Following Key Principles Can Help You Succeed in Real Estate Investing

Whether you’re purchasing your first an income-producing property or adding to your portfolio, you want to make sure that you’re making a good investment. This is especially true considering the market instability of recent years. To help you make a sound investment, you’ll want to make sure you incorporate the real estate success factors into your long-term plan.

1.   Market Research:  To be successful in real estate, you need to know the market. This not only includes being familiar with local property values and mortgage rates, but also means identifying economic trends and patterns locally, regionally and nationally.

The overall health of the economy is a good indication of how other markets – including real estate – are functioning. Since real estate is a cyclical market, being able to identify market troughs and peaks can help you predict the optimal time to invest in or dispose of a property.

If you’re purchasing an investment or rental property, you’ll want to become familiar with local rent averages and occupancy trends. To make sure you'll get a "cash flow" on a property -- meaning that the property is actually making you money after the mortgage and other expenses are covered -- you'll need to figure out what those expenses are prior to purchasing the property.

2.   Logical Thinking:  When you’re dealing with real estate, it’s very easy to get emotionally invested in the transaction and in the subject property itself. However, this can be detrimental if your primary goal is to make a sound investment. An emotional attachment  can make you more likely to pay too much or settle for unwise financing options. Keeping a level head can be a key success factor for real estate success because it enables you to see the transaction as an objective party.

3.   Networking:  Often, the best real estate opportunities arise through your personal connections. Think about who you know!  Establishing a network of savvy real estate acquaintances and colleagues can help you not only learn the ins and outs of successful investments, but can also give you opportunities you may not otherwise find.

You might also find like-minded investors willing to pool their funds to purchase an investment property and share the proceeds when it’s resold.  Friends or business acquaintances successfully buy and sell commercial buildings as partners. If you pool funds, the buying group needs to have a legal document that covers such things as your share of investment returns, how your share is determined as well as provisions on how a member may leave the group, disposing of the investment (such as who negotiates on behalf of the group), and other operational issues concerning the investment and the group’s members.

4.   Patience:  Finding success in real estate takes a whole lot of patience. Like most sound investments, real estate fortunes aren't usually made overnight, nor do they come from impulse buys. Waiting for the ideal investment for your circumstances – even if it means delaying your purchase or walking away from a property you love – can increase the chances of making the most from funds you have on hand and any funds you leverage in the purchase.

Putting in the time to properly care for and manage your property, along with waiting for the optimal time to sell it, patience is a determining factor in your level of real estate success.

Realty Investment World Re-Launched

Realty Investment World is a News & Technology blog to share information and news with you and others interested in commercial real estate, whether as an investor, a landlord, a tenant, an owner-occupant or industry professional providing service to others.

I have re-launched Realty Investment World after purposely making it dormant.  With the underlying issues resolved, the blog is now re-launched and will remain active. 

The blog was not active during 2011 to the present while the Prudential Real Estate brokerage network was being sold by Prudential Financial to Brookfield Asset Management, which then sold its majority interest in 2012 to Warren Buffett’s Berkshire Hathaway company.  From 2012 through 2014 Prudential Real Estate was restructured into the Berkshire Hathaway real estate network. The future is bright. Both Brookfield and Berkshire Hathaway are world leaders in commercial, institutional and residential real estate.

During this transition I remained associated with the same brokerage, which is now Berkshire Hathaway Professional Realty – Commercial Services, formerly known as Prudential Commercial Real Estate. 

Self-Directed Pension Plan Opportunities

More self directed pension plan options are becoming available.  As previously noted more and more companies are cutting back or eliminate their employee pension plans. Plus, each year more individuals are becoming self-employed. Sadly, most people are not aware of the various tax deferred pension plan options.  Let’s take a look at what is available.  Some of these tools might just provide the vehicle you need to reach your retirement income and wealth goal.

When I first looked into self-directed pension plans many years ago, I thought it was a very simple concept with just IRAs and Roth IRAs being available. Subsequently, however, I quickly learned there are many different types of Self Directed Pension Plans. In a nutshell, this is what is available today.

1.  Individual retirement accounts are both the traditional IRA and Roth IRA

·    Self Directed Traditional IRA permits contribution until age 70½, at which time you must begin distribution.

·    Self Directed Roth IRA permits contribution to the plan as long as you live.

2.  Small Business Plans include "supercharged" plans, such as the SEP IRA, SIMPLE IRA, 401(k), and solo 401k that permit larger contributions and tax deductions (possibly more than $50,000) while you are still contributing to a traditional or Roth IRA. As an investor, you most likely qualify for one of these plans.

3.  Defined Pension Plans that are specifically designed for a business that are tax-deferred and permit very large annual contributions that may exceed $1 million per year. These plans don’t require employees to participate and may be used only by the business owner, and possibly its business executives.

The individual retirement accounts, small business plans and defined pension plans have different contribution limits that are defined by the tax code and change from year to year.

The next few blog posts will cover key elements and what you need to setup and operate a tax deferred pension plan that makes the most sense for you. 

In the meanwhile, if you want further information on these various pension plans, talk to your certified public accountant (CPA), attorney and financial advisor. Interestingly, it is not uncommon for a trusted advisor to not to have heard of self directed IRAs and other types of self directed pension plans.

If your advisor is not familiar with self directed pension plans, have him or her contact an IRA/pension plan custodian or administrator possessing a lot of experience with self directed plans. You should also encourage your advisor to join a self directed IRA professional advisor network.  If you need help in finding someone to act as your advisor, they can be found using the internet. Or respond back to this blog via email (don’t post your name or contact information) and I will be happy to help you in any way I can.

How Much Wealth Do You Need to Retire at Age 65?

Now let’s take a look at the amount of retirement funds needed for you to retire at age 65, with the assumption you will live to be 90-years old. As an example, we will assume in 2010 dollars that you need a modest $60,000 a year after taxes, and $75,000 before taxes. Therefore, your total retirement funds need will to be at least $1,875,000 over the 25 year period. If you factor inflation, the total needs to be $2,000,000.  Many financial planners confirm that you need $2 to $2½ million to retire at age 65. 

Let’s assume you have contributed as much as $5,000 to your IRA each year, and if you are over 50 years of age, $6,000. At a return of 8 percent on your money, you will retire with more than $600,000, assuming that your money has been invested wisely in your IRA.  Unfortunately, this is an insufficient amount to retire comfortably.  Obviously, you need other sources of wealth to achieve your retirement goal.

As you know, more companies today in the United States are contributing less and less to their employee’s retirement, making it necessary for employees to do more. Our federal government is recognizing this and is gradually increasing the amount that you may contribute annually to your IRA and other tax deferred pension plans.  In my opinion, the annual contributions permitted for IRAs, Roth IRAs, 401(k)s and most other plans are still far too low to obtain the amount needed for a comfortable lifestyle until age 90.

Obviously, we need to have a comprehensive financial plan to develop our retirement income and wealth to the level needed for the remainder of our lives. The plan should:

·         Have a nest egg for emergencies,

·         Retire as much debt as you can to reduce interest cost and free up more funds for investment,

·         Further, you should establish a real estate investment plan to generate monthly income and growth of wealth,

·         Establish a diversified investment program that provides additional security, and

·         Setup and invest in a Self-Directed tax deferred pension plan.

Benefit of Real Estate versus Wall Street Investment

Let’s take a quick look and review investment in Wall Street stocks versus real estate properties.  As a real estate investor, the tax code provides us significant tax sheltering opportunities while producing monthly income and wealth growth in our pension plans. Unfortunately, Wall Street stocks don’t have that benefit.  I am not against stock investments. Excellent quality stocks are needed as a diversification of your total investment program. Smart investors balance their portfolios.

Wall Street stock investment:

1.  Growth in value is primarily with market appreciation that tends to be more volatile as the market fluctuates up and down with the emotions of the moment, and the state of the economy.

2.  Cash flow dividend income for many stocks is non-existent and, if paid, is usually a very low percentage of the stock’s value and subject to the whim of the Board of Directors and management to be paid. Often dividends are the last thing to be distributed, if at all, from profits.

3.  The tax code does not provide much benefit to stock ownership unless you sell the stock for a gain. Then you are taxed at the capital gain tax rate, which long term rate currently is 15 percent.

Real estate property investment:

1.  Growth in your investment value occurs with:

·      Market value appreciation,

·      Cash flow monthly income, and

·      Increase in equity from the pay down of loan principal.

The key factor in a quality real estate investment is that the tenants’ rent pays all the property’s operating expenses and pays down the loan principal.

2.  Cash flow income is a major benefit of real estate investment with rents being received monthly after all expenses and debt service has been paid. This is cash that the investor controls, which may be used to purchase additional real estate, or if not reinvested, used for living expenses, vacation travel or other things that the investor needs or wants. 

3.  The tax code provides opportunity to shelter most, if not all, real estate income as well as gains when the property is exchanged or sold:

·      Shelter income by deducting the property’s operation expense, amortization/depreciation and debt service interest from the gross rental income,

·      Shelter all gain when the property is exchanged for another using the tax code 1031 exchange provisions or

·      Shelter most of the gain on sale, when not exchanged, at the long term capital gains tax as a qualified investor.

Are You Tax Sheltering Your Wealth?

Well it is again that time of year . . tax season.  Hopefully you don't have any surprises and have to pay more taxes than anticipated.

Fortunately, excellent tax shelter options are available as we generate our investment income and wealth.  As you may already know, real estate investment is considered by many economists, despite the ups and downs in the economy, to be the best way to generate wealth. 

We are in interesting economic time of change and must be prepared for whatever develops. I am an optimist and see some hope with new leaders emerging, who are trying to curtail the excessive government spending and involvement in our lives.  Unfortunately, full recovery of our economy will take a few more years. Meanwhile, we need to keep vigilant on how best to maintain and grown our investments.

Over the next week we will discuss tax sheltering our wealth in the following blog sessions:

·         Benefit of real estate versus Wall Street investment;

·         How much wealth do you need to retire at age 65;

·         Self-directed pension plan opportunities; and

·         Other tax shelter alternatives

Welcome To My Real Estate World

Long an active participant in the real estate world, I have been fascinated with investment and commercial real estate blogs and websites and their usefulness to report news, or comment on the industry in a timely fashion. More than timely, they are immediately available to us.

This blog is something that I have been kicking around for a while.  More inspiration came from a fellow associate who gave me the kick in the fanny that I needed to get started.  Like anyone, I’ve got a lot of ideas. My views are my own. Sometimes I’ll link to interesting posts from others.

The purpose of this blog is to provide information and discussion on a wide variety of investment and commercial real estate subjects. It is targeted to investors, owners, tenants and anyone having an interest in commercial real estate.

A wide variety of topics will be discussed. Some examples of future topics are:

•  Current industry news and economic outlook,

•  Building your wealth through real estate investment,

•  Self-directed IRAs and pension funds,

•  How to improve investment performance,

•  Factors to consider in buying or leasing,

•  Real estate development,

•  Funding sources and arrangements,

•  Site selection and marketplace analysis,

•  Asset and property management and

•  Many other topics of interest.

I welcome your discussion, questions and topic suggestions and look forward to sharing our Realty Investment World with you.