IRA Real Estate Investing When the Going Gets Tough

IRA real estate investments are booming in 2008 for soon to be retirees who are worried about their future retirement plans. With the economy looking wobbly, the stock market plunging and the big investment banks going under, with us bailing them out, some traditional forms of retirement investing are starting to look a little sick.

For these reasons IRA real estate investments are increasing. Increasing? Surely not. Along with an economic meltdown, a stock market collapse and all sorts of economic turmoil, isn’t the real estate market headed for oblivion as well? Who in their right mind would consider investing their IRA in real estate?

Surely in 2008 real estate is a one way trip to the poorhouse.

No, not quite. Have you ever heard the expression that there is opportunity in adversity? There is plenty of opportunity in real estate right now, if you know where.

But lets look at IRA real estate investing first. How can you invest your IRA in real estate? Is it allowed? Is it legal?

Traditionally the majority of the population invest their IRAs in investments that are promoted to them by their custodian. In fact some custodians limit allowable investments to their own. So, it’s estimated, over 90%, in fact around 96% of IRA funds are invested this way. Mutual funds, CDs and stocks, and so on.

No problem if the markets are pushing ever skyward, but quite a problem right now.

But what about IRA real estate investments? Yes it’s entirely allowed to invest your IRA in real estate through a self directed IRA. Although this is not widely recognised, IRA real estate investing is one of the best forms of wealth accumulation for retirement. Real estate is a traditional long term wealth accumulation model, and as such is in fact ideal for IRA investing.

If you’re not certain about the details of how to set yourself up for IRA real estate investing consult your CPA, that’s outside the scope of this article. However take my word for it, it’s quite legal, and many canny IRA investors are doing it right now, and have been for a long time. You may need to execute an IRA rollover into a self directed IRA, but the trouble is worth it.

And there’s powerful reasons to consider investing your IRA in real estate. Did you know, for example, that it’s estimated that 85% of all wealth in the US was created through real estate?

And that through your IRA you can secure up to 70% bank non-recourse financing to invest your IRA retirement funds in income producing real estate?

Its food for thought isn’t it?

Now back to the real estate market. After all there’s no point in IRA real estate investing if the value of your real estate investment is going down is there?

Although we all hear that the real estate investment market is dreadful this isn’t the whole story. PARTS of the real estate market are dreadful, but not ALL of it. It’s perfectly possible to find excellent opportunities for investing in the lower priced end of the market. Simple comfortable homes for the working class who live in those faceless suburbs in cities right across America. There are some fantastic IRA real estate investments available in the right place RIGHT NOW.

But if you’re looking to get out there and find them yourself then you may be in for a shock. It’s not something that is realistic for the individual IRA real estate investor. You need professional help.

Buy in the wrong place and you’ll probably get burnt, big time.

But right now there are some excellent opportunities available for securing a great real estate investment, no cash down, at under market value, with tenants supplied, rental guarantees and even a guarantee that you will double your current investment return.

All through a major US public corporation with a reputation for solid real estate investment returns, for both IRA real estate investing and ordinary credit investing in real estate.

Yes you can secure your retirement future through a good IRA real estate investment, or more than one. However it’s the time to leave it to those who really know what they’re doing in hard times, and you can relax and leave the hard work to someone else.

Posted in Uncategorized | Comments Off

Getting Started in Residential Real Estate Investing

Residential real estate investing is a business activity that has waxed and waned in popularity dramatically over the last few years. Ironically, there always seem to be a lot of people jumping on board with investments like stock, gold, and real estate when the market’s going up, and jumping OFF the wagon and pursuing other activities once the market’s slumping. In a way that’s human nature, but it also means a lot of real estate investors are leaving money on the table.

By understanding the dynamics of your residential real estate investment marketplace, and acting in opposition to the rest of the market, you can often make more money, as long as you also stick to the real estate investing fundamentals.

Real estate investing, whether you’re buying residential or commercial property, is not a get-rich-quick scenario. Sure you can make some fast cash flipping houses, if that’s your bag, but that is a full time business activity, not a passive, long term investment. The word “investment” implies that you are committed to the activity for the long haul. Often, that’s just what it takes to make money in real estate.

So, while the pundits are crying about the residential real estate market slump, and the speculators are wondering if this is the bottom, let us return to the fundamentals of residential real estate investing, and learn how to make money investing in real estate for the long term, in good markets, as well as bad.

A Return To The Fundamentals of Residential Real Estate Investing

When real estate is going up, up, up, investing in real estate can seem easy. All ships rise with a rising tide, and even if you’ve bought a deal with no equity and no cash flow, you can still make money if you’re in the right place at the right time.

However, it’s hard to time the market without a lot of research and market knowledge. A better strategy is to make sure you understand the four profit centers for residential real estate investing, and make sure your next residential real estate investment deal takes ALL of these into account.

Cash Flow – How much money does the residential income property bring in every month, after expenses are paid? This seems like it should be easy to calculate if you know how much the rental income is and how much the mortgage payment is. However, once you factor in everything else that goes into taking care of a rental property – things like vacancy, expenses, repairs and maintenance, advertising, bookkeeping, legal fees and the like, it begins to really add up. I like to use a factor of about 40% of the NOI to estimate my property expenses. I use 50% of the NOI as my ballpark goal for debt service. That leaves 10% of the NOI as profit to me. If the deal doesn’t meet those parameters, I am wary.
Appreciation – Having the property go up in value while you own it has historically been the most profitable part about owning real estate. However, as we’ve seen recently, real estate can also go DOWN in value, too. Leverage (your bank loan in this case) is a double-edged sword. It can increase your rate of return if you buy in an appreciating area, but it can also increase your rate of loss when your property goes down in value. For a realistic, low-risk property investment, plan to hold your residential real estate investment property for at least 5 years. This should give you the ability to weather the ups and downs in the market so you can see at a time when it makes sense, from a profit standpoint.
Debt Pay down – Each month when you make that mortgage payment to the bank, a tiny portion of it is going to reduce the balance of your loan. Because of the way mortgages are structured, a normally amortizing loan has a very small amount of debt pay down at the beginning, but if you do manage to keep the loan in place for a number of years, you’ll see that as you get closer to the end of the loan term, more and more of your principle is being used to retire the debt. Of course, all this assumes that you have an amortizing loan in the first place. If you have an interest-only loan, your payments will be lower, but you won’t benefit from any loan pay down. I find that if you are planning to hold the property for 5-7 years or less, it makes sense to look at an interest-only loan, since the debt pay down you’d accrue during this time is minimal, and it can help your cash flow to have an interest-only loan, as long as interest rate adjustments upward don’t increase your payments sooner than you were expecting and ruin your cash flow. If you plan to hold onto the property long term, and/or you have a great interest rate, it makes sense to get an accruing loan that will eventually reduce the balance of your investment loan and make it go away. Make sure you run the numbers on your real estate investing strategy to see if it makes sense for you to get a fixed rate loan or an interest only loan. In some cases, it may make sense to refinance your property to increase your cash flow or your rate of return, rather than selling it.
Tax Write-Offs – For the right person, tax write-offs can be a big benefit of real estate investing. But they’re not the panacea that they’re sometimes made out to be. Individuals who are hit with the AMT (Alternative Minimum Tax), who have a lot of properties but are not real estate professionals, or who are not actively involved in their real estate investments may find that they are cut off from some of the sweetest tax breaks provided by the IRS. Even worse, investors who focus on short-term real estate deals like flips, rehabs, etc. have their income treated like EARNED INCOME. The short term capital gains tax rate that they pay is just the same (high) they’d pay if they earned the income in a W-2 job. After a lot of investors got burned in the 1980′s by the Tax Reform Act, a lot of people decided it was a bad idea to invest in real estate just for the tax breaks. If you qualify, they can be a great profit center, but in general, you should consider them the frosting on the cake, not the cake itself.

Any residential real estate investing deal that stands up under the scrutiny of this fundamentals-oriented lens, should keep your real estate portfolio and your pocketbook healthy, whether the residential real estate investing market goes up, down or sideways. However, if you can use the real estate market trends to give you a boost, that’s fair, too. The key is not to rely on any one “strategy” to try to give you outsized gains. Be realistic with your expectations and stick to the fundamentals. Buy property you can afford and plan to stay invested for the long haul.

Posted in Uncategorized | Comments Off

Advantages of Real Estate Investing

Investing in real estate is as advantageous and as attractive as investing in the stock market. I would say it has three times more prospects of making money than any other business. But, But, But… since, it is equally guided by the market forces; you cannot undermine the constant risks involved in the real estate. Let me begin discussing with you the advantages of real estate investments. I found the advantages as most suited and really practical.

Advantages

Real Estate Investments are Less Risky

As compared to other investments, less of misadventure is involved in a real estate property. I will not get away from the fact that just like any investment you make; you have the risk of losing it. Real estate investments are traditionally considered a stable and rich gainer, provided if one takes it seriously and with full sagacity. The reasons for the real estate investments becoming less risky adventure primarily relate to various socio-economic factors, location, market behavior, the population density of an area; mortgage interest rate stability; good history of land appreciation, less of inflation and many more. As a rule of thumb, if you have a geographical area where there are plenty of resources available and low stable mortgage rates, you have good reason for investing in the real estate market of such a region. On the contrary, if you have the condo in a place, which is burgeoning under the high inflation, it is far-fetched to even think of investing in its real estate market.

No Need for Huge Starting Capital

A real estate property in Canada can be procured for an initial amount as low as $8,000 to $ 15,000, and the remaining amount can be taken on holding the property as security. This is what you call High Ratio Financing. If you don’t have the idea as to how it works, then let me explain you with the help of an example. Remember that saying… Examples are better than percepts!

Supposing, you buy a condo worth $200,000, then you have to just pay the initial capital amount say 10% of $200,000. The remaining amount (which is 90%) can be financed, against your condo. It means that in a High Ratio financing, the ratio between the debt (here in the example it is 90% Mortgage) and the equity (here in the example it is 10% down payment) is very high. It is also important to calculate high ratio mortgage insurance with the help of Canada Mortgage and Housing Corporation (CMHC). If needed, you can also purchase the condo on 100% mortgage price.

Honing Investment Skills

A real estate investment, especially when you buy a condo for yourself, will be a pleasurable learning experience. It gives you the opportunity to learn and when I went ahead with my first real estate property, I was totally a dump man. Ask me now, and I can tell you everything, from A to Z. Necessity is the mother of all inventions. I had the necessity to buy the property and so I tried with it, and I was successful. I acquired all the knowledge and skills through experience of selling and purchasing the residential property. Thanks to my job. It gave me the experience to become an investor.

Not a time taking Adventure

Real estate investment will not take out all your energies, until you are prepared and foresighted to take the adventure in full swing. You can save hell lot of time, if you are vigilant enough to know the techniques of making a judicious investment in the right time and when there are good market conditions prevailing at that point of time.

You should be prepared to time yourself. Take some time out, and do market research. Initiate small adventures that involve negotiating real estate deals, buying a property, managing it and then selling it off. Calculate the time invested in your real estate negotiation. If the time was less than the optimum time, you have done it right. And if you end up investing more time, then you need to work it out again, and make some real correction for consummating next deals. You have various ways and methodologies, called the Real Estate Strategies that can make it happen for you in the right manner.

Leverage is the Right Way

The concept of leverage in real estate is not a new one. It implies investing a part of your money and borrowing the rest from other sources, like banks, investment companies, finance companies, or other people’s money (OPM). There have been many instances where people have become rich by practically applying OPM Leverage Principal. As I had discussed under the sub head – No Need for Huge Starting Capital, the high ratio financing scheme gives an opportunity of no risk to the lenders, as the property becomes the security. Moreover, in case the lender is interested in selling the property, the net proceeds resulting from the sale of the property should comfortably cover the mortgage amount.

Posted in Uncategorized | Comments Off