Types of real estate investments:
If you’re just getting started investing in real estate, it can be a little overwhelming learning about all the different types of investments available to you. Whether you have the time and money to spend on an investment property or not, there are a multitude of ways to get involved in real estate investing. Let’s explore a few of the options available to you.
A guide to Residential Tenants’ and Landlords’ Rights & Responsibilities
Real estate rental CPA
Call for CPA Recs.
The 1031 Tax Deferred Exchange is one of the last tax shelters allowed by the IRS.
It is a transaction in which a taxpayer Exchanges (sells) investment property (to purchase better) investment property (commercial or residential property) to defer the payment of capital gain taxes, health care taxes, state taxes, and the recapture of depreciation taxes (all of which needs to be paid with a sale of investment property). The IRS defines like-kind property as all real property held for investment purposes, or the productive use in a trade or business. Essentially this includes any real estate held for investment and precludes your primary residence and second family home.
Selling and purchasing better replacement property can lead to:
- Greater Cash Flow (greater rent)
- Diversification for greater safety (not putting all your equity in one property) and greater appreciation (appreciating in more than just 1 property)
- Purchasing up can create additional depreciation to help create additional tax write-offs to help you save more money on income taxes.
An investor may coordinate a 1031 Tax Deferred Delayed Exchange with 3 basic options. See below for more.
(Source: Exchange Resources Inc.)
Seller Carry Back
When an investor has agreed or is thinking about carrying back for their buyer, it means that instead of the buyer getting traditional financing, they are asking the Seller to take their down payment and agree to taking payments for the balance. This is not Exchangeable because a carry back or Note is considered a ‘security instrument’ not ‘real property’.
There are several options on seller carry backs. See link below for more.
(Source: Exchange Resources Inc.)
CAP Rate & GRM
The gross rent multiplier (GRM) is a screening metric used by investors to compare rental property opportunities in a given market. The GRM functions as the ratio of the property’s market value over its annual gross rental income.
In other words, let's say one property collects $2,000 in rent and another property collects $1,200 in rent.
You want to determine how much rent you will collect relative to the property cost. If both properties cost $200,000, the property that rents for $2,000 will give you the most return on your investment. However, this changes when the property costs change. You can use GRM to make that determination.
Let's take a look at the gross rent multiplier formula that shows you how to calculate the gross rent multiplier for a property:
Gross Rent Multiplier = Fair Market Value/Gross Rental Income
Example: $200,000 Fair Market Value / $24,000 Gross Rental Income = 8.3 GRM
The GRM formula compares a property's fair market value to its gross rental income. As you can see in the formula example, the payoff period occurs in just over 8 years. Other expenses, such as repairs to the unit, vacancies between renters, property taxes and insurance don't become a part of this calculation. However, it helps you make an accurate comparison between properties without taking these other things into consideration.
Capitalization rates, also known as cap rates, are measures used to estimate and compare the rates of return on multiple multi-family real estate properties. Cap rates are calculated by dividing the property’s net operating income (NOI) from its property asset value.
Cap rates can provide valuable insight into a property. But the cap rate is not the only metric used to determine an investment’s risk. With that, this should not be the only metric you consider when evaluating properties. Other factors, including the property’s individual characteristics and location, should also be taken into consideration.
The cap rate of a property is determined based on the potential revenue and the risk level as compared to other properties. Importantly, the cap rate will not provide a total return on investment. Instead, it will indicate an estimate of how long it will take to recover the initial investment in the property.
In order to effectively use this metric, you’ll need to learn how to calculate the cap rate. The formula you’ll need to calculate the cap rate is simply net operating income (NOI) divided by the property’s current market value.
(Source: Rocket Mortgage)
Riviera Property Management
Property Management Contacts:
Inland Pacific Management Inc.
Property Management Associates
Westside Property Management Inc.
Stone & Sallus LLP
Daniel R. Sallus
Eviction Attorney Contacts:
Law Offices of Sherry Anne Lear
SII Eviction Services
Vincent Real Law Office
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