Real Estate Investing Choices
Real estate investments can provide growth, income, diversification and tax benefits to an investment portfolio.
Direct Real Estate Ownership. If you are willing to spend some time learning landlord/tenant laws and managing rental property, you might choose to become a landlord. Most landlords are not properly trained, use homemade leases and legal forms, and own their rental property as a sole proprietor. Mistakes can lead to losses and lawsuits. We recommend that you attend our class titled Managing Rental Property to learn the many potential risks of landlording, and strategies to reduce and avoid risks. (See class description in our Seminars section.)
Because of the potential for lawsuits, we suggest that you consider using a limited liability company (LLC) to own your rental property, rather than owning it personally as a sole proprietor. An LLC reduces your risk by separating your personal assets from your rental property business. We can provide you with information to setup an LLC in your state or another state such as Nevada, Wyoming or Delaware.
Rather than use a risky homemade lease, we recommend that you join your local Apartment Association chapter, and use the lease available to members. You can locate your local Apartment Association chapter in our Web Links section. There are local chapters in about 150 cities.
Before buying any investment real estate, make sure you do a financial analysis of the expected income, expenses and appreciation. You can use our Rental Property Analyzer spreadsheet to crunch the numbers and compare several choices before buying or to measure the performance of real estate you already own. Analyzing your rental property periodically will alert you to problems so that you can take steps to correct them or sell or exchange your real estate for a better investment.
You can invest in real estate by buying notes and trust deeds (deed of trust, mortgages). The trust deed pays
a high interest rate, and is secured with real estate as collateral.
Trust deeds can provide a high monthly income, better than the rate you get
at a bank, or with an annuity, and you can buy trust deeds in your self-directed IRA or Roth IRA, where the income
is tax-deferred or tax-free.
You can do a lot of research online before buying land, such as checking ownership, assessed values and property liens in county records, aerial photos, topographical maps, road maps, and economic and demographic information. Parcels are available from under $1,000, depending on location, topography, utilities and amenities. You might wish to diversify, buying land in several different locations as a land portfolio, rather than buying a single large parcel. You can even buy land online on some websites and auctions.
Be sure to do research on the seller's reputation and look for a Warranty Deed rather than a Quit Claim Deed. Some land wholesalers buy land at county tax lien sales and then sell the land at a discount to make a profit rather than holding on to the land for a long term investment. You may find bargains this way, if you do your homework. Check the land value, ownership and liens listed in the county records before buying.
You can generate income from land by buying at a discount price and then selling at retail price on an installment contract (land contract, contract for deed) at a high interest rate. Seller financing is common with land purchases. The buyer does not get the deed until all payments have been made. This is a secured real estate loan, with the land serving as collateral. If the buyer defaults, they forfeit their payments and you can sell the land to someone else.
We have done research on land investing in several states.
Call us for information on land investments.
Owning Real Estate in an IRA or 401k.
You can own real estate in your IRA and some 401k plans. It is simpler to buy the property free and clear rather than have a mortgage due to tax complications and Unrelated Business Taxable Income (UBTI) which can make your IRA income taxable at high tax rates for a trust. More advanced investors may choose to learn about UBTI and use a special non-recourse lender to finance their IRA real estate. Depending on the amount of money you have, this probably limits your choices to raw land, and less expensive real estate such as cabins, condos, townhomes, micro-housing and fixer-uppers. You can also buy mobile homes and manufactured homes. You can pool your money with other taxable investors or IRA accounts if you choose. IRS rules state that you cannot use the real estate while your IRA owns it. You can also buy tax liens or trust deeds that pay a high rate of interest, secured by real estate. We can provide information on how to buy real estate, tax liens or trust deeds with your IRA or 401k.
Property Management Education. We have many years of experience in managing rental property and teaching property management classes. We can assist you with your property management questions and help you to avoid risks and problems.
Click here for a Free Consultation on real estate.
Disclaimer: Advisor Financial Services does not offer
legal, tax, or investment advice. Contact a licensed, qualified
professional for legal, tax, or investment advice.
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