What do real estate investors need to know now for mastering the market?

There have been and continue to be some notable changes around the finance and property market. Staying alert to what these mean is important. Some may be obvious to you, others require stepping out of the weeds for a moment and taking a big picture view.

Selling Real Estate

Rising property prices from a recent shift in the population and in demand property types has many sellers and property owners feeling over confident. This applies equally to investors as it does for regular homeowners.

Just as many homeowners dragged their feet selling in the run up to 2008 and continue to swear Obama was going to personally bail them out, we are facing similar circumstances now. Sellers held on, often in default, dreaming they would be saved. All while their property values actually crashed, and they ended up running out of options and losing their homes.

Some properties are going up in value fast. Others are actually crashing already. More of this diverging trend will be seen next year. Waiting to sell can be a huge and tragic mistake.

This is especially true when sellers could be cashing out with a nice amount of equity, instead of waiting and losing tens and hundreds of thousands of dollars. Many sellers are already offering owner finance deals, but are asking for outsized down payments. After having already marketed their property for a year, they face negative equity positions, and have lost thousands in potential monthly payments, all for the sake of not lowering the down payment ask. Don’t be one of them.

There are two solutions for investors trying to help these owners and acquire these properties. Verbally arguing with them over their misconceptions of the market isn’t likely to help make a deal. So, one solution is using more online content to educate these sellers on the current market, threats and what terms they should be asking for. The other is to simply focus on those sellers who have already decided to sell and are being more realistic.

Taxes Rising

Taxes are almost certain to rise in 2021. The new administration has promised a slew of new taxes. Expect federal and state income taxes, property taxes, investment income taxes and more to rise. As an investor you must get ahead of this curve with new strategies.

Rising Bank Fees

Banks have already been slashing credit limits and hiking fees. Most notably on those who need help the most and are in the tightest financial positions. Expect this to continue to cause a deterioration in credit quality. Keep this in mind for adjusting criteria for renters and seller financed buyers. As well as when expecting to sell to borrowers getting a mortgage.

The Next Pandemic

Bill Gates who predicted the coronavirus pandemic has now forecast another global pandemic is quite likely to happen in the next few years. It may be three years or 10 years away, but it is probably going to happen. That may come just as we’ve wrestled our way through the coming second and third waves of COVID-19. Consider the impact that will have on what property is in demand, and not.

 

One of the biggest challenges facing real estate investors today is how to minimize taxes.

It is great to make so much money from wholesaling houses, but without some countermeasures you may find your taxes are going up just as fast as your income. With the 2020 extension for filing federal income taxes you may have pushed off this bill for a few more weeks. Here are some tweaks to make sure you pay out less and keep more of your gains this year, and every year.

Income tax Deductions

Make sure you are maximizing the amount of tax deductions you are taking. Don’t just over pay. One of the most obvious this year is taking the home office tax deductions. Others can include mortgage interest, education, health care expenses and charitable contributions.

Max Out Retirement Account Contributions

By now you should absolutely have a self-directed IRA or 401k account. You can also have them for your spouse and children. You may even be eligible to contribute to ESA and HSA accounts. You may still be able to get the deduction for 2019 and 2020 by maxing out deductions for both years. You can then use that money to invest in real estate.

Property Taxes

Property tax authorities are notorious for over charging each year and hoping property owners just don’t notice or bother to challenge them. This year more than ever you could be in a great position to cut these bills. Appeal your property tax bills and save thousands.

Harvesting Losses

Making investments in businesses that may show net losses for the next year or two can help offset any gains. Those paper losses can be used to offset future gains as well.

1031 Exchanges

Real estate wholesalers and flippers with too much cash can also move capital into more buy and hold, new construction and value add property deals, while continuing to defer taxes on capital gains under the protection of 1031 exchanges.

Go Offshore

The US has one of the harshest tax regimes on the planet. Thinking short and long term, this could be a smart moment to diversify into some offshore real estate assets. Especially somewhere you’d like to spend at least six months of the year in better weather, or retire. It could be a path to completely eliminating corporate and personal income taxes.

 

There are two kinds of real estate investors. The majority who bury their heads in the sand and avoid any mention of taxes of any type. Then those who take taxes head on, and use them to create more value and profits that others overlook.

Here are five ways to turn property tax related challenges into incredible opportunities for real estate investors…

Negotiating Past Due Property Tax Bills

When a homeowner wants to sell their home, the local taxing authorities are going to demand any past due property taxes are paid off by closing. This can mean sellers are asking way too much, thinking they have to pay off this giant bill. Or their Realtors try to put the entire bill on the new buyer. Often times these liens, as well as second mortgages, mechanics liens and code violations can all be negotiated out for a fraction of the initial ask. It’s any easy way to add tens of thousands of dollars to the equity.

Property Tax Auctions Create Urgency

Not all homeowners will appreciate the gravity of the situation. Yet, local authorities can foreclose on and auction of homes for less than $10 in back property taxes or related fees. When owners are facing the pending loss of everything it creates a lot of urgency. Buying tax liens is one potential avenue to taking over these assets, but simply stepping in to wholesale these properties can often work even better.

You Can Appeal Annual Property Tax Bills

Property owners have the right to appeal and challenge their property tax assessments and annual tax bills. In some areas like NY, as many as 50% of all bills are believed to be flawed and over inflated each year. This is free money for them if they aren’t challenged. Appeal, and you could save thousands per year. That can make these properties far more appealing, affordable and profitable for your end buyers. They can get more cash flow, even if you ask for a higher sales price.

There Are Lots Of Exemptions Available

Exemptions can provide huge savings each year. Some provide $25,000 in protection from taxes each year. Others can result in paying just 25% of the previous bill. These exemptions include homestead, veterans, seniors, disability, agricultural and other exemptions. If you don’t take them you are throwing away money.

IRS Tax Liens

IRS tax liens sound scary but don’t have to be. Often they come from faulty reporting to the IRS, including the sale of previous property. If the IRS thinks someone is behind on taxes they can lien other property they own, even above the value of the property. This can be a big shock to owners, and creates a lot of stress and panic. Yet, even these liens can be released for a variety of reasons or negotiated. It can be your secret hack for getting deals done that others pass up on.