What is a 1031 Exchange?
IRS Code Section 1031 allows investors to defer capital gains tax on the sale of investment property, if certain guidelines are followed.
I have lots of land here and there that nobody but me seems to want (and I’m not so sure about me). A few days ago I was trying to buy a lot zoned for mobile homes. The seller, who was also a broker, wanted $63,000 cash, but at her price, I wasn’t interested.
Continue reading “Using What You Have to Get What You Need to Get What You Want”
Rarely when I hear people complain about being able to buy a house today that makes sense as a rental do I ever hear them mention using anything other than conventional bank financing. They are quick to point out, that even in the relatively low interest rate environment that we have today, the rising prices of houses has outstripped rents so far that nobody can afford to buy a house and hold it as a long term rental. This ignores the fact that the reason expensive houses aren’t feasible as rentals is because of the high leverage used to buy them. A free and clear house will cash flow.
Long before money was invented, people traded goods to get what they wanted. Later on, as people began domesticating livestock, salt became a form of money; and later yet gold and silver; but trade between buyers and sellers has never completely gone away. This is seen every day when people "trade in" their old cars for new cars.
When homeowners start considering a voluntary move from one residence to another, two problems immediately arise: One of these is to determine how much they’ll be able to net from the sale of their current house, and how much they’ll be able to buy their next house for. The second is how to sell their current home, and yet be able to stay in it until they are able to move into their next home. Being able to solve these common problems is the key to being able to buy and sell real estate with very little "holding time" and the tieing up of a lot of money.
I suggest you read Bill Effros’s book, How to Sell Your House In 5 Days for a basic understanding of the process.
There are a few things I do a little differently that what is described in the book which I have found to be much more successful. Here goes:
It can become overpowering to contemplate all the skills needed to properly use rental housing to build and maintain an estate. You'll need help. The question is, where do you get it? You should be prepared to spend as much time building a management team as you do acquiring properties. Packard Motor Car Company used to have a slogan: 'ASK THE MAN WHO OWNS ONE'. Landlords are a good place to start looking for people who are reliable and qualified to help you. Here's what you'll need for starters: Maintenance people who can do everything that you CAN'T do. Rent-Up people who can place ads, screen those who apply to eliminate poor credit risks and tenants who are unstable, let property deteriorate and who don't keep their promises under the Rental Contract or who are trouble-makers. If possible, try to find people who do related jobs. For example, rent-up people, screeners, collection people and eviction people could be the same people.
Let's assume you've selected the right house in the right location that can be rented at fair market rents; financed with loan payments less than net market rents. The next task is to clamp down on expenses. The key to controlling expenses in rental property is to rent to long-term residents who will be responsible for taking care of their homes. That means that they'll willingly perform minor maintenance and pay rent on a timely basis in exchange for the right to live in a decent house for as many years as they choose to. Tenants dislike moving as much as you do. If treated fairly, they'll continue to pay rent to you for many years.
Continue reading “People Management Converts Equity to Income”
A keystone in management is reduction of the Big-3 expenses: Vacancy, Turnover and Maintenance. Over the years I've observed that tenants tend to remain longer when they've taken an active part in improving the premises in some way. Usually this tenant improvements are restricted to painting and minor repairs of window, screens, doors, etc. But, from time to time it's possible to get tenants involved in major repairs in return for rental credits. Cash starved landlords can become delirious when what might seem an awesome repair job boils own to slightly lower rents over a period of time. It's a form of financing.
For creative financing people, OPM is the cornerstone of estate building and pyramiding of wealth. It's a magic concept; using other people's money to amplify our investment returns through leverage. Why can't we use the same concept in management? We can! First of all, we've got to divide our management job into various components which we'll call profit centers. Once we take a closer look at these, the opportunities for increased cash flows and profits will become more discernable.
Continue reading “Learn to Manage vs Merely Collecting Rent”
