Real Estate Investors buy insurance to protect their property from loss, but if you stop there, you could still lose if you don’t protect your assets.
Attorney Scott Smith is the principal at Royal Legal Solutions, a law firm specializing in working with real estate investors.
Insurance is a good first step to protect you from loss when you are first starting out. Once your portfolio grows and you have multiple properties, and significant equity, there are additional asset protection steps you need to take to protect yourself from loss.
Insurance vs Asset Protection
Insurance protects you from negligence. If you are sued for more than the insurance you have, the balance owed can be taken from your assets. If you lose it all, how long will it take you to recover?
Rule #1, don’t lose capital. Getting a poor return is far better than losing capital. If you lose capital, it can ruin you.
Insurance is inexpensive. Don’t skimp on insurance.
Protect Your Assets
Asset protection is not a singular event. It’s a plan that provides protection that creates separation between your investments and from your personal wealth. This structure isolates properties and the operation from you. It’s a way of creating moats with alligators and drawbridges to protect your castle.
Work with a legal professional to create a structure that will provide you the appropriate protection for your investment strategy. Your plan will likely include creating an LLC. When creating an LLC, consider the state you file it in. Certain states provide significantly more protection based on the charging order, compare CA vs TX.
If you do it right, you can compartmentalize your properties and protect them from actions at other properties, and hide your personal information from the ability to be found.
“If you have more than $50k in assets and equity, spend the money to protect your assets.”
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Multifamily investors rely on brokers to find deals. Beyond the broker relationship, investors look online; LoopNet, Costar, etc.
Scott Furman is an experienced multifamily commercial real estate broker that created ApartmentBuildings.com to compete with LoopNet and Costar.
The name says it all. Unlike LoopNet or Costar, ApartmentBuildings.com is exclusive to Multifamily, any size, from land for sale to fully occupied apartment complex.
The pain of change is the price of progress. The number one challenge for Scott and his team has been to gain brokers attention and confidence. Scott & his team’s persistence has paid off. Today, ApartmentBuildings.com is actively marketing properties in 5 states: CA, AZ, TX, FL & NY. The brokers listing their properties are getting results.
Brokers that commit to list on ApartmentBuildings.com are provided a marketing boost not available on other sites. If they will list their property on the site first, before listing on other sites, Scott and his team will present the property immediately to the users whose investment profile matches! This instant list of interested buyers has created numerous sales for brokers.
While the current footprint is not nationwide, the focus on multifamily is valuable to both brokers and users due to the focused nature of the platform.
You can create a free ApartmentBuildings.com account in just 30 seconds by going to apartmentbuildings.com/login. Once you establish a login, you are able to create an investment profile for the type of property you are looking for.
After you set your parameters, you will be receive first notice for all newly listed properties that meet your investment profile.
Users can specify:
Additional support built into the sites. Get professional advice and input regarding numerous matters involving multifamily investments. Including:
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The new Tax Plan will affect Real Estate Investment Strategies mostly for the better.
President Trump signed the revised Tax Plan into law effective for tax year 2018. There has been a lot of speculation up till now about how it will affect real estate investors. I spoke with Jonathan McGuire, CPA from the Real Estate team at Aldrich Advisors to sort out the changes, good & bad.
Tax Plan Summary Highlights
1031 Exchange remains unchanged for real estate investors. The deferral of gain on like-kind exchanges is only allowed with respect to real property that is not held primarily for sale.
Tax Pass Through:
Owners of certain pass-through businesses, S Corps, partnerships, & sole proprietorships, will be allowed to deduct up to 20 percent of qualified business income for tax years beginning after December 31, 2017.
The new tax law requires that in order to qualify for Capital Gains, the investment must be held for more than 3 years, compared to the prior 1 year standard. This could affect your plans if you originally planned to get out after one year.
Equipment purchased to operate & maintain a property can be expensed at 100% of the purchase price up to $1,000,000. This does not include real property; land & buildings.
Previously, individuals could write off all mortgage interest and local property taxes against income to lower the federal tax obligation. This is no longer the case.
Now, the portion of mortgage interest attributable to the first $750,000 is all that will be allowed. These buyers already are treated differently with jumbo loan rates and terms.
Additionally, deduction for home equity loans has been repealed. This could reduce the pool of investors looking to deploy equity held in their residence.
State & Local taxes
The new tax caps the state and local tax write off to a maximum of $10,000. Unless you live in one of the six states without a state income tax, you will pay between 2.9% (ND) to 13.3 (CA) of your income in state tax. When you add property tax to this, it is not difficult to breach the $10,000 cap.
IE: If you live in Portland, OR where the state tax rate is 9.9% and the Median household income is $58,423, your State Income Tax will be: $5,784. If in addition, you own a median priced home in Portland, $319,400 you can expect to pay roughly 1% of the retail value or $3,194 in property tax.
This may not affect a first time buyer if they are able to purchase a home. However, it may cause potential buyers of larger properties to rethink their purchase.
Any additional reduction in demand for single family homes to be built, will likely push the demand for more lifestyle rental options.
Pass Through Deduction:
Owners of certain passive income businesses will be allowed to deduct 20 percent of passive income. Limitations apply.
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Real Estate Investors buying government backed tax liens take little risk and can make great returns.
Every property in the United States has a property tax owed against it to support local government and services provided. An estimated 2% of all property tax bills are in default and go unpaid every year. Meaning, every year, there are more opportunities for real estate investors to buy tax liens.
Ted Thomas is a former commercial airline pilot and apartment investor. After he lost big in the crash in 1986, Ted got into tax liens, deeds and certificates and has never looked back.
Every property, residential, bare land, and commercial has a property tax assessed against it.
The taxes go to support the local government and services provided by the local government; schools, roads, police, fire, etc. In some jurisdictions, they are liens and others they are certificates. In both cases, they represent tax that is owed.
The tax rate and percentage of value varies by municipality. At a minimum, for residential property, the property tax represents 1% of the value of the property.
When a property is sold, or a change is made on title, the tax lien is the first lien that must be satisfied. Tax liens have priority over any first mortgage, second mortgage, or lien.
When the property tax does not get paid, the government sells the tax bill to willing investors. If after a determined amount of time the property owner does not pay the taxes due, you, the investor, become the owner of the property.
The local municipality has the authority to tax and sell the unpaid tax liens to a willing buyer. If the property owner does not pay the tax owed, the tax liens are sold at an auction. In many cases, the opening bid is for just the tax owed.
The annual interest rate charged against a tax lien can be as much as 18%. When the property owner elects to pay the tax, refinance, or sell the property, you get paid the tax plus accrued interest direct from the local municipality you purchased the tax lien from.
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Problem properties are the answer when looking for true opportunities in commercial real estate.
The marketplace is full of buyers chasing large properties with compressed cap rates and thin margins. To compete and win, you need to become an expert in identifying problems.
Sellers with problems want to be rid of their problems. These property owners are the focus of Tyler Sheff’s commercial real estate investment strategy. He has found there are multiple opportunities in every market, if you recognize the problem and can offer a solution.
Tyler’s team has identified multiple problems that are clues that the property owner wants out of the property. The following are some treasures of opportunities:
Find out what the tenants want and need. Remember, if they are upset and telling the internet about it, they probably have not been asked by the owner or management what they want.
Spend a little time getting to know what the tenants want can go a long way to making the property more enjoyable for them. This is an excellent opportunity to establish good will with the tenants and make certain your efforts get the reception you want.
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