Investing In Rental Homes? What Matters and What Does Not
As a real estate investment guide, I get a lot of questions about the dos and don'ts of investing. People ask me questions on our quarterly expos as well as on social media – and you can subscribe to myYouTube channel and follow me onInstagram, by the way. One of the questions I get asked is, whether investors should buy subsequent homes in the same location as their first property purchase. Should they buy their second and third homes and so on in the same area? And my answer to them is, it doesn’t matter!
Why it doesn’t matter.
Now if you buy one home and then you buy another in the same location – the same city, say, it can be convenient. You already are in touch with the brokers, you already work with the property management people, and you're already familiar with the mortgage company that did your paperwork. So you know the ropes and you're familiar with the people. Getting a second and third loan may well be easier when the lender has already advanced one loan. This is convenient and the familiarity is comforting for you as an investor.
So, I'm not saying there are no advantages at all. There are advantages but they are not significant in terms of any financial advantage they will bring you. Where you buy your second, third and fourth homes – this is not going to make much of a difference to your retirement riches in the end. There are other far more significant factors that will make much more of a difference to your financial outcomes in the longer term.
What really matters.
Number one is the 30-year fixed-rate loan. Yes I know I've said it before, but I’ll say it again – it is a gift and one that you cannot afford not to take. This is the loan that you pay off over 30 years at a fixed rate of interest. So if you're repaying X amount today, you're still only paying that X amount ten, twenty years later. By then, inflation is going to make that amount seem puny in comparison to what it seems today. Meanwhile, the rental income will help pay off the loan.
Number two is the sort of investment you make. Quality single family homes in good areas have the best chance of getting top dollar rent. So that is what you're going to want to look at when you invest in real estate. If more than one of your investments is in the same geographical area, well and good. If not, that is no problem either! So long as you have the important aspects sorted, this doesn’t really matter.
To know more, watch this video or listen to this podcast.
If you would like me to address a particular issue in one of my videos or podcasts, be sure to let me know. Just drop us a line at email@example.com
Why Depreciation On Real Estate Is A Gift You Cannot Afford Not To Use
I always say that the United States of America has on offer some of the best gifts for investors, which people in other nations cannot even believe! For instance, there is the 30-year fixed-rate loan that is an unbelievable gift, and then there is depreciation which is another incredible gift for investors. In my recent podcast I speak about how depreciation helps investors make the best of their property investments, about depreciation recapture, step up basis, and more.
How depreciation helps.
Now I don’t know where else this is true, but in the USA it is – that you get depreciation on your real estate investment. Typically depreciation is available on cars or machinery or gadgets and so on – things that will lose value over time as they are used. Real estate is different in that it is not going to wear out or stop working at some point like a car or piece of machinery. And yet, our great country gives you depreciation on your property – this even as your property may actually be going up in value.
Depreciation is flexible in the way that you can use it. It is a tax deductible expense and as such it will be very useful for lowering the amount of tax you pay in a given year. Also, you can choose to use your depreciation in the current year or later depending upon your income in a given year. Of course there is a threshold beyond which this cannot be used and currently that limit is $150,000/-(this of course is subject to change) adjusted gross. The ability to carry forward net operating losses is quite unique in my view.
Other concepts to understand.
Now I have to clarify that I am not a trained accountant and you must cross check all of what I say with your CPA. However, my many years as an investor and investment guide have given me some practical insight that I'm sharing here with you. So, depreciation comes in handy in yet another way. There is something called depreciation recapture, which can help you take advantage of inflation. It is very useful when selling a property – whether you do it soon after buying or many years later. You can‘recapture’ depreciation in the future – when your dollar is literally worth less.
And then there is the concept of step up basis: I like to explain this as, stepping up on a stair and on the day of your death. Not to be morbid, but this is going to help your heirs save on taxes after your demise, as I explain in my podcast. This is a pretty vast subject and quite complex. So I urge you to clarify all these concepts with a CPA. You may also want to attend ourquarterly events where we invite CPAs to explain matters such as these as well.
What To Do When Tenants Cause Damage – We Have You Covered
What happens when it turns out that your tenant is not the best sort of tenant? What if they cause damage to your property? What if they break rules and contravene the terms of the lease agreement? A lot of real estate investors worry about bad tenants. It is not unreasonable to do this. However, you can rest assured that things will get looked after when you’ve opted for the Remote Control Retirement Riches formula that so many other investors have used.
A bad tenant is not your headache.
So you have a tenant who breaks things or makes alterations they aren't supposed to or causes some other type of damage. What do you, as a landlord do? Well, you do nothing. This is because you’ve done the smart thing by engaging a property management agency to look after the property, deal with the tenant, documentation etc. It is the job of the property management firm to take care of the wayward tenant. The property manager will deal with the tenant and ensure that your loss is made good.
The options available to a tenant would depend upon the state laws within whose jurisdiction the property is. Most states have very fair and balanced laws that equally favor the landlord and the tenant. I'm not talking about New York and California, but then we don’t advise you to invest in these states anyway.
So there are laws in place to protect the rights and interests of property owners. The owner is entitled to make good any loss or damage using the amount of security deposit paid by the tenant. If this is insufficient and the damage is more extensive, there is the option to approach the small claims court for compensation. Garnishing of wages may be another possibility.
The Remote Control Retirement Riches formula.
All this sounds like a lot of work, a headache really! But here’s the best part, this is not your headache as a landlord. It is the job of the property manager to deal with the tenant, to recover the damages, to deal with the attorney and the court and so on. Property management firms typically have attorneys who deal with this sort of thing, so that it isn't your headache.
And that is why we call it the Remote Control Retirement Riches formula. You as an investor could be in any part of the country – even the world, and your real estate investment is looked after for you. You don’t have to deal with the issues that typically crop up between a landlord and a tenant because you have competent people to do this for you. At ICG Real Estate we have devised a formula that requires you, as an investor, to do nothing!
If you would like to know more about securing your future and the future of your family, reach out to us at icgre.com. We have helped thousands of investors create not just financial security but wealth for themselves with the help of real estate investments. Sign up for our updates or attend one of ourOnline Expo events. You have nothing to lose and a lot to gain!
As a Real Estate Investor, You Don’t Need a License – Here's Why
Among the many questions and apprehensions that investors have, one question is about needing a real estate license. Who needs one? Do you need one if you're an investor looking to create a rental income for yourself? There is some amount of confusion surrounding this, so I thought I would just clarify – no, you do not need a real estate license to invest in real estate.
Who needs a real estate license?
There is some data to show that it is beneficial to have a real estate license if one is working in real estate. In other words, if you're a real estate agent, then it makes sense to have a license. This is then a mandatory requirement as well. As an agent yourself, you can save on commissions, have access to some of the better deals, have better networking opportunities and earn commissions etc. The question here is, are you an investor or an agent? While agents ought properly to be licensed, investors are not required to have a license.
As an investor, you want to invest in one or two or a few more properties – as an investment for your future and to create a passive rent income. The law does not require you to have a license for this, nor do you need a license for buying and selling property, and collecting rent.
Why do some investors have licenses?
All this said, it is true that some investors do have licenses. This is mainly because they know how lucrative it is to invest in real estate. They help others invest and earn off of real estate; obviously they are going to reap some of the benefits themselves as well. Many of these investors have licenses probably because they are agents /brokers and not just investors.
If you buy and sell property for others, you would typically need a license. This is to regulate the real estate space and to put a check on shifty operators. While it can differ based on the regulations of each state, getting a license is a bit of a process: you have to work for some years, take courses, and pass an exam and so on. Once you get a license you have to keep it current by having it periodically renewed as well.
So if that sounds like a lot of work, it is! It makes sense to get a license only if you plan to make real estate your job. And why bother when you can buy, sell and rent out property without the hassle of a license? If you want to get a license simply because you want to get to know the ropes a bit, ICGRE is here to help. Any question you have about investing in real estate, we are happy to answer them for you. Drop us a line at firstname.lastname@example.org or call us at(800) 324-3983(toll free) or(415) 927-7504
ICG uses single-family home investments, bought in advantageous locations and the best U.S. markets. We enable you to enjoy the clout that comes from purchasing a multitude of houses, even if you only buy one.
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