Invest in Real Estate and IRA Assets

American taxpayers are allowed by law enactment of the Employee Retirement Income Security Act (ERISA) to invest their Individual Retirement Account (IRA) in real estate through custodial institutions such as financial brokerages and banks. Evidently, the investment synergy of real estate and IRA took time owing to restrictions imposed by these so-called IRA custodians themselves who discouraged investments that do not profit them. Thus, the traditional IRA is limited to stocks, securities and other traditional money market schemes and investments.

It was bad that IRA holders are not well informed about options to self-direct their IRAs and other retirement plans into property investing thus making their retirement savings grow. Recent developments, however, saw an upsurge and leading to the transformation of the industry scenario to real estate and IRA investments. The traditional IRAs are invested into a more "imaginative" but high yielding property investment and its portfolio instrumentalities through self directed account or the so-called "Self Directed IRA". The traditional IRA must be converted to "Self Directed IRA" for the latter to become legally compliant. Also entrusted to custodial institutions but not restricted to them by law but on other existing restrictive legal provisions, industry experts therefore are "bullish" in Self Directed IRA invested in investment property because of its unlimited nature and the IRA holder is not bound by the dictates of their custodial planners or brokers. The law allows IRA holders to decide and control in almost all types of investments to engaged, players used the slogan "imagination is the limit" for real estate and IRA investments. Industry figures itself reveal that property investments are both expansive and offer one of the most, if not, the most lucrative yield from all other investment instruments.

The topmost advantage in real estate and IRA investment is the deferment of capital-gains tax on property sold or in some cases, tax-free profits. These profits from such transactions enjoy compounded interest proceeds. Likewise, the real estate is protected by law against liabilities arising elsewhere including exemptions for a certain amount of equity increases as well as providing estate planning in cases of incapacitation or death. It certainly has disadvantages too among them is inexperience in managing properties which could lead to poor decision rather than lucrative yields. While the property is protected by law, money invested are stocked in it for the long term thus the IRA holder cannot divert some to other investments. The law is very strict on family members of lineal descent who cannot use, rent, purchase the property or financing loans and purchase stocks on said family members. Transactions through IRA covered accounts, must fit the IRS code and are subject to legal complications, misunderstanding or ignorance of the rules which could end up with problems entailing severe penalties.

Real estate and IRA investors still insist that the advantages outweigh the disadvantages mainly by willingness to understand the law and responsibilities in managing properties. While complicated legal provisions present obstacles, this investment consultancies are as accessible as the restrictive custodial brokers. Traditional stocks, bonds and other instruments may be the comfort zones of IRA investors but the risk takers and those with entrepreneurial spirits could earn a "six figure range" yield. These IRA qualified investors are offered a diversity of choices within the industry; they can buy houses, apartments, office buildings, malls, hotels, tax-lien certificates and acres of land.

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How Tax Shelter Benefits Real Estate Investment Property Ownership

Tax shelter is one of the returns associated with real estate investment that benefits income property ownership. Thanks to the tax shelter benefits provided by the tax code, a real estate investment can shelter some of its own income from taxation and occasionally shelter income received from other investment sources as well.

In this article, I want to introduce you to two allowable deductions for real estate investment properties that provide tax shelter.

The first of these deductions is for mortgage interest. The IRS allows you to deduct the interest you pay on the mortgage you obtained to acquire the income property. The benefit to real estate investors is that interest is really a cost associated with acquisition of property rather than operating it, and the argument can be made that tenants really pay the mortgage interest for the real estate investor.

The second source of tax shelter is through depreciation deduction, which the tax code now calls cost recovery, but we'll continue to call depreciation for our purposes. In this case, the IRS allows you to assume that the buildings (not the land) are wearing out over time and becoming less valuable, and as such permit you to take a deduction for that presumed decline in the value of your asset.

Okay, now here's what's great about real estate depreciation.

Depreciation is a non-cash tax shelter deduction. In full compliance with the tax code, you get a deduction that is not an operating expense and therefore does not affect your cash flow. Moreover, depreciation can shield some or all of your property's year-to-year income from taxation and in some cases when the depreciation deduction is large enough, it can even exceed the amount needed to shelter the property's own income and provide tax shelter for other investment income as well.

Though you won't find a simple formula for the tax shelter component of a real estate investment, here's the idea.

Income less Operating Expenses = Net Operating Income

Then,

Net Operating Income less Mortgage Interest less Depreciation (Cost Recovery) = Taxable Income

Example: Let's say you own an income-producing property that generates rental income of $48,000 and operating expenses of $19,200, leaving a net operating income of $28,800.

To calculate your taxable income, you would then deduct your mortgage interest and allowable depreciation from the net operating income.

Unless you have an interest-only loan, your mortgage payments are made up of both interest and principal. Only the interest portion is deductible, which we will say is $17,559.

The amount of depreciation depends on several factors: The useful life of the buildings as specified in the tax code, which is currently 27.5 years for residential property and 39 years for nonresidential property, and the percent of the investment real estate allocated to buildings and land. Only buildings can be depreciated, and for our purposes, we'll say that the deductible amount for depreciation is $10,037.

Here's the calculation: $28,800 - 17,559 - 10,037 = $1,204

In other words, you must pay Federal income tax on a taxable income of $1,204.

There are other components to tax shelter. For instance, you can typically depreciate capital additions over the same useful life, starting when they are placed in service. You are allowed to amortize closing costs associated with the acquisition of an investment property over the same useful life. And you can amortize loan points over the number of months of the loan term and write them off.

I kept it simple just to give you the idea of how tax shelter is associated with real estate investment and how it can benefit income property ownership. Hopefully, it helps. Here's to your real estate investing success.

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House Flipping - Cost Saving House Flipping Tips - Real Estate and Property Flipping

Tip 1 - Find a good contractor. Sound easy enough, but finding a good contractor can make or break your budget when flipping house. Things that can go wrong if you hire a bad contractor for your property are they over charge you, bad workmanship, and time delay. People ask me what is the best way to find a good contractor to do work on your property and I say word of mouth. I found one of my contractors from a recommendation from a lady from work, and all I had to do was ask. Remember that a bad contractor will drain your time and profit from your house flip, so chose carefully. If you do get a bad contractor and they are not working out the only thing to do is FIRE them and fire them quickly.

Tip 2 - Line up all your contractors or subcontractors. The order that I recommend is first get an inspection of the property to make sure it is not a money pit. If there is foundation issue get it fixed first. If you have to fix your foundation later in the flip you will have to repair sheetrock, trim, tile and so on. Next, send in the electrician so the house does not burn down. Also, sometimes they have to remove sheetrock to run the lines and you don't want to do double work. Then get your contractor in there to do the cosmetics such as paint, trim work, hanging light fixtures, installing sinks and so on. Last thing you want to do if you have carpet is install carpet. The last thing you want to do when flipping a house with wood floors is install baseboards.

Tip 3 - Buy all your materials at the start of the project will save you a hundred trips to Home Depot. Buy your paint, trim, doors, sheetrock, light fixtures, sinks, cabinets, and everything else that you can think of. When I flip a house I give my contractor a 200.00 gift card to Home Depot to buy all the miscellaneous items that I did not think of. This saves me time and money by me not have to go to store every time my contractor needs something, and in the house flipping game time is money.

Tip 4 - Find a good Real Estate agent. You need a real estate agent that is great at negotiating. An agent that looks out for your best interest, and not just trying to make a commission. You need to interview agents and find the right agent for the job. That is willing to go to hundreds of houses when you are looking for those diamonds in the rough properties, and they are willing to do open houses when you're selling your properties. Also, see if you can get them to reduce their commission do to you are going to be the next Donald Trump of real estate and bring them a lot of business. One half or one full percent of a commission can save you thousands.

Real Estate Rental Properties

Purchasing real estate can be a worthwhile investment. It can give a nice boost to your income. While it may seem like a good way to make the extra money that you need there are a few things you must know before purchasing real estate rental property. First, you must decide what you are looking for in a rental property. You will have a lot of various options to choose from. It may depend on your money situation and how much you can afford to invest. When looking for a rental property you may decide on an apartment, single family home, duplex or even a building. It is a good idea before buying any real estate to make sure that your finances are in order and that you credit is good before going through with the loan process. This will make it easier for you to get the loan that you need to purchase the property.

If you would like some help with purchasing a real estate rental property contact a real estate agent. They will help you choose a property that is in a good location and one that would be easy to rent. They will help you to determine that the price is fair and that you will be able to make a good profit renting the property. You should try to get the property lower then the price it is listed for if possible so that you can make a nice profit each month. Try to stay away from properties that need a lot of work because it will come out of your pocket fixing them up. Although if the property is low enough it may still be worthwhile because you may have extra funds available to update it and do any repairs. What ever you decide to do make sure that you can afford what you are buying and that your chances of renting it out are very good in the area. Be prepared because in some cases if your property does not rent out as quickly as you would hope for you will have to pick up the monthly cost of it until it is rented.

If you buy a rental property away from where you live and cannot look after it like you should hire someone dependable that can do this for you until it is rented. Have someone care for and keep up with the maintenance of the property so that it stays in good condition. Remember when you buy rental property you are going to be a landlord and have the responsibility of keeping up with the property so make sure that this is right for you and that you are a good landlord. This can be a profitable investment and after awhile you may decide to purchase other rental properties.

Purchasing International Real Estate - Worldwide Property Investment

Interested in investing somewhere other than your back yard?

Management companies have made it as easy to have a revenue property across the world as it is to have it across the street. You don't want to be collecting rents and plunging the toilets no matter WHERE it is!

Different laws in different countries means some research is definitely in order. Some countries don't allow you to own the land, you have to lease it. Check on title insurance to make SURE you really own it.

And just as people have bought swamp land in the United States, you need to actually VISIT your property - look at it, make sure that it is in a good area, and looks to be a good investment.

Pictures can be VERY deceiving, and if your lot is next to the city dump, for example - it'll be hard to make a profit on it! Put at least as much effort into buying a $200,000 piece of real estate as you would into buying a $10,000 used car. You'd definitely want to see it, inspect it closely, go for a spin around the block and see how it performs on the highway. Okay, that's tough to do with a piece of land, but take a walk around, get in an inspector, ask the neighbours what they think.

Probably the most important aspect of buying a property in another country is the management company. If it is rented out, and rents rise, over time, the property will pay for itself, and pay off the mortage. In other words, with rising rents, you basically get revenue properties for free, over time. The renters pay your mortgage.

BUT.....

If you have tenant troubles, people moving in and out and big costs for re-renting, repair and renovation on an ongoing basis, let alone outright destruction - you may never see that happy day when the mortgage is paid off and some appreciation has occurred. The management company is either really good, concerned about your investment, or it is careless. Over time, THIS is the most crucial part of your investment, and should be VERY closely looked at. Talking to other clients is a quick way to get a read on their performance, and you should ask for these types of references.

Any real estate investment needs to be held on a long term basis to allow rising rents and rising property values to almost automatically make you money. A short term hold goes against these trends, especially when you factor in realtor fees, and development company profits if it is new construction. Make sure that it will truly be a "hands off" investment, and hopefully it will yield some headache free profits!