Real Estate Q&A: Retirement Investments & Condo Insurance - Zillow | Real Estate Investing

Real Estate Q&A: Retirement Investments & Condo Insurance - Zillow
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Real Estate Investing Profits and Loses - RealtyBizNews

Real Estate Q&A: Retirement Investments & Condo Insurance - Zillow

Posted: 01 Oct 2014 09:29 PM PDT

Real estate investor and Zillow Blog contributor Leonard Baron answers questions from readers regarding buying, selling and investing. Have a question? Send it to Leonard@ProfessorBaron.com

Rental properties vs. stock market

Hi Leonard — I will retire in the next few years with a little over $1 million. I fear the stock market at this time. Will property rentals be a good way for income in my retired years? If yes, is it better to buy the property with cash and have no debt and have rental income? Robert W., Buffalo, NY

Hi Robert — You've got some good questions and significant decisions herein, and you need some expert guidance. A good fee-only certified financial analyst (CFA) or certified financial planner (CFP) should be able to walk you through options on what you can do with that million, and what income you can expect based on the risk you are willing to take with your portfolio. This will help you determine whether rental real estate, which generally has much higher risk than a well-diversified portfolio of stocks, should be part of your portfolio.

After an education from a financial adviser, if real estate is part of the plan, that's where my guidance could help. So to your questions:

Will property rentals provide good retirement income? The answer is probably not. Most real estate investors who have cash flow properties bought them decades ago, and now they are starting to pay off. But in general, don't expect cash flow for a long time.
Should I buy with cash instead of debt? Having a significant amount of money tied up in property during retirement is probably not a good idea. What if you need the money, your tenants stop paying rent, the property is destroyed or you need long-term care? Owning dirt won't pay the bills! It's much easier to obtain cash from liquid assets when in need.

By the way, congratulations on having over $1 million saved!

Condo insurance

Hi Professor — I bought a condo – with all cash – where the HOA insurance covers the structure and common areas. My insurance agent says I should get a policy for the interior of the unit. They're not very expensive, so I'm going to do it. However, it's going to be a rental property so I don't own anything inside, so I don't really see a need for it! Is this just another revenue generator for insurance companies with a product that isn't really needed? Mike H., Portland, WA

Hi Mike — NO, NO and NO! Get a new insurance agent if yours can't explain why you need an interior policy. I agree with you: Who cares about the interior property? The issue with condos, whether a personal residence or investment property, is liability.

Wait until you or your tenant causes a fire, smoke damage or a flood that damages nine of your neighbors' units. The HOA is going to say it's your problem, which it might very well be. Then your neighbors are all going to be coming after you for reimbursement for their losses.

Without an interior HO-6 condo policy with adequate liability insurance, it's not going to be a pleasant experience.

Get that policy in place today.

Related:

Leonard Baron, MBA, is America's Real Estate Professor®. His unbiased, neutral and inexpensive "Real Estate Ownership, Investment and Due Diligence 101" textbook teaches real estate owners how to make smart and safe purchase decisions. He is a past lecturer at San Diego State University and teaches continuing education to California real estate agents at The Career Compass.

Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the opinion or position of Zillow.

Creative Real Estate Investing Multi Family | Investing In Todays ...

Posted: 03 Oct 2014 08:00 AM PDT

This entry was posted by admin on October 3, 2014 at 9:00 am

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Tags: Creative, Estate, Family, investing, Multi, Real
Categories: Investing

Real Estate Investing Profits and Loses - RealtyBizNews

Posted: 29 Sep 2014 06:28 AM PDT

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When you are running your own real estate investing business, it's essential that you have well organized and up to date accounting books. It doesn't matter if you have 1 property or 15 properties. It doesn't matter if you have rental properties or are flipping houses or both. Each property must have a separate account.

You don't need a full time accountant but you must take the time to keep your accounts up to date. Even with 15 properties under management, you should be able to enter income and expenses and keep a profit or loss tally once a week in about one or two hours. It's a good idea to have your accounts reviewed by an accountant once a month if you have multiple properties or every couple of months if you only have one or two properties.

Current Assets

Each property you own should be accounted for as an asset (inventory). As an asset, it immediately has expenses for the purchase price and closing costs. These should be the first numbers recorded along with the current market value (asset value). Each week, any other expenses need to also be recorded. For a rehab, these will typically be holding costs and contractor invoices. Holding costs include insurance, utility bills, and any other costs incurred due to ownership.

Keep a paper trail. Although, you'll keep your accounting records on a computer, you need a paper trail of all invoices or bills as well as checks written. It's a bad idea doing business with cash because it's much more difficult to track. Besides, if the IRS ever audits you, you'll need to produce the invoices that you expensed on your taxes for the year.

If you are renovating a house to flip, you need to book expenses against it. Once the property sells, all rehab expenses, including purchase, closing, and administrative costs, are subtracted from the selling price and recorded on a profit and loss statement. The profit is recorded as income. The structure of a rehab property account should resemble this:

Balance Sheet

Current Asset

Properties Owned

Main Street 3347 (individual file)

Maple Lane N 816 (individual file)

Country Road 1421 (individual file)

Invoicing Contractors

No check should be written to a contractor until he or she submits an invoice. The invoice needs to be detailed enough so that you clearly understand what you are paying for. A copy of the check should be stapled to the invoice and kept in the individual paper file for the property. This is for tax purposes as well as for you to keep track of costs for each property.

Something else you need to do for tax purposes is require each contractor to submit a signed W-9 form. The W-9 form provides you with the business name, address, and social security number or tax ID number. When preparing your yearly income tax statement, this information goes on the 1099 form that is sent to the IRS and a copy to the contractor. The 1099 is required for you to deduct expenses from the income you make on each project. It's a good idea to require contractors to submit the W-9 form before issuing a first payment because it can be difficult tracking them down at the end of the tax year. Contractors are in no hurry to fill out a W-9 because when you file a 1099, they have to report the income on their federal taxes.

It's not difficult but it is important to keep your accounting up to date at least on a weekly basis throughout the year. Otherwise, how are you going to know how much you real estate investing business profited?

Please leave a comment if this article was helpful or if you have a question.

Author bio: Brian Kline has been investing in real estate for more than 30 years and writing about real estate investing for seven years. He also draws upon 25 plus years of business experience including 12 years as a manager at Boeing Aircraft Company. Brian currently lives at Lake Cushman, Washington. A vacation destination, a few short miles from a national forest in the Olympic Mountains with the Pacific Ocean a couple of miles in the opposite direction.

Real Estate Investing

Friday, 3 October 2014