Real Estate Investing – Who, What, Where, When…

As many of you know, I love, love, love real estate! In addition to the wealth-building aspects, there are great tax benefits to owning real estate (and who better to know that than the “Big Bear Tax Lady”?). A few of my musings:

If you can own your primary residence, then go for it. If your AFTER-TAX mortgage payment and property taxes are equal to or less than your monthly rent, why line a landlord’s pocket when you can “pay yourself” by building your own equity (or net worth) every month? What do I mean by “after-tax?” Since mortgage interest and property taxes are tax-deductible, you will probably pay less in income taxes throughout the year than if you were renting. When calculating the rent versus mortgage payment, you must reduce the mortgage payment by the difference in the income taxes to come up with a true monthly amount. Definitely worth a phone call or visit with your tax professional!

When purchasing your primary residence, buy what you can afford, keeping in mind the possibility for appreciation, as well as rental desirability (should you decide to move and then rent out your place). People tend to get wrapped up in having to have the “best of everything” when they buy that first home and extend themselves with high-end flooring, furniture, etc. You’re better off buying the 2-bedroom condo with basic amenities versus the totally decked-out 1-bedroom. Think of what will give you the best bang for your buck in the long run. You can always upgrade later when you have the cash.

For investment property, you have a lot of options. If you want to “fix and flip,” you want to look at the hot markets like San Diego, Seattle, etc. The high prices will not make those areas good for rentals, but if you know what you’re doing, they are good fix/flip markets. Those hot markets might be attractive for vacation rentals (like Airbnb), so I wouldn’t totally discount them, especially if you can find a property at a bargain. Do your research!

For rental investments, I like the “bread and butter” areas where the home prices are low, and you have a good tenant base. Don’t limit yourself to your own location. Do your research on the area that interests you. Find a good property manager FIRST, as well as a good realtor (hopefully in the same company) and run your numbers before you buy. I’m feeling really bullish about the Midwest and the Southeast right now. Manufacturing is making a comeback, and factories are being built in those areas. These employees are going to need a place to live….

I’ve been asked about investing overseas, say Eastern Europe, to help diversify one’s real estate portfolio. While learning about that market is on my To-Do list, I’m a bit of a newbie there, and still need to do more research. You really need to research that market, the country’s landlord/tenant laws and find a team you can REALLY trust. Stay tuned!

And finally, when should you get into the market? I like to be counter-cyclical– when the masses are buying, going crazy and out-bidding the other, I’m very careful and back off and quietly save my money and secure funding. When the masses are dumping their properties, foreclosures are high, and people are walking away, that’s when I think of buying. The challenge is in determining “how high is high” and if we’re in a bubble market. In addition, foreign investors and the house-hacking/sharing market (i.e., Airbnb, etc.) trend is driving real estate prices up higher in those already hot markets, so for now, there is no end in sight.

Once you have that rental property, make sure you track all your expenses (including mileage). I advise my clients to keep separate credit cards and bank accounts for their rentals, making tax preparation a lot cleaner. Plus, you don’t want to miss those deductions!

Good luck and happy investing!




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