Tax laws help real estate investors…

Real property ownership has distinct advantages over other types of investments. In fact, our state and local tax systems reward property owners by making interest and property tax payments deductible expenses. Many states also encourage home ownership by reducing the tax liability of owners who occupy their property.

You can use other people’s money…

Real estate financing gives buyers leverage to purchase property above their means. When the value of the property appreciates, the investor gains equity and makes money using their financed funds. In turn, you can trade on that equity – that is, take money out of your property - and use it to buy more property. And all of this can be done without paying taxes since this type of reinvestment is not considered a taxable gain.

It’s safe…

While every investment carries with it some amount of risk, compared to other business ventures, real estate has proven to be one of the safest. Potential investors should study different areas and types of property to determine the differing levels of risk presented. Residential, rent-producing properties tend to be the lowest risk because of the number of renters available. People will always need housing – and they aren’t making any more land.

On the negative side…

You can still lose money on real estate investments: either by having a negative cash flow (rents don’t cover expenses), or by losing money on a property sale or trade. In addition, real estate is not a liquid asset and, therefore, not readily converted into cash. The time it takes to sell a property could end up costing a lot of money.

Becoming a successful real estate investor requires a commitment of time and energy. There is no easy route to riches. It requires serious planning and preparation. It’s important to educate yourself and carefully examine all the options before you begin.

Special Situations

The use and development of real estate is only limited by the creativity of the investor.

Problem properties have potential
The Department of Housing and Urban Development (HUD) has a number of programs you can get below-market financing for low income housing in areas designated for urban renewal or redevelopment.

Mobile home units
A savvy investor can buy a mobile home park, place single unit mobile homes in the spaces and rent or sell the units. Because the mobile home is not permanently affixed to the foundation, it is regarded as personal property. In case of default, repossession is much easier than foreclosure.

Factories
Unused factories can often be great investments. They are often sold at very low prices with excellent terms because the owners view their use as limited. Investors have turned these obsolete properties into productive buildings, like apartments, restaurants, movie theatres, nightclubs and even shopping malls. This idea also applies to the creative conversion of other older properties (i.e. schoolhouses, train depots, etc.)

Land
Some investors hold land for future appreciation value and, in the meantime, lease it out for an amount that covers their expenses (or more). Vacant properties can be converted to parking lots, storage space, swap meet areas or even nature preserves.

Billboards
Merely placing billboards on a property that allows this can yield huge returns for the property owner. The rental proceeds alone can pay for the cost of the building.

Single room occupancy (SRO)
Hotels and motels are often converted into one-room permanent living units referred to as SROs. These properties have generally high occupancy rates and the average stay is usually quite long. Investors can obtain HUD funds and the buildings are also eligible for Section 8 assistance.

Student housing
If you are near a college or university area, there may be a need for more student housing than is currently available. An investor can take advantage of this through new construction or the conversion of existing properties. Apartments rented to students tend to rent for 15 to 25 percent higher than similar apartments.

Housing for the elderly
Fair housing laws prohibiting age discrimination do not apply when 80% or more of a property’s units are occupied by someone aged 55 or older. The advantage of these older renters include easier rent collection, low vacancy rates, longer occupation periods and fewer maintenance expenses.

Tree and timber value
Landowners can make a profit by selling off the trees on a property.

Mineral, oil and gas
Valuable mineral, oil and gas rights can be sold separately from the land where they are mined.

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Tel: 310-285-7515
Fax: 310-271-9204

301 N. Canon Drive,
Suite 215,
Beverly Hills CA
90210

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