Financial Markets

In short answer, yes! Even though the economy is lower than it has been in a long time, there is a better way to look at the present circumstances. Property values have gone down over the last few years, and many people have decided to invest in real estate. Real Town says,

“The prices of houses have dropped to a minimum of 25 % and even higher in certain parts of the USA. The interest rates are at an all-time low, so why wouldn’t you be thinking about investing in your future.”

While this has been going on, several properties have already gone, or will go into both foreclosures and short sales. This may seem like a nightmare for those that need to get out of their current situation, but for those that are ready and willing to take a risk, investing in real estate can be a very profitable venture.

Profits

Basically, property investing can be considered the selling, acquisition, and renting out or selling of property. How much money you can make off of one of the properties depends on a few different factors. These can be things like how well you know the industry, economic conditions, location, future property value, and the developing area in the vicinity of the property.

Location

In order to make the most profit, you will have to do your research on the best locations for your investments, real estate valuations, and trends. Read upon which properties are thought to be hot properties, and find out which homes, condos, and buildings are good buys, and which ones will be money pits. Real estate magazines and websites are usually great for this type of information, but they are not equal to the services of a real estate agent who can help you on your search for properties.

Be Prepared

To invest properly, you do not only need to know basic real estate intonations, but you should also be aware of how much construction supplies can cost. That way, when you are looking at a property that is in need of some repairs, you can have a better idea of how much it would cost you to rehab it. You should also get familiar with local tax laws, and regulations on property acquisition. Investopedia has this advice;

“When evaluating the potential of investing in real estate, don’t just think about home prices and interest rates; take the time to consider your personal financial situation and whether or not you can afford the long-term commitment a real estate investment might entail.”

The investment industry requires much attention and skill to get the most yield, and never expect to get a lot from a property if you are not willing to put much into it. Take care of the business by yourself sometimes instead of just relying on a real estate agent, and get a good feel for the industry by starting with the basics. Just like with any business, in order to get the most profits, you have to be willing to do the work.

A lot of people feel that the current rise in housing prices is a bad thing.

They claim that only banks and investors will benefit from these prices. After all, those who already own homes will be encouraged to release the equity in their home, thereby getting into more debt, and those who don’t yet have a home will struggle to purchase one. However, it seems that this is actually a false truth.

What drives house prices is the sales to inventory ratio, and it is this ratio that will tell you whether house prices are fair (and thereby affordable) or not. “The existing house sales, the for-sale listings and the ratio between the two are back to the healthy levels that existed prior to the housing bubble and the subsequent Great Recession and bubble-burst.”

Hence, house prices are indeed up, but spending power is up at the same rate. Supply and demand is once again balanced, which means the prices are right. As such, those who are saying that the rise in prices is actually damaging the economy’s recovery may just be completely wrong.

What Is the Sales to Inventory Ratio?

The sales to inventory ratio is closely linked to supple and demand. When the housing bubble burst, prices were driven down because there were too many houses available on the market and not enough buyers. Added to this, the houses were all going up for quick sale, because banks wanted to recoup their money rather than make profits. All of this has once again changed, which has changed the ratio as well.

“The inventory-to-sales ratio (I/S) measures how quickly the market can absorb the current stock of homes for sale at the given sales pace. Historical data has shown that when an I/S measure is near seven to eight months, real home prices grow at the rate of inflation.

That is, when supply equals demand, home prices are bid up at the same rate as inflation or the cost of construction. Data also show when I/S is greater than seven months that real home prices fall and, when I/S is less than four months, home prices rise very quickly.”

Are Housing Inventories Low?

So, if house prices are on the rise, does this mean housing inventories are low? This is actually a very complicated question because of the recent recession. For several years, we had hundreds of thousands of homes that were incredibly low in price. These were homes that had been up for foreclosure. These homes were driving the median price (the average home price) down, but didn’t actually give a reflection on real prices.

The prices that should be looked at are those for new build homes, or at the very least desirable homes. The housing inventory for foreclosed properties is indeed low now, but so are the sales. Hence, we should no longer look at these properties, but once again identify the median home for what it really is: a decent, well-constructed and maintained, family or starter home. Plus, we need to consider who wants to sell and why, which is likely to change in the near future as well.

“Inventories of homes for sale have been slow to bounce back since the 2007-09 recession, despite steady house price appreciation since January 2012. One probable reason why many homeowners are not putting their homes on the market is that their properties may still be worth less than the value of their mortgages, which would leave them owing additional money after a sale. In other cases, homeowners may simply be hoping that house prices will continue to rise, allowing them to recover lost equity.”

There are many entrepreneurs who have found a lot of wealth through flipping properties for profit, however it isn’t as easy as it might seem to be.

There are many problems that arise, and if you aren’t clued up on what these problems are then you will only have yourself to blame when things go downhill. Read on for some insights into what these risks are and some suggestions on how to deal with them.

Buyer’s Market

Due to the economic crisis it is currently a buyer’s market out there, which means that there are a lot of properties on sale for relatively cheap prices. This is great when you go to buy properties, but when it comes time to sell them you could potentially struggle to get any interest at a price that represents a decent profit for you.

A contributor from MSN Real Estate comments on the state of the housing market: “Now, for most houses in most parts of the country, it’s a buyer’s market. That means that more houses are for sale, there are longer stretches on the market, and prices have slowed, plateaued or, in some places, decreased.”

Therefore, do not be too optimistic about selling a piece of real estate with really high profit margins, because people are just not going to spend a huge amount of money when there are cheaper alternatives out there.

Underestimating the Investment

What a lot of amateur real estate investors do is underestimate the amount of money it will take to fix up a place. Making this mistake can be costly, because it can lead to a loss rather than a profit. You need to calculate what the material and labor costs will be as accurately as you can before buying a piece of real estate.

This will become easier as you gain experience, but if you are struggling with this aspect of the whole venture then you can try overestimating the costs. This will leave you with some room for error should any unforeseen problems occur.

To place some of the pressure away from yourself you could just aim to make an even score on your first real estate flip. This will give you an education on how the process works and what you can expect. Then on your second project you can concentrate on getting as much profit as you can squeeze out.

Another risk associated with underestimating is the problems that can arise from the contractors carrying out the work. If you have the misfortune of hiring poor quality contractors that do not complete the work on time, or complete it on time but to low levels of quality, then that is going to increase your labor costs. Check out the reputation of your contractors before you hire them for a higher chance of your construction work going smoothly.

Slow to Sell

Do not expect to sell your fixed up piece of real estate very quickly, because of the buyer’s market economy there are many properties out there on the market right now. This level of competition can cause your house to be overlooked by most people looking to buy real estate.

If you want to avoid the issue of having to wait a long time to sell your real estate then you will need to study the market, as an expert from HGTV suggests: “One of the most important things you can do to get your house sold is to learn your market, the value of your property and your competition.”

In order to study your market, you could see what homes your competitors are buying and selling. By paying attention to what successful competitors are doing, you will begin to see a pattern, and this will help you when you make your own purchasing and selling decisions.

Destruction of Property

Although it is unlikely to happen, you might lose the property completely if it gets hit by a hurricane or gets burned down for any reason. And if you do not have insurance then you will lose your investment and that could result in the collapse of your business.

You need to make sure that if there are any factors which can result in the destruction of the property then they need to be considered when making the investment. For example, if you are looking to buy property in an area that is prone to hurricanes just before hurricane season then it will need to sell for a really low price for it to be worth the gamble.

Purchasing a home can be a real emotional roller coaster of an experience. You find a place, fall in love with it, make an offer above the asking price, and then the seller sits on the offer waiting for someone to swoop in with an all-cash offer 20% above asking.

And then you’re back on the phone with your agent to cruise around town for another couple of weekends looking for the next great place.

Finding Sellers Who Need to Sell

The key to getting a great place at a great price is finding sellers who need to sell. That is, sellers who want to get out of their current place for whatever reason, and will not only be more willing to accept a lower offer, but also to move to closing faster.

The writers of newhouseflip.com define desperate sellers as the following; “A desperate or distressed seller is a homeowner who wants to sell their house and they want to sell it now.

These types of sellers would do anything to get out of their mortgage and are usually willing to sell their home for a significantly lower price than its actual value.”

All this means that you can get yourself into a better place, with fewer headaches, and in less time. Now the only questions is, how do you find these sellers who need to sell? Read on for a couple of sure-fire ways to get yourself in touch with this group.

Internet Advertisements

Internet advertisements are typically the cheapest option when you want to advertise for people who are selling their homes, and can be incredibly effective as well. Although the stereotype still exists of real estate agents who take buyers around town looking at property, the reality is that more and more of the real estate market is moving online every year.

Simply post up an internet advertisement on any popular classified site stating that you are looking to purchase property, and make it clear that you will do so quickly and with no headaches. This is exactly what distressed buyers are looking for.

Old-Fashioned Signage

Although it seems a bit old-fashioned for 2013, simply putting up signage is an incredibly effective way of getting word out that you’re looking to purchase houses.

What type of signage you put up depends a bit on your budget and what type of neighborhood you’re in. Simple paper flyers proclaiming that you buy houses for cash posted up on telephone poles will work well in some places, while in others you might want to opt for yard signs or even a billboard.

Again, the key is just getting your name out there so that anyone who is looking to get out of their home quickly has your name on the tip of his or her tongue.

Targeted Marketing

Once you know how to spot distressed sellers, you can use this information to your advantage in targeting them in order to establish that you’re in the market to purchase homes. For example, people in foreclosure (or close to it) fit the definition of extremely motivated sellers;

“You’ve probably seen the “We Pay Cash For Houses” or “We Buy Ugly Homes” signs nailed to telephone poles and stuck on barbed wire fences along the freeway. Maybe you’ve received a flyer in the mail that promises investors will buy your house — in any condition — and for all cash.”

This is exactly what you want to do – but with expertly targeted marketing and professional positions. By sending out a mailing to people in or near foreclosure establishing that you are willing to take the homes in cash with minimal headaches, you can generate a lot of positive response.

Just Get Out and Do It

Perhaps the single most effective way to find desperate sellers is to actually go and check out open houses; keeping an eye out for signs that the seller desperately wants to move. These signs could be as obvious as an owner who mentions a recent divorce or job transfer; or something as subtle as noticing that the owner has scheduled open houses every weekend for the next month.

Real estate broker Malcolm Carter discusses this phenomenon at property website BrickUnderground.com; “The show sheet says you’ll receive all new furniture, a home theater system or a Vespa after closing. A week later, you return and discover that ‘or’ has been changed to ‘and.'”

While Carter’s advice is slightly tongue-in-cheek, there is certainly a bit of truth to it.

When you’re out looking at places, look for signs that the seller really wants to move. These can include signing bonuses, or indications that something has gone wrong (or right) and the seller doesn’t care as much about price as they do getting out of the place.

If you notice a couple of clues in this vein, be prepared to make an offer then and there. If the seller is truly desperate, they may accept a lower offer than you expect them to.

Put Yourself Out There

If you look at all the reasons listed above, you’ll notice that the key is to really put yourself out there. Put yourself in the shoes of someone who wants to get out of their house quickly. Doesn’t matter for what reason. Perhaps they got divorced and need to move as part of the settlement. Perhaps they got a great new job across the country and don’t want to deal with the endless hassles that renting out a property entails. The reason doesn’t really matter.

Could be good; could be bad. But put yourself in that person’s situation. What do you want to do if you need to get rid of your house in a hurry? You look for people who buy houses. You don’t just sit around and wait for real estate agents to drop by with people who might want to see your house. You seek out the people who are seeking you out. And this is exactly what those people are doing.

Now put yourself back in your current situation, and think about what you need to do. You need to put yourself out there in places where people who want to sell houses will look. This means classified ads, posters, billboards, internet forums. Get creative. Whatever you can afford to do, you should do.

Taxes are complicated. Besides being complicated, they are bills that we would rather not pay if we can help it. However, it becomes even worse news when we find out that many of us have actually been paying too much tax, or that we have been making other mistakes that may make us look as if we are swindling our tax return

1 – Putting Taxes in the Wrong Year

This is one of the most common mistakes of all.

“Where people get mixed up is that some tax jurisdictions they bill a year behind – that is, you’re not billed for 2012 property taxes until 2013.”

However, the IRS doesn’t actually care which year the payment applies to, but rather in which year you have paid the taxes. This is where things get complicated again, because it means we commonly claim the wrong amount. Naturally, if this is done in favor of the IRS, it is unlikely that you will ever hear about this.

2 – Forgetting to Pay Capital Gains Tax at All

This is also very common and is completely due to the fact that taxes are so incredibly complicated. Capital gains taxes are paid on profits you have made when you sold your property. This means you only need to be concerned with them if you did indeed sell. As a result, capital gains taxes are, in the current climate, mainly paid by investors, since many people still aren’t selling their property and certainly not at a profit.

“Capital gains are the amount that you gained on the property’s value – so if you bought it for $150,000 and sold it for $300,000, your capital gains are $150,000.”

The IRS allows for a certain degree of exclusions, which presently stands at $250,000 for a single person or $500,000 for a married couple. These were the levels in 2012 and they have not changed this tax year either. It is because of these exclusions and because people haven’t sold at profit for such a long time that it is quite easy to actually forget to pay anything.

3 – Deducting Too Much Interest

This is a really costly mistake. There are certain levels at which point you can deduct interest and above that, the interest deduction changes. Right now, you only have to deduct mortgage interest for mortgages up to $1 million. If your mortgage debt is above that, you only deduct your interest up to that first million. Considering the large amounts that are being discussed here, it becomes clear how these mistakes can be very costly indeed.

4 – Confusing Taxes Paid and Escrow

Last but not least, the IRS have made sure that they have used terms that are very easy to leave us completely confused. They discuss escrow and taxes paid, and it is really difficult to understand exactly which one of the two means what and how much you actually still have to pay – or or claim back for that matter – at the end of the tax year.

“If your lender escrows funds to pay your property taxes, don’t just deduct the amount escrowed. […] Your lender will adjust the amount every year or so to realign the two.”

Hopefully, this information will have assisted you in avoiding some of the most common tax mistakes on property gains taxes. Taxes are complicated field of finance and law and it is best to have an accountant deal with these appropriately. Do make sure you have regular meetings with your accountant so you gain a basic level of understanding of the ins and outs of your tax return as well.