Simply Junior

In my opinion real estate is the best business to start on borrowed money. Earning money from income producing real estate can make you richer faster then you ever dreamed. I don’t want to sound mean, but with foreclosures happening at an incredible rate, these people are going to need some place to live. Why not provide them with shelter! You’ll both serve your community while making a nice profit for yourself through rental income. Not a bad situation to be in!

Only you know yourself well enough to make your income choice. But I believe rental income is best at this time. To ensure a proper start I’ll take you through the rental process.

1. Pick the type of property you want to own to help build your wealth. Most beginners choose single- or multifamily properties for their starter properties.

2. Choose the area in which you want to own your properties. Most beginners start with local properties, if the type you want to own is available in your area.

3. Decide what type of people you want to rent to. In rental real estate your prospective tenants are your market. If you define this market in advance, such as section 8 (government-paid rents) in advance, it will help you rent your units sooner for a higher monthly amount. So, you might target newly married couples, blue-collar workers in nearby manufacturing plants, and so on.

4. Look for suitable properties meeting your written goals. Do this by looking in your local real estate section of the Sunday newspapers. Next look in your telephone Yellow Pages under Real Estate Brokers for firms advertising your type of property. Call them by phone, e-mail, fax, or postal mail. Tell them what you’re looking for.

5. Negotiate a suitable price once you’ve the type of property you want. Its best to try to pay no more than six times your Gross Annual Rental Income from the property. For example, If your Gross Annual Rental Income from a property is $50,000, do not pay more than 6 x $50,000 = $300,000 for the property. Why? because at a higher ratio, say seven or eight times, you may not have a positive cash flow from the property. Positive Cash Flow means you have money left over EVERY month after paying ALL expenses, including your first and second mortgage. YOU MUST HAVE A POSITIVE CASH FLOW FROM EVERY PROPERTY EVERY MONTH!

6. Take Over your selected property. You should allow yourself three months to get comfortable with your new income property. Make improvements to you property if it needs upgrades. Raise the rents to reflect the better building your tenants now enjoy. Then start looking for your next income property.

Recognize What It Takes To Succeed

I want you to achieve all of your goals, to do so you must recognize what it takes to succeed in reaching your goals. It takes:
- Knowing exactly what you want to achieve- set a realistic dollar amount.
- Knowing how you want to achieve your goals- In this case through rental property.
- Knowing how you will achieve your goal in rental income- the types of property, the amount you’re willing to pay, the average closing time you’ll go through, the type of tenant you’re aiming to rent to, the type of lender who will finance your property, and what kind of work you’ll do to each property to maximize your rent.

The best way to ensure you reach your goals is by writing a business plan covering what you’ll do in your rental business. Your business will:
- Show you which steps to take to get started.
- Project the income you can expect from your work.
- Give you an insight to your own thinking you may never have had before.
- Put you on the path to reaching your financial goals.

There you have it a few key ideas for building wealth through rental real estate.

If you are in the home buying or selling market, it’s important to understand the difference between tax assessment and appraisal value. Concentrate on the appraisal value because this determines your asking price.

Understanding Tax Assessment

The tax assessment is a tool local governments use to exact a property tax rate on residents. The local government determines your home’s worth by reassessing the homes in the area you live in periodically. Some areas reassess every 2-3 years. But with today’s booming real estate market, the National Association of Realtors estimates 60-70% of U.S. tax assessments do not reflect the escalating market value on home sales. This is why the tax assessment is not always an accurate gauge of true home worth.

Tax assessment offers a general idea of home value. If you are curious about whether your tax assessment office is keeping up with the local market, telephone your local real estate board and local tax assessment office. Ask them about the local appreciation value on homes to determine if they are up-to-date.

Focus on the Appraisal Value

Home sellers should concentrate on the appraisal value, because a mortgage lender will write a loan on the home for this amount. Location is the prime factor in appraising a property. An appraiser will look at three homes that sold during the previous three-month period to determine what similar properties have sold for in the same neighborhood. If your home is in a rural area, or if the sales in your area have been sluggish, the appraiser can go within a five mile radius to locate similar homes for comparison. If there is home value inflation in the area, the appraiser will factor this in. A good appraiser will contact the realtor who sold the homes he or she is using as a comparison.

What Do Appraisers Look For?

An important rule of thumb of real estate is: location, location, location. Appraisers are mainly focused on the following to determine home worth:

square footage condition and age of the home location lot size number of bedrooms number of bathrooms total number of rooms garage(s) decks screened porches fireplaces

Secondary Enhancements Help a Home Sell

There are other bells and whistles the appraisers may factor in, but their impact on home value is marginal. Although these improvements do help the home sell, they do not impact the appraisal significantly.

Here are some examples:

ceramic tile hardwood floors crown molding chair railing specialty counter tops, cabinetry sprinkler system wainscoting upgrades in light fixtures upgrades in faucets, sinks, tubs and showers swimming pool

Sell Your Home Quickly

Do not be mistaken — upgrades are worthwhile because they will help sell your home quickly. For example, eye-catching landscaping will lure people in to look at the home, because 80% of homebuyers decide if they like a house when they first drive up to the property.

When do I Need an Appraisal?

Home sellers may want to pay for a professional appraisal so they know the true value of their home, but they are not required to have an appraisal. Your realtor will determine an asking price with you. To determine a fair and marketable price for your home, expect your realtor to research comparable home sales on Multiple Listing Services (MLS). Homebuyers are required by the lender to have an appraisal done and they must pay an average of $300-500 for it. Payment is due at the time of the appraisal. The buyer does not have the right to choose the appraiser — the lender does this. Loan officers keep an approved list of appraisers on hand.

Research on Home Value

While conducting research on home value consider this: Is the neighborhood you live in completely built out, or are you competing with new homes still being built? If you are putting your home on the market and would like to conduct some of your own research, you can do one of three things. Visit the courthouse in your county and see what has sold in your area that is similar to your home. Call your local realtor and ask for a comparative market analysis. Or, visit open houses in your neighborhood which are similar to your own, to see what they are selling for. All of these activities are a good education for homeowners interested in learning the value of their home before placing it on the market or refinancing.

A very important part of personal financial planning is tax planning. This article will help you take the mystery out of personal tax Planning by providing a financial planning perspective for your overall tax situation.

1. Be aware of the different types of taxes

Many people are not aware of the different types of tax systems that we have. Income: Federal, State and Local. Real estate tax. Tax on Investments: Dividends, interest, capital gain, and passive income on stocks, bonds, mutual funds, and investment real estate. Estate or Inheritance Tax: Federal and state tax due on the estate or the inheritor. Gift tax: tax on giver of large gifts. Entitlement Tax: Social Security and Medicare (FICA), Federal Unemployment (FUTA). Sales, self employment, and corporate taxation.

2. Consider working with a Qualified Tax Professional

Tax planning can be complex for many people, therefore it may be wide to work with a trusted professional tax advisor.

Tax advisors not only prepare your taxes but can help make decisions that will affect your future. They can serve as advisors for a whole host of matters and they can represent you if you face the dreaded audit. Consider the following when selecting a tax professional:

- Local: Someone that you can easily meet with face to face

- Personable: Someone that you can interact with and who cares about you

- Proactive: Some tax preparers simply look at your previous year’s return and plug your current numbers into last year’s format. This of course assumes that last year’s preparer knew what he/she was doing. Try to find a preparer who knows your situation. A proactive professional will ask questions that will help you anticipate changes in your tax situation to help you properly plan in advance

- Reputable: Find a professional with a good reputation. Ask people you admire for a referral.

- Skilled: Look for an accountant that is very competent. You have to be smart to obtain a degree in accounting or law.

Fees: Find out up front what they estimate their fees to be, what they charge to file electronically and whether they will represent you in an IRS audit. Avoid any ‘early refund’ ploys. Some well known tax preparation companies ‘provide’ this service which charges a hefty fee (with a lot of small print) and a lot of advertised hype for you to get your refund ‘early’. It is basically a high-interest loan. Just waiting for your actual refund will save you a lot of money.

3. Remember, tax preparation entails both art and science

The science involves the mathematical calculations that in most instances can be figured using calculators and software, and the infinite number of complex tax laws.

The art of tax planning comes into play with interpretation of any special circumstances. There are some areas of tax law that leave the government’s intentions unclear. No law can completely anticipate each person’s situation. You could call a dozen different IRS agents with the same question and get as many different answers. A proactive planner will research any unusual circumstances you may have and help you plan a course of action.

4. Doing Your Taxes Yourself?

I firmly believe in getting professional tax assistance. However, I realize that many people prefer to do their own taxes perhaps to save money, or perhaps you have cleaned up the mess a ‘store front’ preparer made of your taxes and vow to do your own. It has been my experience that often the professional tax preparer has saved us the amount of their fee in our taxes. The peace of mind that the taxes are done right has a value all its own.

However, people who have prepared their own taxes at least once with paper and pencil or software usually understand taxes much better. If you self-prepare your taxes, consider having a qualified accountant review them before you send them in. They may find things you or the software might have missed.

If you made less than $54,000 in 2007, you can file your taxes electronically for free through the irs.gov website http://www.irs.gov/efile/. If you use tax software and wish to e-file be aware of the fees so that you can budget and compare prices properly. For example, a download of Turbo Tax Home and Business Federal and State for 2006 cost just under $100 and the filing fees cost around $30. Some States allow you to ‘phone in’ your State return for free.

If you choose to mail your return, go to your local post office and send it ‘Certified Return Receipt’ mail to insure that you have a record that the IRS received your paperwork. This will cost around $10 or less and will be worth every penny should the IRS contest the receipt of your return.

5. Keep great records

If you are already very organized you may read this section just to feel great about your organization skills or skip to the next section. If, however you have heard ‘get organized’ many times before and if you are the type of person who balks at the idea of organizing that mess of receipts just remember how you felt last year as tax time approached. You could become organized in only one evening of television viewing with the right tools. Arm yourself with an accordion file with at least 16 sections. Label them according to your situation or use the following sections: Auto, Bank, Business, Credit Cards, Dental, Medical, General Receipts, Grocery, Income, Insurance, Mortgage, Utilities, School, and Taxes. Now sort your receipts into these sections. Organizing your receipts will help you “Take the mystery out of…” your financial situation. Use a new accordion file every year. Not only will this help you find needed information, it will also help you find a receipt in case you need to return an item you purchased. . Your tax professional will be sending you a tax organizer the end of December or the first of January. In this organizer will be a list of information that you will need to gather. Becoming organized will help you easily gather the information you need to fill out your tax organizer.

6. Start early

Do not procrastinate on your taxes. Tax professionals are unbelievably busy January through April. Firms who prepare business returns also have a crazy March 15 business deadline. We are providing this information because we want you to get the most attention from your preparer during their craziest season. As soon as you get your organizer, begin gathering the needed papers. If you are only missing one or two pieces of information return the organizer to your accountant with a note that says what is missing. They will begin entering the information in their software. Try to get a January or February meeting with your accountant. These months are the best to meet because they will have more time to spend with you and they will be able to think proactively. If you are looking for a professional, start looking now.

Another reason to start early is allowing yourself time to look for records, ask financial institutions for copies of lost information, or calling investment companies for statements.

7. Judicious Paycheck Tax Withholding

Many people like to overpay their taxes, so that they get a nice refund in time for vacations or other wants and needs – Kind of like a forced savings. Overpaying taxes is like a giving the government an interest free loan of your money.

Good financial management involves developing savings habits so that you set aside money in an interest bearing account from each paycheck for future needs, wants and emergencies. This helps you to avoid using credit cards for those things and not having to wait until refund time. Secondly it then allows you to manage how much you can afford or are able to put into 401(k) plans at work. This accomplishes two things, first you are managing your money better and you are saving for retirement. Saving for retirement in tax deductible retirement plans like 401(k)s will also lower your taxes, enabling you to save more for retirement and everyday needs and wants.

If you want to lower the taxes that are being withheld from your paycheck, file a new W-4 form with your employer to claim an additional withholding. Make adjustment for getting married, divorced, having children and for increasing contributions to tax deductible retirement plans. Your accountant will help you estimate this.

8. Tax planning is not the tail that wags the dog

Taxes consume a large if not the largest single percentage of your income, therefore good financial planning should strive to lessen them, by whatever means possible as allowed by law.

However, tax planning is not the only core issue of good financial planning. Tax planning works in concert with your overall goals and your individual situation.

The real estate market has been in such turmoil over the last few years, it has made a lot of potential home buyers excessively cautious when it comes time for them to consider contacting a real estate agent. Lately, there has been the noted controversy regarding real estate professionals breaching contracts and of charlatan realtors swindling unsuspecting homeowners or prospective buyers out of their money. The need to rely on old-fashioned word of mouth reputation has become a vital aspect to any estate agent’s business. In order to garner the best results, there is an obvious need to use a local real estate agent, to be sure that the cover is a solid representation of the proverbial book.

Reputation in the Neighborhood

If you are moving to a new location for your home, then looking for a Realtor® that is involved in the local neighborhood is a great place to start when seeing out a reputable housing professional on which to rely. The neighborhood can provide a character assessment of the agent’s business practices and knowledge of the local market. Not yet listed.

A local agent that is personally involved in their community will have their finger on the pulse of the local real estate market and will more than likely have foreknowledge of properties not yet listed for sale. This gives you an advantage of being the first one to contact the prospective seller through your agent.

Knowledge of the Amenities

Every prospective home buyer has a specific list of Must Haves for the right home selection. Some top “Haves” are:

Good school system Safe neighborhood. Low crime rate Family-oriented neighborhood

A local real estate agent will know their community well enough to apply all your search criteria to the properties they show you. This will save you time on your search as well as ensure a better chance of finding the perfect home for your needs.