Why to Invest in Real Estate NOW

Watch on your mobile device >>

So many people are wondering these days whether it is a good time to invest in property.  It’s no secret that interest rates are at an all-time historic low and when combined with the low housing prices we are still seeing these days, more and more people are considering real estate investment.

How can you tell if it is the right thing for you?  And if you do decide you want to venture into buying property for the sake of investment, how do you go about it and what type of dwelling makes the most sense?

The answer is largely dependent on your individual investment goals.

Overall Appreciation Perfect for Long-Term Security
The easiest way to enjoy significant returns on investment is through the purchase of a single-family home.  Historically more popular, these properties are easier to rent out, entail less day-to-day management and they can be assumed as primary residence at any given time the investor would so choose, providing an added sense of security.  Home values do appreciate with time and single-family homes typically rise in value faster than other rental property types.

It is important that the property is located in a desirable location and also that it is easily rentable.  Your Realtor can assist you with an analysis of the area’s statistics in term of rent versus buy situations as well as a look at what other similar properties are renting out for.

Slow and Steady Monthly Income
Rental units that comprise of anywhere from 2 to 12 (or more) family units within the property are perfect for monthly real-time cash flow. While they may not appreciate as much as single-family homes, they provide the comfort and safety net of steady monthly income.  If increased cash flow is the goal then opting for multi-unit rental properties may be the best route to take.

Demographics play a key role in determining your investment.  For instance, if you live in a college town then a rental home near the college or downtown would be ideal for many senior or grad level students that prefer easy access yet quality housing.  Conversely, resort homes are also attractive and as long as they are located near some tourist attractions you may be able to yield decent rental income. Rental units in big cities are also popular in the more bustling areas of town.

~
Given the increase of rental units and investment properties being rented out, there has been an influx of property management companies set up.  Ideal for the silent investor or someone that does not have a lot of time to put into the actual management of properties, property management companies handle anything from market analysis, finding and screening tenants plus managing the move-in process to handling day-to-day affairs like collecting rent or property maintenance.

If you can afford it and have investment goals that line up with some of the returns that are apparent with property investment, contact your Realtor to get a feel for what is available out there.  This is definitely a very interesting time to pursue an investment property.

ObamaCare Tax on Investment Properties

Watch on your mobile device >>

* Remember I am not a CPA, always consult your tax adviser. 

There is a lot of confusion centered on the health care bill’s impact on real estate transactions and the talk is not exactly accurate. Let me first clarify one thing: yes there is a new tax on real estate. But what most people don’t tell you is that the tax is only on applied profits earned above and beyond the capital gains tax limits and this is not a blanket tax applied to all real estate sales.

Additional Taxation Only on Applicable Capital Gains

First, let me explain the capital gains tax limits in most states. Most states have a $250,000 threshold on capital gains for single persons and a $500,000 cap for married couples. What that means is that if you are a single person and after the sale of your home if there is a profit over and beyond $250,000 – that amount will be taxed an additional 3.8%. Let’s go over this with an example. Say you bought a home for $300,000 and then sold it for $375,000. The profit amounts to only $75,000 (well within the $250,000 limit for non-married property owners) so you will not be taxed on that profit.

Now, here is an example of a married couple that sold their lakefront home: Originally bought in 2002 for $100,000. They renovated the home and now it is a gorgeous and very desirable property. Assuming that other homes consistently gained value and sold for a lot more in recent years, the couple in our example sold their home for $650,000 (Wow! Show me an investment opportunity like THAT!). This couple received a total of $550,000 profit on the sale of their home and given the $500,000 married people exemption on capital gains, the taxable amount would be $50,000. How much does it add up to? The total amount of additional tax this couple will pay at 3.8% would be a mere $1,900 – a far cry from the thousands of dollars the rumors would have you believe.

Generous Income Requirements Prior to Tax Imposition

Another important aspect of the new real estate taxes is that the tax only applies to individuals with at least a $200,000 annual income and couples with a joint income of at least $250,000. That automatically eliminates about 97% of the American population right there.

~

So you see? It’s not all that bad. The only thing I can think of that is important to remember about the capital gains tax exemption is that it must be a primary residence of the person or people filing for the exemption. Here is a document generated by the National Association of Realtors with some more scenarios showing how the real estate tax would impact people.

* Remember I am not a CPA, always consult your tax adviser.