try to answer those that were asked most often and that weren’t answered in my new free video course.
I especially like to answer questions that start out with the words “How do I…” or “How can I…” This type of question shows me that someone is really interested and is ready to take action. So let’s answer some of these types of questions that are not answered in my video series. So here are some frequently asked questions about tax lien investing.
Q1: How can I buy tax liens or tax deeds without going to the auction?
A: In most states you have to attend the auction in order to bid, or have a representative there to bid on your behalf. But there are 2 ways that you can purchase a tax lien or deed without physically going to the sale. A few states do have online auctions, but not all counties in these states conduct their auctions online. Usually just the larger counties do. Many counties in Florida, California, and Arizona have online tax sales. And I know that some counties in Colorado and Illinois have online tax sales as well. Another way that investors have bought tax lien and tax deeds without going to the sale is to bid on left-over liens, this can usually be done through the mail. The only problem is that as tax lien and tax deed investing become more popular, there are less and less good properties left-over after the tax sale.
Q2: I don’t live in the US; can I still invest in Tax Liens or Tax Deeds?
A: Yes, in most states you can invest in tax liens and tax deeds even if you are not a US citizen and do not live in the US. There are a couple of states that you have to be a resident of the state to invest, but these are not the most popular tax lien states and they don’t have online sales. All you have to do in order to purchase a tax lien is to fill out a tax form called a W-8BEN form. In order to complete this form you will also need to apply for an Individual Tax Identification Number (ITIN) if you are bidding in your own name. If you are bidding using a business name, you must apply for an Employer Identification Number (EIN). This is only for tax liens. You do not have to do this to participate in a tax deed sale.
Q3: So how much money do you need to get started with tax lien investing?
A: The beauty of tax lien investing as opposed to tax deed investing and other types of real estate investing, you can start with a very small investment. The first very profitable tax lien that I purchased started with an initial investment of only a couple of hundred dollars, on a small sewer lien. Then I was able to pay the subsequent sewer taxes the next couple of years and instead of trying to foreclose I just kept paying the subsequent taxes. After a couple of years, the homeowner moved out of state and stopped paying the taxes on the property, so then I got to pay even bigger payments $5000 over the next couple of years. The lien finally redeemed and I collected 18% per annum on most of my investment plus penalties.
Q4: How often do you acquire the property with tax liens?
A: In the state of NJ where I invest, very, very seldom do you get to foreclose on the property. If you are interested in owning property than tax deed investing or redeemable tax deed investing is the way to go. Only about 1% of tax liens will not redeem and of those properties, once you start the foreclosure process about 80% will redeem sometime during the foreclosure process. I’ve been investing for about 6 or seven years and I haven’t foreclosed on a property yet. I do have a couple of liens that I could start foreclosure on right now, but I know that when I do, they will redeem, so I just let them go.
I know some investors who have foreclosed on a couple of properties, but either it is not recent – we’re talking a few years ago when property values were not what they are today and it was much harder to get a loan, or they have a really huge portfolio with thousands of liens.
Q6: Are there risks involved in this type of investing? What are they?
A: Yes, there are risks involved and that’s what the gurus leave out, they make it sound so easy. They like to use the term “Government Guaranteed” to make people think that they can’t go wrong with tax lien investing, that the government guarantees that they’ll get paid on a tax lien. That’s really not true, what they mean by “government Guaranteed” is that there are laws that protect the investor but you not guaranteed to get paid. The guarantee is the property. Tax Liens are guaranteed by the property that you have a lien on, so if you buy a tax lien on a worthless piece of property, then you made a poor investment and it is possible that you could lose your money. Yes, there is risk involved, but that risk is minimized by doing your due diligence on the property before you purchase the lien, just like you would do due diligence on property before giving someone a loan against it. If you do your due diligence properly than tax lien investing is a very safe investment because it’s secured by something tangible, not just a piece of paper.
One of the things that I do in my courses, John, is teach people how to do due diligence for tax sale properties so that they can totally reduce the risk involved with tax lien investing.
Q7: Can you invest in tax liens and tax deeds in your IRA?
A: We all want to keep more of those profits for ourselves and not give half of it away to Uncle Sam. The good news is that you can use money in your IRA or Roth IRA to invest in tax lien certificates or tax deeds, but only if it’s a true self-directed IRA. With a self-directed IRA, your profits can grow tax-differed, and with a Roth IRA, your profits can be totally tax-free.
In my courses I have 2 audios from different experts from 2 different self-directed IRA companies that explain how to do this.
By admin • Posted in Investing • No Comment