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Archives for February 2024

Renting in the US: Vacancy Rates on the Rise

February 20, 2024 by Marco Santarelli

rental vacancy rate in the United States

Rental Vacancy Rates on the Rise

The rental vacancy rate in the United States ticked up in the third quarter of 2023, according to data from the U.S. Census Bureau. The rate climbed to 6.6%, up from 6.3% in the second quarter.

This increase could be due to a number of factors, including rising rents, a slowing economy, or a shift in renter preferences. Whatever the cause, the higher vacancy rate could mean more options for renters, but it could also put pressure on landlords to offer lower rents or concessions.

It will be interesting to see how the rental market evolves in the coming months. If the vacancy rate continues to rise, it could put downward pressure on rents. However, if the economy picks up, the vacancy rate could start to decline again.

In the meantime, renters should be aware of their options and negotiate with their landlords if they can. Landlords, on the other hand, may need to be more flexible with their pricing and terms in order to attract and retain tenants.

  • The vacancy rate is not the same in all parts of the country. Some areas, such as coastal cities, have much lower vacancy rates than others.
  • The vacancy rate for different types of rental units also varies. For example, the vacancy rate for apartments is typically lower than the vacancy rate for houses.
  • The vacancy rate is just one indicator of the health of the rental market. Other factors, such as rents and apartment turnover, also need to be considered.
Quarterly Residential Vacancies and Homeownership
Source: Census Bureau

Homeownership Vacancy Rate

The homeowner vacancy rate held steady at 0.8% in the third quarter of 2023. This is not statistically different from the rate in the third quarter of 2022 (0.9%) and higher than the rate in the second quarter of 2023 (0.7%).

The homeownership rate of 66.0% was virtually the same as the rate in the third quarter of 2022 (66.0%) and not statistically different from the rate in the second quarter of 2023 (65.9%).

Analysis of Rental and Homeowner Vacancy Rates (2020-2023)

The data provided by the U.S. Census Bureau shows the rental and homeowner vacancy rates for the United States from 2020 to 2023.

Here are some key observations:

Rental vacancy rates:

  • The rental vacancy rate has been steadily increasing since 2020, reaching 6.6% in the third quarter of 2023.
  • The highest rental vacancy rate was in the first quarter of 2021 (6.8%), while the lowest was in the second quarter of 2022 (5.6%).

Homeowner vacancy rates:

  • The homeowner vacancy rate has been relatively stable over the past four years, fluctuating between 0.7% and 0.9%.
  • The highest homeowner vacancy rate was in the first quarter of 2020 (1.1%), while the lowest was in the second quarter of 2023 (0.7%).

These trends suggest that the rental market may be softening, while the homeowner market remains tight. This could be due to a number of factors, such as rising rents, a slowing economy, or changes in renter preferences.

It is important to note that these are just national trends, and vacancy rates can vary significantly depending on the location. For example, vacancy rates tend to be higher in urban areas than in rural areas.

Additional insights:

  • The average rental vacancy rate in 2023 was 6.4%, which is higher than the average rate in 2020 (6.2%) and 2021 (6.2%).
  • The average homeowner vacancy rate in 2023 was 0.8%, which is lower than the average rate in 2020 (0.9%) and 2021 (0.9%).
  • The rental vacancy rate peaked in the first quarter of 2021 and has been declining since then.
  • The homeowner vacancy rate peaked in the first quarter of 2020 and has been relatively stable since then.

Filed Under: Housing Market Tagged With: rental vacancy rates

How Much Over Assessed Value Should You Pay for Land?

February 19, 2024 by Marco Santarelli

How Much Over Assessed Value Should You Pay for Land?

Investing in land is a significant financial decision that can yield substantial returns if approached with careful consideration and strategic planning. One crucial aspect to address is determining “How Much Over Assessed Value Should You Pay for Land?” This process involves a comprehensive evaluation of various factors that contribute to the worth of a piece of land.

In this article, we will delve into the importance of assessing land value for investment and why it serves as a crucial foundation for making informed decisions in the world of real estate and land development.

Importance of Assessing Land Value for Investment

Assessing land value is the cornerstone of any successful land investment strategy. It provides investors with a clear understanding of the current and potential future worth of a piece of land. This assessment is vital for several reasons:

  • Informed Decision-Making: By assessing land value, investors can make well-informed decisions regarding whether a particular piece of land aligns with their investment goals and objectives.
  • Risk Mitigation: Understanding the assessed value of land helps investors assess the level of risk associated with the investment. It allows them to identify any potential overpayment or undervaluation.
  • Financial Planning: Assessed land value is a critical factor when planning the financial aspects of a land investment, including budgeting, financing, and setting a reasonable purchase price.
  • Negotiation Advantage: When investors have a solid grasp of a property's value, they are better equipped to negotiate favorable terms and prices during transactions.
  • Long-Term Viability: Assessing land value allows investors to evaluate the potential for long-term appreciation and growth, helping them make decisions that align with their investment horizon.

Understanding Assessed Value

Assessed value is a critical concept in the realm of real estate and land investment. It represents the estimated monetary value assigned to a piece of land or property by a government tax assessor for tax assessment purposes. This value is used as the basis for calculating property taxes that the landowner must pay. Understanding assessed value is essential for various reasons:

  • Taxation: Assessed value directly impacts the property taxes you are obligated to pay to the local government. Therefore, comprehending how assessed value is determined is crucial for managing your tax liabilities.
  • Comparative Analysis: Assessed value can provide insights into how your property's value compares to neighboring properties. This information can be valuable when making investment decisions.
  • Property Assessment Changes: Understanding how assessed value is calculated can help you navigate the process if you believe your property has been incorrectly assessed and needs reevaluation.

What is Assessed Value and Why It Matters

Assessed value matters significantly in the world of land investment because it directly affects your financial obligations as a landowner. It is determined based on various factors, including the property's size, location, improvements, and local real estate market conditions. Here's why it matters:

  • Tax Burden: The assessed value is used to calculate property taxes. A higher assessed value can result in higher tax liabilities, impacting your overall investment return.
  • Investment Decision: When evaluating potential land investments, understanding the assessed value of properties under consideration helps you make informed choices based on their tax implications.
  • Asset Valuation: Assessed value serves as one metric to gauge the value of your land asset. It can influence your property's resale potential and attractiveness to potential buyers.

Methods for Assessing Land Value

Assessing land value involves a multi-faceted approach that considers both objective data and subjective factors. Here are some common methods used to assess land value:

  • Comparable Sales: One of the most widely used methods, involves analyzing recent sales of similar properties in the area to estimate the land's value.
  • Income Approach: This method assesses the land's value based on its potential income, such as rental income or agricultural yield, taking into account factors like location and market demand.
  • Cost Approach: Here, the land's value is calculated by determining the cost to replace it with a similar piece of land, accounting for depreciation and improvements.
  • Professional Appraisal: Hiring a qualified appraiser can provide a comprehensive and accurate assessment of land value, considering all relevant factors.

Each method has its advantages and limitations, and the choice of method depends on the specific property and the investor's objectives. Understanding these assessment methods is crucial for making sound investment decisions.

Factors Influencing Land Price

The price of land is influenced by a myriad of factors that can vary significantly from one location to another. Understanding these factors is essential for making informed investment decisions:

  • Location: The geographical location of the land, including its proximity to urban centers, amenities, and natural features, plays a pivotal role in determining its price.
  • Size and Shape: The physical characteristics of the land, such as its size, shape, and topography, can impact its value and potential use.
  • Accessibility: The ease of access to the land, including road infrastructure and transportation links, can affect its desirability and value.
  • Utilities and Services: The availability of essential utilities like water, electricity, and sewage systems can significantly influence land pricing.
  • Market Conditions: Overall economic conditions and trends in the real estate market, including supply and demand dynamics, impact land prices.
  • Land Use Potential: The permitted land use and potential for development or zoning changes can greatly affect land value.

How Much Over Assessed Value Should You Pay for Land

Determining how much over the assessed value you should pay for land is a critical consideration in land investment. The optimal amount varies depending on several factors:

  • Local Market Conditions: Research the current real estate market in the area to understand whether properties are generally selling above or below-assessed values.
  • Property-Specific Factors: Consider the unique characteristics of the land, such as its location, potential for development, and future market outlook.
  • Negotiation Skills: Your negotiation skills and ability to reach a mutually beneficial agreement with the seller can impact the final purchase price.
  • Risk Tolerance: Your risk tolerance and investment strategy should guide how much you are willing to pay over assessed value.

The Impact of Location on Land Value

Location is perhaps the most influential factor in land valuation. The following aspects highlight its significance:

  • Proximity to Urban Centers: Lands located close to cities or business districts tend to have higher values due to their accessibility and convenience.
  • Scenic or Natural Features: Land with attractive natural features such as water bodies, mountain views, or lush landscapes often commands higher prices.
  • Local Amenities: The availability of amenities like schools, parks, shopping centers, and healthcare facilities can boost land value.

Zoning and Land Use Regulations

Zoning and land use regulations are vital considerations when assessing land value:

  • Zoning Laws: The zoning designation of the land and the permitted land uses can significantly impact its value and potential for development.
  • Land Use Restrictions: Regulations related to land use, such as environmental restrictions or historical preservation, can affect land value and usage possibilities.

Market Demand and Land Pricing

Market demand is a fundamental driver of land pricing:

  • High Demand Areas: In areas where demand for land is high, prices tend to rise as buyers compete for limited available properties.
  • Supply and Demand Balance: Understanding the balance between land supply and demand in a specific area is crucial for gauging potential price fluctuations.

Infrastructure and Amenities' Role in Land Value

Infrastructure and amenities can significantly enhance land value:

  • Accessibility: Proximity to highways, public transportation, and airports can increase land value due to improved connectivity.
  • Utilities: The availability of essential utilities and services like water, electricity, and internet connectivity can boost land prices.
  • Community Amenities: Access to schools, parks, recreational facilities, and cultural attractions can enhance land value in residential areas.

Comparable Sales Analysis

Comparable sales analysis, also known as the sales comparison approach, is a valuable method for assessing land value:

  • Recent Sales Data: It involves analyzing recent sales of similar properties in the area to estimate the land's value based on real market transactions.
  • Adjustments: Adjustments are made for differences between the subject property and the comparables, such as size, location, and condition.
  • Precision: This method provides a precise valuation by considering actual market data and local conditions.

Understanding these factors and analysis methods is crucial for making informed decisions when assessing land value and determining an appropriate purchase price.

Determining Your Offer

When it comes to making an offer on a piece of land, several crucial factors should guide your decision-making process. Your offer should reflect a well-thought-out strategy that takes into account the current market conditions, your budget constraints, and effective negotiation strategies.

Assessing Current Market Conditions

Understanding the dynamics of the real estate market is essential before making an offer on land:

  • Market Trends: Research recent trends in land prices, including whether prices are increasing, decreasing, or remaining stable in the area of interest.
  • Supply and Demand: Assess the balance between land supply and demand. A seller's market, with limited available land, may require a more competitive offer.
  • Local Economic Factors: Consider the impact of local economic conditions, such as job growth and population growth, on land prices.
  • Comparable Sales: Review recent comparable land sales to determine the market value of the property you're interested in.

Setting a Realistic Budget

Establishing a realistic budget is a crucial step in determining your offer:

  • Financial Assessment: Evaluate your financial situation, including available funds, financing options, and your risk tolerance.
  • Additional Costs: Factor in additional costs associated with land acquisition, such as closing costs, taxes, and potential development expenses.
  • Resale Value: Consider the potential resale value of the land, especially if you plan to hold it as an investment.

Effective Negotiation Strategies

Negotiation is a critical skill when making an offer on land:

  • Research and Preparation: Thoroughly research the property and gather information on the seller's motivations. This knowledge can give you an advantage during negotiations.
  • Start with a Reasonable Offer: Begin with an offer that is based on market research and a fair assessment of the land's value. Avoid lowball offers that may discourage the seller.
  • Flexibility: Be open to negotiation and be prepared to adjust your offer if necessary. Finding common ground with the seller can lead to a successful deal.
  • Contingencies: Include contingencies in your offer that protect your interests, such as a due diligence period for inspections and assessments.
  • Professional Guidance: Consider working with a real estate agent or attorney who can provide expert negotiation assistance.

How Much Over Assessed Value is Reasonable?

When determining how much to pay over the assessed value for land, consider local market conditions, property-specific factors, your negotiation skills, and your risk tolerance.

The Importance of Appraisals in Land Pricing

Appraisals play a vital role in determining the accurate value of land. They provide an objective assessment based on various factors, helping you make informed investment decisions.

Tips for Avoiding Overpayment

To avoid overpaying for land, conduct thorough research, assess market trends, and employ effective negotiation tactics. Be cautious not to let emotions drive your purchase decision.

Balancing Investment Potential and Purchase Price

Striking a balance between the land's investment potential and its purchase price is crucial. Ensure that the land aligns with your long-term investment goals and provides a reasonable return on investment.

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Recap of Key Points

Let's recap the key points discussed in this article.

  • Assessed value: Represents the estimated monetary value assigned to land for tax assessment purposes.
  • Factors influencing land price: Include location, size, accessibility, utilities, market conditions, and land use potential.
  • Offer determination: Based on market analysis, a realistic budget, and effective negotiation strategies.
  • The role of appraisals: In providing an objective assessment of land value.
  • Avoiding overpayment: Through research, market assessment, and sound negotiation practices.
  • Balance: Between land's investment potential and purchase price for a successful investment.

The Critical Role of Informed Decision-Making in Land Purchase

The critical role of informed decision-making in land purchase cannot be overstated. It is the cornerstone of a successful land investment strategy. Informed decisions are based on thorough research, careful analysis of market conditions, and a clear understanding of the factors affecting land value.

By following the principles discussed in this article and continuously staying informed about changes in the real estate market, you can navigate the complexities of land investment with confidence. Remember that every investment decision should align with your specific goals, risk tolerance, and long-term vision for the property.

Whether you are acquiring land for development, as an investment, or for any other purpose, the knowledge and insights gained from this article can serve as your compass in making sound and profitable land investment decisions.

Filed Under: General Real Estate, Real Estate, Taxes Tagged With: Assessed Value, Assessed Value of Land, How Much Over Assessed Value Should You Pay for Land

Appraised Value of Home: Market Value vs Appraised Value

February 19, 2024 by Marco Santarelli

What is Appraised Value of Your Home?

Introduction to Appraised Value of Home

The appraised value of a home is the estimated monetary worth of a property, as determined by a professional appraiser. This value is based on factors such as the property's location, size, condition, and recent sales of comparable properties in the area. Appraisals are essential for real estate transactions, lending decisions, and property tax assessments.

Home appraisal is a crucial process in the world of real estate that plays a pivotal role in determining the monetary value of a property. Whether you're a homeowner, potential buyer, or seller, comprehending the concept of home appraisal is essential to making informed decisions in the ever-evolving real estate market.

Why Home Appraisal Matters?

Understanding the appraised value of your home is of paramount importance for several compelling reasons:

  1. Accurate Valuation: An appraisal provides an unbiased, professional estimate of your home's worth, considering various factors such as location, size, condition, and comparable property sales. This valuation is vital when selling or refinancing your home.
  2. Realistic Pricing: If you're planning to sell your home, knowing its appraised value allows you to set a competitive and realistic selling price. Overpricing or underpricing can deter potential buyers or lead to financial loss.
  3. Financing: Lenders use the appraised value to determine the maximum loan amount they are willing to provide. This affects your ability to secure a mortgage and the terms of the loan, including interest rates.
  4. Property Taxes: Local governments often use the appraised value to calculate property taxes. Understanding your home's appraised value can help you anticipate and budget for tax obligations.
  5. Investment Decisions: For real estate investors, knowing the appraised value of a property is crucial for evaluating potential returns, making informed purchase decisions, and managing their investment portfolio.

Home appraisal is a complex process that involves a thorough examination of a property by a qualified appraiser. This professional assesses various factors, including the property's condition, features, and recent sales of comparable homes in the area. The final appraisal report provides an estimate of the property's fair market value.

What Does It Mean to Appraise the Value of a House?

Property appraisal is a fundamental process in the real estate industry, aimed at determining the monetary value of a house or any other type of property. This valuation serves as a critical point of reference for homeowners, buyers, sellers, lenders, and real estate professionals, helping them make informed decisions in a dynamic and ever-changing market.

The Basics of Property Appraisal

At its core, property appraisal involves a systematic and unbiased assessment of a house's worth by a qualified appraiser. This expert evaluates a multitude of factors that contribute to the property's value, including:

  • Location: The geographical location of the house, including its proximity to amenities, schools, transportation, and the overall desirability of the neighborhood.
  • Property Characteristics: The appraiser considers the house's size, layout, number of bedrooms and bathrooms, architectural style, and any unique features it may possess.
  • Condition: The current state of the property, including its structural integrity, maintenance, and any needed repairs or renovations.
  • Comparable Sales: One of the key aspects of appraisal is comparing the subject property to recently sold properties in the same area. These “comps” provide valuable insights into the local market and help determine the property's value.

How Do You Determine the Appraised Value of a Home?

Understanding how appraisers determine the value of a home is essential for anyone involved in real estate transactions. Appraisers use a combination of methods and consider various factors to arrive at the appraised value of a property. Let's delve into the methods and factors that play a pivotal role in this process.

Methods Used in Home Appraisal

Appraisers employ several methods to assess a property's value, with the three most common ones being:

  1. Comparative Market Analysis (CMA): This method involves comparing the subject property to recently sold homes in the same area, known as comparables or “comps.” Appraisers analyze these comps to determine a fair market value for the property in question.
  2. Cost Approach: In this approach, the appraiser calculates the cost to replace the property with a similar one, accounting for depreciation and improvements. This method is particularly useful for newer homes or when there are limited comparable sales data.
  3. Income Approach: Typically used for income-generating properties like rental units, the income approach assesses the property's potential income and expenses to arrive at its value. This method is often used for commercial properties and apartment complexes.

Factors Considered in Home Appraisal

Appraisers take into account various factors when determining a home's appraised value:

Location

The location of a property is a critical factor in its appraisal. Appraisers consider the neighborhood's desirability, proximity to amenities, schools, parks, and even the quality of local schools. A prime location can significantly increase a property's value.

Size and Layout

The size and layout of a home play a crucial role in its valuation. Appraisers assess the total square footage, number of bedrooms, bathrooms, and other living spaces. Unique features, such as a spacious kitchen, a walk-in closet, or a finished basement, can also impact the property's value.

Condition

The overall condition of the property is a key consideration. Appraisers evaluate the structural integrity, maintenance, and any necessary repairs or renovations. A well-maintained home is likely to have a higher appraised value than a similar property in poor condition.

Recent Sales Data

Recent sales of comparable homes in the same area provide valuable insights into the property's value. Appraisers look for properties with similar characteristics that have sold recently to establish a benchmark for the subject property. The selling prices of these comps influence the final appraised value.

Example of Appraised Value of a Property?

To better understand the concept of appraised value, let's explore a real-life example of a home and the factors that influenced its appraised value.

Real-Life Example: 123 Maple Street

Consider a charming suburban home located at 123 Maple Street. This home recently underwent an appraisal to determine its current market value. Here's how the appraised value was calculated:

Location:

The property at 123 Maple Street is situated in a highly sought-after neighborhood known for its excellent schools, safe environment, and proximity to shopping centers and parks. This prime location positively impacted the appraised value as it is considered a desirable area for families.

Size and Layout:

The house boasts a spacious layout with four bedrooms, three bathrooms, a two-car garage, and a sizable backyard. The total square footage of the property is 2,500 square feet. These features, along with the well-thought-out floor plan, contributed to a higher appraised value compared to smaller or less functional homes in the vicinity.

Condition:

123 Maple Street has been meticulously maintained by its owners. The recent renovations, including a modern kitchen and updated bathrooms, added to the property's overall appeal. The appraiser noted that the house was in excellent condition, which increased its appraised value. A well-maintained property is often valued higher due to reduced repair or renovation costs for potential buyers.

Recent Sales Data:

The appraiser considered recent sales data of comparable homes in the neighborhood. Three similar properties within a half-mile radius had recently sold for $400,000, $405,000, and $410,000. These sales provided a benchmark for the appraiser to assess the value of 123 Maple Street. Given its prime location, size, and condition, the appraiser arrived at an appraised value of $415,000.

Can You Improve the Appraised Value of a Home?

Yes, you can improve the appraised value of your home through strategic efforts and investments. Increasing your home's appraised value not only enhances its marketability but also potentially boosts your equity and financial well-being. Here are some insights and tips on how homeowners can achieve this:

1. Home Improvement Projects

Consider undertaking home improvement projects that can add value to your property:

  • Kitchen Renovation: The kitchen is often the heart of the home. Upgrading it with modern appliances, countertops, and fixtures can significantly increase your home's value.
  • Bathroom Upgrades: Renovating bathrooms, especially the master bath, can yield a high return on investment. Features like new tiles, a stylish vanity, and updated fixtures can make a big difference.
  • Energy Efficiency: Invest in energy-efficient upgrades like double-pane windows, insulation, and a programmable thermostat. Not only do these improvements reduce utility bills, but they also make your home more attractive to eco-conscious buyers.
  • Outdoor Living Space: Create an appealing outdoor area with landscaping, a deck, or a patio. Well-maintained outdoor spaces enhance curb appeal and overall property value.

2. Regular Maintenance

Consistent maintenance is essential to preserving your home's value over time:

  • Roof and Gutters: Regularly inspect and maintain your roof and gutters to prevent leaks and water damage.
  • HVAC Systems: Ensure your heating, ventilation, and air conditioning systems are in good working order. Regular servicing can extend their lifespan and maintain home value.
  • Exterior: Keep the exterior of your home well-maintained. This includes painting, repairing siding, and addressing any structural issues promptly.
  • Plumbing and Electrical: Address plumbing and electrical issues promptly to prevent costly repairs down the road.

3. Curb Appeal

First impressions matter. Enhancing your home's curb appeal can have a substantial impact on its appraised value:

  • Landscaping: Invest in landscaping to create an inviting and well-maintained front yard. Planting flowers, trimming bushes, and adding mulch can make a significant difference.
  • Exterior Upkeep: Keep the exterior of your home clean and well-painted. Ensure that the driveway and walkways are in good condition.
  • Front Door: A fresh coat of paint on the front door, along with modern hardware, can make your home's entrance more appealing.
  • Outdoor Lighting: Consider installing outdoor lighting to highlight architectural features and improve safety.

4. Keep Records

Document all improvements, maintenance, and upgrades you make to your home. This information can be valuable when it comes time for an appraisal, as it allows the appraiser to take these enhancements into account when determining the property's value.

How Can I Appraise My Home Myself?

Conducting a DIY appraisal of your home is possible, but it's important to be aware of its limitations and benefits. While a self-appraisal can give you a rough estimate of your home's value, it may not be as accurate as a professional appraisal. Here's a step-by-step guide on how to conduct a basic DIY appraisal:

Step 1: Research Comparable Properties

Start by researching recent sales of similar properties in your neighborhood. Look for homes with similar size, layout, features, and condition. These are often referred to as “comps” or comparable properties. Websites and real estate databases can provide valuable information on recent sales.

Step 2: Calculate Price per Square Foot

Calculate the price per square foot for each of the comparable properties you found in Step 1. To do this, divide the sale price of each property by its square footage. This will give you an average price per square foot for homes in your area.

Step 3: Assess Your Home's Size and Condition

Measure your home's square footage and compare it to the comps you researched. Take note of any differences in features, upgrades, or maintenance between your home and the comparable properties. Adjust your estimate accordingly. For example, if your home is in better condition or has more upgrades, you might adjust the price per square foot upward.

Step 4: Consider Unique Features

If your home has unique features that are not common in the neighborhood, such as a swimming pool, a large backyard, or a renovated kitchen, factor in their value. You can estimate the additional value they bring based on your knowledge of the local market and recent sales of similar homes with those features.

Step 5: Determine Your Home's Appraised Value

Multiply your home's square footage by the average price per square foot you calculated in Step 2. Then, add or subtract any adjustments you made in Step 3 and Step 4. This will give you a rough estimate of your home's appraised value based on the DIY method.

Limitations and Benefits of Self-Appraisal

Limitations:

  • Lack of Accuracy: A DIY appraisal is unlikely to be as accurate as a professional appraisal conducted by a certified appraiser. It may not take into account all relevant factors that affect your home's value.
  • Subjectivity: Your assessment of your home's condition and features may be subjective and biased, potentially leading to an overvaluation or undervaluation.
  • Market Changes: Real estate markets can fluctuate quickly. DIY appraisals may not reflect the most current market conditions.

Benefits:

  • Cost Savings: Conducting a DIY appraisal is cost-effective, as it doesn't require hiring a professional appraiser.
  • General Estimate: A DIY appraisal can provide a general estimate of your home's value, which can be useful for personal financial planning or getting an initial sense of your property's worth.
  • Education: Going through the DIY appraisal process can help you gain a better understanding of the factors that influence your home's value.

Are Market Value and Appraised Value The Same?

Market value and appraised value are two distinct concepts in real estate, and while they may sometimes align, they are not the same. Let's clarify the differences between these two terms and discuss scenarios where they may align or differ.

Market Value vs. Appraised Value: Key Differences

Market Value:

Market value is the price at which a property would sell in a competitive and open market, assuming both the buyer and seller are knowledgeable about the property's condition and the current market conditions. It is influenced by factors such as supply and demand, economic conditions, and buyer preferences. Market value is determined through negotiation between a willing buyer and a willing seller, and it can fluctuate over time as market conditions change.

Appraised Value:

Appraised value, on the other hand, is the estimated value of a property as determined by a licensed or certified appraiser. Appraisers use a systematic and unbiased approach, considering factors such as the property's location, size, condition, and recent sales of comparable properties in the area. The goal is to provide an objective valuation based on established appraisal methods and professional expertise. Appraised value is often used by lenders to assess the collateral for a mortgage loan or by homeowners for various financial purposes.

Scenarios Where Market Value and Appraised Value May Align:

  1. Stable Market: In a stable real estate market with balanced supply and demand, market value and appraised value are more likely to align closely. Appraisers rely on recent sales data, which can be indicative of the current market conditions.
  2. Accurate Appraisal: When an appraiser accurately assesses the property and considers all relevant factors, the appraised value may closely match the market value. This is more likely to occur when the appraiser has access to recent and relevant sales data.
  3. No Extraordinary Features or Conditions: If the property being appraised does not have any unique or extraordinary features that significantly affect its market value, the appraised and market values may align more closely.

Scenarios Where Market Value and Appraised Value May Differ:

  1. Fluctuating Market: In a rapidly changing real estate market, appraised value may lag behind market value. Appraisers rely on historical data, and the market can shift before the appraisal is conducted.
  2. Unique Features: If a property has unique features that are not well-represented in the local market or if there are no recent comparable sales, the appraised value may differ significantly from the market value.
  3. Subjectivity in Market Value: Market value can be influenced by subjective factors like buyer preferences, emotions, or specific circumstances. Appraisers aim for objectivity, so their valuation may differ from what a specific buyer is willing to pay in a particular situation.

How Accurate Are Home Appraisals?

Home appraisals are generally accurate but can be influenced by various factors. The accuracy of an appraisal depends on:

  • Appraiser's Expertise: A skilled and knowledgeable appraiser is more likely to provide an accurate valuation.
  • Access to Data: Availability of recent and relevant sales data impacts accuracy.
  • Property Condition: The property's condition, features, and maintenance affect the appraisal.
  • Market Stability: Stable markets yield more accurate appraisals than volatile ones.

Common Misconceptions:

  • Precision: Appraisals are estimates and market value can change, so precision varies.
  • Exact Home Value: Appraisals give a range, not an exact value.
  • Always High Value: Appraisers aim for fairness, not to maximize value.

Ultimately, appraisals provide a valuable estimate but may not reflect the final sale price in a dynamic real estate market.

Do Appraisals Usually Match the Asking Price?

Appraisals and asking prices often differ, but the relationship depends on various factors:

  • Matching: In stable markets with competitive pricing, appraisals may align with asking prices.
  • Falling Short: Appraisals can fall short of the asking price if the property is overvalued or in a declining market.
  • Exceeding: In cases where demand is high and multiple offers are made, appraisals might exceed the asking price.

Appraisals provide an objective estimate while asking prices are influenced by sellers' expectations and market conditions. The match depends on these factors and negotiation.

Final Thoughts on Appraised Value

In conclusion, understanding the appraised value of your home is vital in the world of real estate.

Here are the key takeaways from this article:

  • Appraised Value: It's an objective estimate of a property's worth, determined by a professional appraiser using various factors like location, size, condition, and recent sales data.
  • Market Value: Different from appraised value, it's the price at which a property would sell in an open market, influenced by supply and demand.
  • DIY Appraisal: While possible, a DIY appraisal has limitations and may not be as accurate as a professional appraisal.
  • Improvement: Homeowners can increase appraised value through maintenance, renovations, and enhancing curb appeal.
  • Alignment: Appraised and market values may align in stable markets but can differ due to market fluctuations and property uniqueness.

We encourage homeowners, buyers, and sellers to be proactive in understanding their property's appraised value. It's a crucial factor that can impact financial decisions and transactions in the dynamic world of real estate. Seek professional appraisals when precision is needed, and remember that a well-informed approach is the key to success in the real estate market.

Filed Under: General Real Estate, Real Estate, Taxes Tagged With: Appraised Value, Appraised Value of Your Home, Home Appraisal, Market Value vs Appraised Value

Can You Invest In Real Estate If You Are Too Busy And Have No Time?

February 19, 2024 by Marco Santarelli

Can You Invest In Real Estate If You Are Too Busy And Have No Time?

At some point in your life, the thought of achieving financial independence has likely crossed your mind. Real estate investment often comes to mind as a potential avenue for this goal. However, many shy away due to a lack of knowledge or perceived risks associated with the business.

While concerns about returns and the time-consuming nature of owning and managing rental properties are valid, the benefits of investing in real estate outweigh these fears. Real estate is a classic method of building wealth, and there are various options available that can fit even the busiest schedules.

Can You Invest In Real Estate If You Have No Time?

Investment in Real Estate: Balancing Time and Returns

The investment aspect of real estate doesn't have to be excessively time-consuming. Much like stock investment, it involves strategic planning and execution. Allocate funds, determine risk tolerance, and learn to spot the best deals in the market.

On the other hand, the operational side of real estate can be demanding, especially for individuals with numerous commitments. It encompasses property management, repairs, tenant screening, and marketing efforts, which can be overwhelming.

However, these responsibilities can be delegated to companies specializing in property management. For instance, a property management company can handle the day-to-day affairs of your rental property, from rent collection to addressing tenant concerns.

How to invest in real estate when you are too busy
Image by GraphicMama-team from Pixabay

Exploring Real Estate Investment Strategies for the Busy

Let's delve into various real estate investment strategies that suit individuals with limited time:

1. Acquiring a Leased Property from Another Investor

Consider purchasing a property that's already leased and managed by another investor. This approach allows you to generate immediate cash flow without spending time on repairs or property hunting.

Benefits:

  • You step into the role of a landlord and start collecting rental income.
  • Opportunity to build a rental property portfolio with accumulated rental income.
  • Lower risk compared to renovations for profit.

2. Investing in Fully Managed Rental Properties

How to invest in real estate when you have no time

For those with ample resources but limited time, consider investing in fully managed rental properties. This entails purchasing a property with existing tenants and a property manager in place.

Benefits:

  • No hassle of managing the property, as a property manager handles tenant affairs and repairs.
  • Steady cash flow without direct involvement in day-to-day operations.
  • Opportunity to negotiate lower property management fees with an expanding property portfolio.

3. Indirect Real Estate Investment

For a hands-off approach, consider indirect real estate investment options like investing in Real Estate Investment Trusts (REITs) or real estate-related stocks.

Benefits:

  • Diversify your real estate investment without direct property management.
  • Choice to invest in specific market segments or regions.
  • Liquid assets that can be bought and sold like stocks.

Real estate offers a hedge against inflation, providing a solid investment option despite its inherent risks. Whether you're a busy professional or someone with limited time, these real estate investment strategies can be tailored to suit your schedule and financial objectives. Take advantage of this opportunity to build your wealth through real estate, regardless of your time constraints.

Unlocking More Opportunities for Real Estate Investment

4. Participate in Real Estate Crowdfunding

Real estate crowdfunding platforms allow investors to pool their resources to invest in real estate projects. It's an excellent option for those with limited capital and time.

Benefits:

  • Diversification across multiple projects with a relatively small investment.
  • No direct involvement in property management or tenant issues.
  • Access to a wide range of real estate projects and locations.

5. Utilize Real Estate Investment Apps

Modern technology has introduced various apps that simplify real estate investment. These apps help you invest, manage properties, and stay updated with the market, all from your smartphone.

Benefits:

  • Effortless property management and investment tracking.
  • Access to real-time market data and trends.
  • Convenience and flexibility to invest on the go.

Investing in real estate is an important decision, and having the right guidance is crucial. At NORADA REAL ESTATE INVESTMENTS, we strive to provide exceptional investment opportunities and help you succeed in real estate investment. Reach out to us for a consultation and start your journey toward financial independence.

Filed Under: Real Estate, Real Estate Investing, Real Estate Investments

What Makes You Financially Happy: Secret for Couples

February 19, 2024 by Marco Santarelli

What Makes You Financially Happy: Secret for Couples

We are all too familiar with the sobering statistics on marriage.  Around 50% of marriages end in divorce, and oftentimes the root of all that unhappiness is money.

But there’s some good news on the horizon.  According to a  study by Ameriprise, “a remarkable 77% of American couples report they are on the same page with their finances.”

Surprising?  In these times of economic distress, it may seem too good to be true.  How do these couples build happy relationships, with each other and with money?  What’s their secret?

The study outlines five money habits of happy couples, exploring how these couples achieve financial harmony.

The Secret of Financially Stable & Happy Couples

1) They make money a priority.

Many people don’t think that money should be the most important thing in their life. Some people think it’s offensive or superficial to focus on how much money they make or how they are using their money.

But the majority of happy couples agree that money is a priority. They make a point to talk about it and plan their lives around their financial goals and needs.

It’s like Robert’s rich dad said, “Money may not be the most important thing in your life, but it affects everything that is important.”

2) They talk about and agree on financial goals.

Whether it’s retirement, saving up to buy a house, or becoming financially independent, most couples have very clear, shared financial goals. Sharing financial goals, and working towards them together is not only a great way to increase your likelihood of achieving them, but it’s also fun!

Very early in our relationship, Robert and I talked about our financial goals. We both shared the goal to become financially free, as well as a vision of owning our own business. Though we faced a long bumpy road, those shared goals kept us going. When we started The Rich Dad Company, we did so together, as partners, and it made all the difference to our success in business and our relationship.

3) They set spending limits.

The report found that most happy couples set a spending limit. “Any purchases over $400 (on average) need to be discussed.”

A spending limit can be a great way to ensure you and your partner have open communication about finances. Spending large amounts of money without discussing with your partner can lead to trust issues and resentment. But being open and up front about big financial decisions can help solidify your relationship.

4) They have joint banking accounts.

I have mixed feelings on joint banking accounts. On the one hand, I think they can be a great way to support constant communication as a couple. When your finances are tied together, you have more reason to talk about how you’re spending or saving your money as a team.

On the other hand, I don’t think there’s anything wrong with having a separate bank account, as long as your partner is aware of it.

Either way, the key is communication. Having secret accounts or stashes of money your partner doesn’t know about, is not indicative of a healthy relationship. But, I do think there’s merit to keeping some of the money you earn in a separate account, that way if things don’t work out with your partner, you are freed from some of the frustrating legal entanglements that come with splitting a joint account.

5) They share responsibility for retirement planning and investment decisions.

The study found that an astonishing “92% agree on their target retirement savings goals.”

Retirement is a wonderful time to relax and pursue the things you love with the person you love. A lot of people look forward to the extra time they have to spend with their partner in retirement.

Unfortunately, retirement is too often one of the most stressful times in a couple’s life. If they haven’t planned properly, or communicated what their goals and expectations are for retirement, then what should be a happy, relaxing time can quickly dissolve into stress and anxiety.

That’s why happy couples talk about retirement right away, and work towards their retirement goals together.

Communication is key.

At the end of the day, communication is the most important thing when it comes to a couple’s financial happiness. In fact, “nearly seven out of 10 (68%) describe communication over finances with their spouses/partners as ‘perfect’ or ‘very good.’”

This communication should start right at the beginning of a relationship. Robert asked me questions on my financial goals and habits on one of our very first dates!

Here are some good questions to get you started:

  • What did your parents tell you about the subject of money?
  • Did your own thoughts differ from those of your parents?
  • What does money represent to you?
  • What’s your general thought about very rich people?
  • How rich is “very rich”?

If you’ve been in a relationship, or if you’ve been married for a while, and haven’t had these conversations yet, it’s not too late. Many people get uncomfortable talking about money, so take it gentle and slow. Work at it from different angles until you find the one that gets the response.

Filed Under: Financing, Personal Development

How Can I Make Extra Money From Home in Evenings (2024)

February 19, 2024 by Marco Santarelli

How Can I Make Extra Money From Home in the Evenings

If you're looking to make extra money from home in the evenings, there are several opportunities available that can help you achieve this goal. Whether you want to pursue a part-time gig, start a small business, or utilize your existing skills, here are some options to consider:

13 Ways You Can Make Extra Money From Home in the Evenings

1. Sell Your Crafts Online

If you're good at making things like jewelry, candles, soap, or art, you can sell them on platforms like Etsy, Shopify, or Amazon Handmade. Reach a global market of buyers and set your own prices and schedule.

2. Tutor Students Online

If you have a knack for teaching or a degree in a certain subject, consider tutoring students online through platforms like TutorMe, Chegg, or Wyzant. Choose your subjects, hours, and rates to assist students with homework, test prep, or language learning.

3. Take Online Surveys

Share your opinions and preferences by taking online surveys and get paid for them. Use websites and apps like Swagbucks, Survey Junkie, or InboxDollars to earn cash, gift cards, or rewards points for completing surveys.

4. Transcribe Audio or Video Files

If you have good listening and typing skills, you can transcribe audio or video files into text for clients who need them. Find transcription jobs on platforms like Rev, TranscribeMe, or GoTranscript and get paid per minute of audio or video transcribed.

5. Write Articles or Blog Posts – Freelance Writing

If you have a flair for writing, write articles or blog posts for websites that need them. Find writing jobs on platforms like Upwork, Fiverr, or Textbroker and choose your topics, deadlines, and rates to showcase your writing skills.

6. Test Websites or Apps

If you're tech-savvy and enjoy giving feedback, test websites or apps for usability and functionality. Earn money for testing websites or apps for a few minutes and sharing your thoughts using platforms like UserTesting, Userlytics, or TryMyUI.

7. Sell Your Photos Online

If you're good at photography, sell your photos online to stock photo websites that need them. Explore stock photo websites like Shutterstock, iStockphoto, or Adobe Stock to earn royalties every time someone downloads your photos.

8. Offer Virtual Assistance Services

If you're organized and have good communication skills, offer virtual assistance services to clients who need them. Find virtual assistance jobs on platforms like Fancy Hands, Belay, or Zirtual and provide services like email management, data entry, booking travel, or scheduling appointments.

9. Start a Podcast or a YouTube Channel

If you have something interesting to say or show, start a podcast or a YouTube channel and share it with the world. Choose your own niche, format, and frequency, and build an audience of listeners or viewers. Earn money from sponsorships, ads, or donations.

10. Rent Out Your Space or Stuff

If you have extra space in your home or extra stuff that you don't use often, rent them out to people who need them. Use rental platforms like Airbnb, VRBO, or Turo to rent out your spare room, parking spot, car, or bike.

11. Social Media Manager

Businesses frequently seek individuals to manage their social media presence. As a social media manager, you may be responsible for tasks like creating and posting content, engaging with followers, and running social media ads.

12. Customer Service Representative

Many companies provide remote customer service positions involving tasks like answering customer inquiries, resolving issues, and providing technical support.

13. Data Entry Clerk

Data entry clerks input data into computer systems, offering a flexible job option that you can undertake in your free time.

These options provide diverse avenues to make extra money from the comfort of your home during the evenings. It's important to explore and choose an option that aligns with your interests, skills, and schedule.

Is it Possible to Make Extra Money from Home in the Evenings?

Yes, it is realistic to make extra money from home in the evenings. There are many people who do it successfully. However, it is important to be realistic about your expectations and be prepared to put in the work.

Challenges:

  • Time management: It can be difficult to balance your day job, family, and social obligations with a side hustle. It is important to be disciplined and set aside specific times each evening to work on your side hustle.
  • Motivation: It can be difficult to stay motivated to work on a side hustle in the evenings, especially when you are tired from your day job. However, it is important to remember your goals and why you are doing it.
  • Competition: There is a lot of competition for many online jobs and side hustles. You may need to market yourself and your services effectively in order to find clients and customers.
  • Technical skills: Some online jobs and side hustles require technical skills, such as web development or graphic design. If you do not have the necessary skills, you may need to invest in training or education.

Despite these challenges, it is possible to make extra money from home in the evenings. The key is to be realistic about your expectations, be prepared to put in the work and be persistent.

Tips for Maximizing Your Evening Side Hustle

  • Set Realistic Goals: Commence by establishing achievable objectives, such as earning an additional $100 per week, and gradually escalate your targets as you gain confidence and experience.
  • Be Organized: Efficiently manage your time by creating a structured schedule and adhering to it as closely as possible. Prioritize tasks and allocate specific time slots for each aspect of your side hustle to enhance productivity.
  • Take Breaks: Prevent burnout and maintain mental and physical well-being by incorporating regular breaks into your work routine. Every 20-30 minutes, stand up, stretch, and move around to refresh your mind and body.
  • Seek Assistance: Don't hesitate to seek guidance and assistance from your network, including friends, family, and colleagues. Additionally, online communities related to your field of work can offer valuable insights and support, helping you refine your side hustle.
  • Continuous Learning: Stay updated with the latest trends and advancements in your chosen field. Enroll in online courses, attend webinars, read relevant books, and follow industry thought leaders. Continuous learning will enhance your skills and keep you competitive in the market.
  • Networking: Build a network of contacts within your industry. Attend networking events, join online professional groups, and engage with individuals in your domain. Networking can open up new opportunities, provide insights, and potentially lead to more clients or customers for your side hustle.
  • Quality Over Quantity: Focus on delivering high-quality work or services to your clients or customers. Prioritize excellence and customer satisfaction, as this will not only retain existing customers but also attract new ones through positive word-of-mouth and referrals.
  • Financial Management: Effectively manage the money you earn from your side hustle. Create a budget, save a portion of your earnings, and invest wisely. Sound financial management ensures that you reap the maximum benefit from your hard-earned money.
  • Adaptability: Be adaptable and open to change in your side hustle. The business landscape and customer preferences can evolve rapidly, so be willing to adjust your strategies, services, or products accordingly. Flexibility can help you stay relevant and grow in your side hustle.

Filed Under: Making Money Online, Passive Income Tagged With: How Can I Make Extra Money, How Can I Make Extra Money From Home in the Evenings

Why Cheap People Will Never Get Rich?

February 19, 2024 by Marco Santarelli

Why Cheap People Will Never Get Rich

The other day a friend of mine approached me excitedly, saying, “I found the house of my dreams. It's in foreclosure and the bank will sell it to me for a great price.”

“How good is the price?” I asked.

“Just before the real estate market crashed, the seller was asking $780,000 for the property. Today, I can buy it from the bank for $215,000. What do you think?” she asked.

“How would I know?” I replied. “All you've given me is the price.”

“Yes!” she squealed. “Now my husband and I can afford it.”

“Only cheap people buy on price,” I replied. “Just because something is cheap doesn't mean it's worth the cost.”

I then explained to her one of my most basic money principles: I buy value. I will pay more for value. If I don't like the price, I simply pass. If the seller wants to sell, he will come back with a better price. I let him tell me what he would accept. I know some people love to haggle; I don't. If a person wants to sell, they will sell. If I feel what I am buying is of value, I'll pay the price. Value rather than price has made me rich.

Against my advice, my friend sought financing for her “dream” home.

Fortunately, the bank turned her down. The house was on a busy street in a deteriorating neighborhood. The high school four blocks away was one of the most dangerous schools in the city. Her son and daughter would either have to go to private school or take karate lessons. She is now looking for a cheaper house to buy and has asked her father, who is retired, for help with the down payment. If her past is a crystal ball to her future, she will likely always be cheap and poor, even though she is a good, kind, educated, hard-working person.

Why Cheap People Will Never Get Rich

My Point of View on Why Cheap People Will Never Get Rich

What follows are some thoughts on why my friend will probably never get ahead financially — especially in this market.

  1. She and her husband have college degrees but zero financial education. Even worse, neither plans to attend any investment classes. Choosing to remain financially uneducated has caused them to miss out on the greatest bull and bear markets in history. As my rich dad often said, “What you don't know keeps you poor.”
  2. She is too emotional. In the world of money and investing, you must learn to control your emotions. When you think about it, three of our biggest financial decisions in life are made at times of peak emotional excitement: deciding to get married, buying a home, and having kids. My dad often said, “High emotions, low intelligence.” To be rich, you need to see the good and the bad, the short- and long-term consequences of your decisions. This is easier said than done, but it's key to building wealth.
  3. She doesn't know the difference between advice from rich people and advice from salespeople. Most people get their financial advice from the latter — people who profit even if you lose. One reason why financial education is so important is because it helps you know the difference between good and bad advice.

As the current crisis demonstrates, our schools teach very little about money management. Millions of people are living in fear because they followed conventional wisdom: Go to school, get a job, work hard, save money, buy a house, get out of debt, and invest for the long term in a well-diversified portfolio of mutual funds. Many people who follow this financial prescription are not sleeping at night. They need a new plan. Had they sought out a little financial education, they might not be entangled in this mess.

Filed Under: Personal Development

1031 Exchange Rules 2024: How To Do A 1031 Exchange?

February 18, 2024 by Marco Santarelli

1031 Exchange Rules

Are you a real estate investor looking to defer taxes on the sale of your property? A 1031 exchange might be the solution for you! In this guide, we'll go over the 1031 exchange rules for 2024 and how you can successfully navigate the process to maximize your returns. Let's get started! Taxes rarely make for exciting reading material, but if you own an investment property, there’s at least one set of IRS regulations you absolutely will want to understand: 1031 Exchange Rules.

Real estate investors like you have the option of using a 1031 Exchange. Most investors find it to be a useful instrument for reducing capital gains and other taxes on their earnings. Why? Because normally when you sell an investment property for more than what you paid for it, you’d have to pay a hefty capital gains tax. But with a 1031 Exchange, you get to defer paying those taxes if you reinvest the proceeds in a new property, making an “exchange” rather than a sale.

As an investor, you can benefit from deferring the tax liability associated with the sale of real estate through a 1031 exchange. However, there are strict regulations and guidelines to be aware of that dictate what constitutes a valid exchange. Several rules need to be followed while doing a 1031 exchange. Rules related to tax implications and time frames may be problematic. If you're considering a 1031 exchange, here is what you should know about all the rules.

If you decide to do a 1031 exchange, once the money from the sale of your first property comes through, it will be held in escrow—an independent account monitored by a third party. You won’t be able to access the money until you close on a new property. Note that you're not allowed to use the money from the 1031 property exchange for anything else.

You can't sell two commercial 1031 Exchange properties, do two quick fixes and flips, and then roll the proceeds into a new apartment building. The money from the first transaction will be held by a qualified intermediary who acquires the replacement property for the taxpayer. And this is fine, provided you follow a few more rules.

Here are the important 1031 Exchange rules and regulations to be mindful of:

1. Like-kind Properties Rule

1031 exchanges must be done with like-kind properties. The rules for like-kind properties have evolved over the rules. In 1984, Section 1031 of the tax code was changed so that the definition of like-kind was dramatically expanded. You now had the option to sell a rental house and buy a small apartment building. Before the rule change, you didn't just have to trade a house for a house but a three-story apartment building for a three-story apartment building.

The properties don't have to be in the same sector. For example, you could sell an apartment building and invest the proceeds in an industrial building. International and domestic properties are not “like-kind” 1031 exchange properties, either. Yet you can use almost any property in the United States for a 1031 exchange.  However, it is very important that if you cannot find the right property to reinvest the proceeds, don’t do a 1031 exchange. You should avoid buying the wrong property at the wrong time in the housing cycle.

2. Three-Property Rule

You can identify up to three potential properties to buy as long as you close on at least one of them. The federal government limits the rollover process to up to three properties. Most investors limit themselves to up to three properties to avoid being subject to more complex tests or simply minimizing the necessary paperwork.

3. 200% Rule

You can identify any number of replacement properties you want to purchase so long as their eventual combined fair market value isn’t more than 200% of your relinquished property. So let’s say you sell a property for $500,000. The combined market value of your purchase should be no more than twice that, or $1 million.

4. 95% Rule

You can ignore the 200% rule and identify any number of potential replacement properties for any amount as long as you buy 95% of the aggregate value of those properties. So if you sold a property for $500,000, you could identify five properties worth a total of $2,500,000. But you’d then have to buy at least $2,375,000 (that’s 95%) worth of those properties.

5. 45-Day Time Limit to Find a 1031 Exchange Property

The 1031 exchange used to have to be done nearly simultaneously. This caused a variety of problems because it can be hard to transfer titles and funds in a short period. However, the current 1031 exchange process still has a time limit. There is a strict 45-day time limit.

You must either close on or identify and report on the potential replacement property within 45 days of selling the original property. This time period includes weekends and holidays. If you pass that time limit, the entire exchange is disqualified. The IRS won't interfere in the purchase of the new property. However, you'll owe taxes on the sale of the old one.

6. 180 Days For the Transfer to Complete

After the sale, the clock starts ticking for you to find that new property: You have 45 days to identify a new property (or properties) you want to buy. Once the replacement property is selected, the investor has 180 days from the date the original property was sold to close on the replacement property. Since closing on a property can take time and is often unpredictable, many investors choose more than one property to buy with the hopes that at least one of them will come through.

7. Personal Residences Don't Count as 1031 Exchange Properties

You can't sell your personal residence and use part of the money to buy a rental. A general rule of thumb is that you can't use a 1031 exchange if you lived in it for at least two of the past five years. Vacation homes and second homes typically don't count, either. Paragraph 280 of section 1031 outlines the usage test that can be used to determine if a vacation home you rent out periodically can be included among 1031 Exchange properties.

8. Fix and Flip Properties Don't Count as 1031 Exchange Properties

To qualify for a 1031 exchange, both the new and old properties have to be held as an investment or used in a trade or business. Held for investment means holding the property for future appreciation. Used in a trade or business means income-producing, such as used in a business or used as a rental property. A fix-and-flip kind of property is regarded as property held for sale. You may be able to count it as a 1031 exchange if you end up renting it out for a few months before selling it to an investor.

9. Land that you're developing is not qualified for tax-deferred treatment under section 1031 of the tax code, though raw land might

A 1031 exchange can include build-to-suit exchanges, but the construction and property improvements must be completed by the 180-day time limit. In general, your interest in a partnership doesn't count under section 1031. If you receive non-like-kind property like liabilities or cash equivalents, this could result in a tax bill. After 2018, the 1031 exchange could only include real property. Yet the exchange can include money such as proceeds after a mortgage is paid off.

What is an IRS 1031 Exchange?

Property owners may exchange real estate held for investment for another property of like-kind and so long as the properties are held for investment, all real estate is deemed to be like-kind. If the transaction qualifies, any realized capital gains are deferred until the replacement property is sold at a later date. Many investors would like to do a 1031 exchange. Some of them who do fix and flip call us for a 1031 exchange to roll the gain over into the next property. But can they?

Although confusing, understanding IRS Code Section 1031 is worth it. It’s just that this transaction is subject to some strict regulations, so you’ll need to follow the 1031 exchange rules to the letter. For example, an exchange can only be made with like-kind properties, and IRS rules limit use with vacation properties. Another common misconception is that property sold in a particular state must be replaced by a property in the same state.

But that's not true as the “like-kind” requirement is very general and allows for the property owner to acquire property outside of his state should they wish to do so. However, some complications can arise where multiple states are involved. For example, California has a “clawback” requirement for California investment property sold in a 1031 exchange and subsequently replaced with a non-California investment property per California FTB Publication 1100 Irev 2007, section F.

Any capital gains accrued on California real estate will be subject to California tax upon the ultimate sale of the real property even if the investor had sold his or her California real estate and subsequently 1031 Exchanged into investment property located outside of California. Therefore, if the replacement property is out-of-state, California aggressively tracks when the replacement is ultimately sold.

When the replacement property is sold, California treats the gain as California source income to the extent of the original deferred gain. That is so even if you no longer live in California and if you are selling the non-California property twenty years later. Several other states follow this rule, but California may be the most aggressive in enforcing it. So what's the drawback?

The “clawback” provision can affect you negatively when you try to exchange out of California's stringent tax system into a friendlier state tax system such as Nevada or Texas as both of these have no state income tax.  Here’s all the more you need to understand and execute a 1031 Exchange process successfully in 2021.

A 1031 Exchange is an incredibly useful tool for many real estate investors. It is an exchange of two (or more) pieces of real estate under Section 1031 of the tax code. A simple definition of 1031 exchange properties is the property being sold and the property being purchased under Section 1031 of the tax code. In the simplest case, you're swapping one property for another.

Internal Revenue Code Section 1031 allows individuals and entities to “exchange” investment property or other property that is held for productive use in a business or trade but not primarily for sale. The IRS Code Section 1.1031 states that no gain or loss is recognized if property held for productive use in a trade or business or investment is exchanged solely for property of a like kind to be held either for productive use in a trade or business or investment.

The important words are property and held. “Property” refers to real property while “held” means the time when the property is used in the productive use of a business or investment. The shorter the time held, the greater the facts need to be to substantiate that the property is used for the proper intent rather than for a flip or profit. Properties that do not come under 1031 consideration include primary residence, inventory, partnership interests, indebtedness, stocks, securities, and notes.

1031 exchange can come with high legal fees and strict limits. However, this is often worth it, given the great benefits of a 1031 exchange. This explains why the 1031 exchange is used by businesses to “move up” in buildings, selling their existing ones to buy a larger facility with minimal taxes. Although a 1031 exchange process is complex it is one of the best tax advantages real estate investors have at their disposal.

There are several initial steps to a successful 1031 exchange process. For example, you'll want to find a qualified intermediary before you sell the property. Then there is the process of listing the property you want to sell. The first step in the 1031 exchange is selling the first property. It is advisable to have potential replacement properties identified at this point.

However, you don't have to close on these properties immediately. If the 1031 exchange properties cannot be closed simultaneously, the money must be held by a qualified intermediary. This means the taxpayer doesn't receive the money from the sale of the first property.

The second step in a 1031 exchange is formally identifying your replacement property. This must be done within 45 days of the sale date of the first property. Ideally, you'd have begun the purchase process.

The third step of the 1031 exchange process is to complete the purchase of the replacement process including payment and retitling of the property. The facilitator will hold the cash from the sale of the first property and send it to the seller of the replacement property. Then the 1031 exchange is treated as a swap by the IRS and considered done once you fill out the IRS form.

In general, you have 180 days from start to finish. However, you may have to do so even faster. For example, you generally have to complete the process before you file your tax return claiming the 1031 exchange. This means you'll want to complete the 1031 exchange started last tax year before you file your tax return the following April.

If you acquire the replacement property before the first one sells, this is called a reverse exchange. The property must be held by an exchange accommodation titleholder. This could be a qualified intermediary. You'll get the title transferred to you when the first property sells.

What happens if there is money left over after the new property has been purchased? Maybe the new property costs less than you expected after all costs are taken into account. Or you didn't use all of the money toward the purchase of a new property. A tax penalty will be owed, but it is typically only for the amount that wasn't rolled over into the new property.

What Are The Four Types of 1031 Exchanges?

Types of 1031 Exchanges

Simultaneous 1031 Exchange

The simultaneous exchange is defined by having the 1031 exchange happen on the same day. It was also the original form of the 1031 exchange until updates to tax law made the others possible. There are several ways the simultaneous exchange may happen. You might have a two-party trade.

In this case, two parties exchange or swap deeds. In a three-party exchange, an accommodating party facilitates the exchange by transferring ownership between the parties so they close on the same day. Another option is using a qualified intermediary who handles the entire exchange.

Delayed 1031 Exchange

The delayed exchange is one where you sell a property one day, receive the money, and buy the property after a delay. It could be anywhere from one day to several months before acquiring the replacement property. If you don't buy replacement property within the time limits set by the IRS, you will have to pay capital gains on the proceeds from the original property sale. The money from the initial sale must be held by a third-party “exchange intermediary”.

This third party may also be called a Single Purpose Entity. The 180-day time limit starts the day you execute the sale and purchase agreement for the first property. However, you have 45 days to identify a new piece of real estate and you have 180 days to complete the transaction. Fortunately, this gives you several months to negotiate the purchase price, arrange for the seller to make repairs, and perform a proper title search.

Improvement 1031 Exchange

An improvement exchange or construction exchange lets you improve on the replacement property using tax-deferred dollars, though the money is held by a qualified intermediary. There are several requirements you must meet if you want to defer all of the gains from the sale of the relinquished property.

First, all of the exchange equity must be used as either a down payment on the new property or spent on completed improvements. You'll run into problems if the work isn't completed within 180 days. And remember that this 180-day time frame includes the time spent shopping for replacement property and planning the renovations. The SPE theoretically is the one making the renovations or at least paying for them.

Second, the construction or improvement exchange requires having “substantially the same property” that you identified by day 45 of the 1031 exchange timeline. The replacement property must end up with the same or greater value when it is deed back to the taxpayer. This approach allows you to buy a fixer-upper and make renovations within the 1031 exchange rules, but it requires careful project planning.

In theory, it allows you to buy land and build something, but that is not recommended due to the heavy tax bill you'll face if you're wrong. However, the like-kind rules are so liberal you could sell a rental house and buy a strip mall or sell raw land in an urban area and buy a ranch. However, if you sell property inside the United States, the replacement property must be within the U.S. as well.

Note that properties must be considered like-kind for the 1031 exchange to be approved. As a property investor, this means you can use a 1031 exchange to upgrade from a single-family home rental property to a triplex. And you can upgrade from the triplex to a 20-unit apartment building. There is no limit to how many times you do a 1031 exchange. Nor is there a limit to how frequently you do 1031 exchanges, only the time frame for the 1031 exchanges themselves.

You could avoid paying capital gains taxes as you continually roll over gains from one piece of property to another until you eventually sell for cash. What happens if you sell improved land (with buildings) for unimproved land? The depreciation for the buildings on unimproved land may be recaptured as ordinary income and taxed as such, though you may avoid general capital gains. This is why you must have a professional guide you through this process.

Reverse 1031 Exchange

A reverse exchange can be described as buying first and exchanging later. In this case, you're buying the “replacement” or upgraded property first. Then you arrange for the sale of the second property. In the interim, the “relinquished” property is held by a Single Purpose Entity or SPE. Reverse exchanges are not very common, because they have to be all-cash deals. After all, you don't have the equity from the first property available to pay for part or all of the second property.

Banks won't lend you money for a reverse 1031 exchange. In contrast, they'll be thrilled to loan you money to buy a stepped-up piece of property because of how much equity you'll have in it. In a standard 1031 exchange, you run into problems if you have money but not the second property. With a reverse exchange, you'll run into problems if you don't relinquish the original property within 180 days.

However, the same time frames apply to a reverse exchange as the conventional 1031 exchange. You have 45 days to identify the “relinquished” property you're going to sell and report it to the IRS. You have 180 total days to complete the sale and complete the reverse exchange with the replacement property.

How To Do A 1031 Exchange?

How to Do a 1031 Exchange

Step 1: Decide to Do a 1031 Exchange

Remember that not every real estate deal is suitable for a 1031 exchange. The IRS put strict limits on the use of the 1031 exchange on vacation properties. A 1031 exchange cannot involve your personal property or primary residence. This means you can't use the 1031 exchange to eliminate the capital gains you may owe if you sell your family home for a significant profit. In theory, you can turn it into a rental and then exchange it, but the rules require you to meet very specific conditions, and we don't recommend it. In practice, the 1031 exchange only applies to investment properties like apartment buildings or commercial real estate.

Step 2: List the Property

List the property for sale. You may want to include language in the listing paperwork that says you want to do a 1031 exchange. This informs them of the fact that you have deadlines to meet. And it saves you from dealing with people who stretch out the purchase process because they're evaluating multiple properties.

Step 3: Start Looking for the Replacement Property

You could have identified several potential replacement properties after you decided to perform a 1031 exchange. However, you must formally identify one by day 45 after the relinquished property is sold. That's why we recommend looking for a replacement property while the current one is up for sale. The typical replacement property costs somewhat more than the one you're selling, because you may owe capital gains taxes if you end up keeping some of the proceeds of the property sale.

Step 4: Choose a Qualified Intermediary

You need a qualified intermediary in place to receive the money from the sale of property 1 before you can buy property 2 under the 1031 exchange. Only work with a professional experienced with 1031 exchanges. IRS laws explicitly state that you are not allowed to use your attorney, employee, accountant, real estate agent, or relative as the qualified intermediary. What is the qualified intermediary's role? If they receive the profits from the sale and roll it over into a new property, you never received the money. And you probably can't be charged income tax or capital gains taxes on it.

Step 5: Complete the Sale

The purchase agreement the buyer signs must clearly state that a 1031 exchange is taking place. This information will affect everything from assignments to disclosures. Like standard real estate deals, you'll have a title company and/or lawyer involved in the closing. Unlike other real estate transactions, the money from the sale will be transferred into the qualified intermediary's bank account, not yours.

Step 6: Identify Replacement Properties

You can identify up to three replacement properties within 45 days. The IRS gets notified via IRS Form 8824. You can in theory close on more properties if you close on at least 95 percent of them or the identified properties have a combined value of less than 200 percent of the sold property. In this regard, you could sell a 500,000-dollar house and buy four 250,000-dollar houses.

You've bought smaller properties, but you still get to take advantage of the 1031 exchange because it has a higher total dollar value than what you sold. Most 1031 exchanges involve buying a property that is a step up. By identifying several replacement properties such as apartment buildings, you ensure that you remain within the rules if your first choice falls through.

Step 7: Begin the Purchase Process

Sign a contract for your identified properties. We'd recommend having contingency clauses that let you back out on the other properties if the first deal goes through. Negotiate the purchase of the property, while your qualified intermediary works with the title company. An experienced intermediary is familiar with it.

Step 8: Close on the Replacement Property

When you close on the replacement property, the intermediary sends your money to the seller's attorney or their title company. The closing process will then proceed like any other. Yet you've avoided the associated capital gains taxes.

When To Do a 1031 Exchange & Its Benefits?

The 1031 Exchange allows you (as an investor) to postpone paying capital gains taxes on the sale of investment property. Taxes on capital gains might be as high as 20-30% in a typical sale. Those taxes, however, can be avoided if the proceeds of the sale are reinvested according to the rules outlined in IRC 1031. You can leverage funds otherwise needed to pay capital gains taxes to acquire more desirable property. As the name implies, a 1031 Exchange is a swap of one investment property for a like-kind property instead of a traditional sale.

The primary reason to execute a 1031 exchange is to reinvest capital into investments that are greater in scale, more diverse, or more aligned with your current investment strategy. And because taxes are deferred, more of the sale proceeds can be immediately directed toward your new investment. A 1031 tax-deferred exchange allows you to roll over money from a recently sold investment property into another property.

You're able to defer capital gains taxes on the property's sale. This tax rate will range from 15 to 30 percent. Suppose you own a rental house. Sell that property and use the money to buy two more rental houses. You've avoided a capital gains tax bill on the profit for that property, and you've used it to buy two more.

Section 1031 Exchanges offer a great opportunity to diversify assets, whether by diversifying into another geographic region or simply from one property type to another. You can continue growing your portfolio over the years. You could continue to buy rental houses, or you could sell the properties and buy an apartment building. The 1031 exchange rules will let you roll the capital gains for 10 houses into a large multi-family project. You could in theory continue this until your death, potentially avoiding capital gains taxes until your estate has to deal with it.

Another benefit of a 1031 exchange is that it resets the depreciation clock. You'll be able to buy a new property and take advantage of depreciation to offset your income. This can add up if you're selling a property that you've held for more than two decades. If you sell an investment property for more than its depreciated value, you will probably have to recapture the depreciation.

This normally results in the amount of depreciation included in your taxable income. A 1031 exchange avoids taxes on this amount that may exceed the official capital gains.

When do people want to do a 1031 property exchange?

The most common situation is when you want to avoid paying capital gains on the sale of a property. It may be done when you're consolidating your real estate portfolio, selling multiple properties to invest in a single larger building. Or it may be done when you're liquidating one property and investing in several more.

Also, if you have invested in properties that are low-income and high-maintenance, you could exchange the high-maintenance investment for a low-maintenance investment without needing to pay a significant amount of taxes. Or perhaps you want to move your investments from one location to another without the IRS knocking at your door.

Is 1031 Exchange Possible When There Are Losses Involved?

The goal of 1031 property exchanges is to avoid paying capital gains taxes on the sale of the property. In most cases, the 1031 exchange properties have a greater value than the one that was just sold. This may involve a more expensive home or a larger, multi-family unit. However, a 1031 exchange is possible when there are losses involved. Section 1031(b) specifically addresses cases where the transaction results in a loss.

The financial loss is not recognized at the time of the transaction. Instead, it is carried forward as part of a higher basis on the property you've received. Note that you can sell a property that you're losing money on and roll the money into a new property as part of a 1031 exchange. The full benefit requires the replacement property to be of equal or greater value than the one you're selling.

And if you're selling a flooded house or property where the tenant isn't paying the rent, almost anything you buy is a step up. If you are trading down in the property, you may get a “boot” in the form of debt reduction. Other forms of “boot” include prorated rent, utility escrow charges, service costs other than closing costs, and deposits transferred to the property buyer.

That money can be offset with cash used to purchase the replacement property. The boot used to include non-like-kind property including livestock, industrial equipment, and vehicles. This means you can't count the value of animals on a farm or equipment in a factory towards either losses or gains in a 1031 exchange.

Consult with a tax professional to understand your options for avoiding a capital gains tax bill if you receive money like this. The Tax Cuts and Jobs Act of 2017 mitigated losses of 1031 exchanges by giving taxpayers the ability to immediately deduct certain expenditures. This might be classified as either a “bonus deprecation” or a business expense.

Here is An Example To Understand This Type of 1031 Exchange

Before you make any decisions, you must know the “adjusted basis” of your property. As the term implies, over time you adjust the basis of a property. If the “adjusted basis” is less than what the property is sold for, then we have a “total gain”. If the adjusted “tax basis” is more than what we sell the property for we have a true loss in the eyes of the IRS.

The adjusted basis is calculated by taking the original cost, adding the cost for improvements and related expenses, and subtracting any deductions taken for depreciation and depletion. Suppose you buy a $150,000 home. When determining the basis, start with this $150,000 and add any associated fees such as real estate taxes the seller owed that you paid as part of the transaction.

This figure is your basis. To get your adjusted basis, add or subtract any associated costs or credits. For example, if you invested $50,000 in home renovations, add this $50,000 to the basis to get an adjusted basis of $200,000. If you had storm damage to your home and had to pay $5,000 for roof repairs, add this amount to get an adjusted basis of $205,000.

If you do a 1031 exchange, all the total gain, including the tax on recaptured depreciation, will be deferred. If you exchange property with a true loss, then the loss amount is added to the basis of the replacement property. A simple example would be if you had a vacation area lot that cost us $200,000 that we sold for $100,000 and exchanged for a $100,000 lot close to your home.

You would have a $100,000 loss in the eyes of the IRS and would add your loss to the new basis of your replacement property. Because of the exchange, the new lot would have a starting basis of
$200,000, even though you only paid $100,000 for the lot.

While these rules are complicated, they must be followed—there are no exceptions or extensions. If you mess up, the IRS could decide you don’t qualify for a 1031 exchange and send you a huge tax bill. So make sure you know how it works. If you’re in doubt, consult an accountant or real estate agent for more details. For more information on 1031 exchanges, go to IRS.gov.

More Examples To Understand a 1031 Exchange Process

There are several initial steps to a successful 1031 exchange process. For example, you'll want to find a qualified intermediary before you sell the property. Then there is the process of listing the property you want to sell. The first step in the 1031 exchange is selling the first property. It is advisable to have potential replacement properties identified at this point.

However, you don't have to close on these properties immediately. If the 1031 exchange properties cannot be closed simultaneously, the money must be held by a qualified intermediary. This means the taxpayer doesn't receive the money from the sale of the first property.

The second step in a 1031 exchange is formally identifying your replacement property. This must be done within 45 days of the sale date of the first property. Ideally, you'd have begun the purchase process.

The third step of the 1031 exchange process is to complete the purchase of the replacement process including payment and retitling of the property. The facilitator will hold the cash from the sale of the first property and send it to the seller of the replacement property. Then the 1031 exchange is treated as a swap by the IRS and considered done once you fill out the IRS form.

In general, you have 180 days from start to finish. However, you may have to do so even faster. For example, you generally have to complete the process before you file your tax return claiming the 1031 exchange. This means you'll want to complete the 1031 exchange started last tax year before you file your tax return the following April.

If you acquire the replacement property before the first one sells, this is called a reverse exchange. The property must be held by an exchange accommodation titleholder. This could be a qualified intermediary. You'll get the title transferred to you when the first property sells. What happens if there is money left over after the new property has been purchased?

Maybe the new property costs less than you expected after all costs are taken into account. Or you didn't use all of the money toward the purchase of a new property. A tax penalty will be owed, but it is typically only for the amount that wasn't rolled over into the new property.

Let's look at a few examples to understand what this means in practical terms. In the classic swap, you sell a rental property you bought for 150,000 dollars for 200,000 dollars and roll over the money into a 300,000-dollar duplex. While you'll owe closing costs, legal fees, and a few other expenses out of pocket, you avoid paying capital gains taxes on the 50,000 profit. That would result in a 5,000 to 10,000 capital gains tax bill depending on where you live.

What happens if you have a property you're going to take losses on? You bought a beach house at the peak of the market a decade ago for half a million dollars. You've maintained it but haven't taken steps to increase its value. The area is in decline, so the property is only worth 400,000 dollars. Then you finally get a good offer. Someone is offering you 450,000 dollars for the property.

From your perspective, this is a loss. From the government's perspective, you'll owe taxes on the 50,000 gain including the recaptured depreciation. If you do a 1031 exchange when selling this property, the theoretical gain and recaptured depreciation are deferred.

Who Qualifies For a 1031 exchange?

Here are the basic requirements according to Los Angeles accountant Harlan Levinson:

The homes must be investment properties.  This transaction is not for regular homeowners who live in the home they’re selling (or buying). Both homes in question must be investments, whether you plan to (or did) rent it out to tenants or flip it after renovations.

The home you buy must be worth more than the one you sell.  People benefit from a 1031 exchange only when the property they buy is of equal or greater value than the one they’re selling—in other words, they’re trading up. For instance, maybe you bought a quaint summer cottage rental, but you want to cash that in for a larger mansion on the beach, or a duplex where you can rake in rental money from two families rather than one. If you intend to pay less for a new property, you’ll pay taxes on the difference.

Conclusion

A 1031 exchange allows real estate investors to grow their wealth more quickly because they avoid a hefty tax bill every time they reinvest the proceeds of a property sale. That is why it is a powerful tool for those who want to grow their portfolio. The savings of the 1031 exchange are so substantial that it is used by businesses and real estate investors alike to save money. The biggest reasons why people don't take advantage of them are because they either want to reduce their exposure to real estate or can't find a good replacement property in time.

So, next time you decide to do a 1031 exchange, you must keep in mind all these things to complete the process successfully:

  • Purchase another property of equal or greater value.
  • It has to be a like-kind property.
  • Everything has to be completed during the specified exchange period by a 1031 exchange.

Before you begin this process, you should thoroughly comprehend the process and its guidelines. We also advocate working with a 1031 Exchange specialist broker or property manager. Many investors are big fans of the 1031 exchange. It's a straightforward and effective investment tool to save serious money. But, it's not perfect. It also comes at a price. You need to be prepared to deal with the potential downside of a transaction like this.


References

What is a 1031 Exchange?
https://en.wikipedia.org/wiki/Internal_Revenue_Code_section_1031
https://fundrise.com/education/blog-posts/opportunity-fund-1031-exchange-tax-advantages-for-real-estate-investors
https://www.govinfo.gov/content/pkg/CFR-2011-title26-vol11/pdf/CFR-2011-title26-vol11-part1-subjectgroup-id46.pdf

When to do a 1031 Exchange & what are the benefits?
https://www.thebalance.com/how-to-do-1031-exchanges-1798717
https://www.cwscapital.com/what-is-a-1031-exchange/

The Rules for a 1031 Exchange
https://www.1031.us/PDF/1031ExchangeIfSellAtALoss.pdf
https://www.law.com/newyorklawjournal/2020/06/23/proposed-regulations-for-section-1031-exchanges/
https://www.irs.gov/businesses/small-businesses-self-employed/like-kind-exchanges-real-estate-tax-tips

How to Do a 1031 Exchange?
https://www.fool.com/millionacres/taxes/1031-exchanges/
https://www.biggerpockets.com/blog/step-by-step-1031-exchange
https://www.buildium.com/blog/what-is-a-1031-exchange/
https://www.thestreet.com/personal-finance/real-estate/what-is-a-1031-exchange-14881004

Filed Under: 1031 Exchange, Financing Tagged With: 1031 Exchange, 1031 Exchange Rules, How To Do A 1031 Exchange, Types of 1031 Exchanges

10 Rules of Successful Real Estate Investing

February 17, 2024 by Marco Santarelli

10 Rules of Successful Real Estate Investing

I came up with the following rules of successful real estate investing over my many years of successes and failures. These are the same rules I follow today and share with our clients at Norada Real Estate Investments.

10 Rules of Successful Real Estate Investing

1. Educate Yourself

Knowledge is the new currency. Without it you are doomed to follow other people’s advice without knowing if it’s good or bad.

Knowledge will also help take you from being a “good” investor to becoming a great investor, and that knowledge will help provide a passive stream of income for you or your family.

2. Set Investment Goals

A goal is different from a wish; you may wish to be rich, but that doesn’t mean you’ve ever taken steps to make your wish come true.

Setting clear and specific investment goals becomes your road map and action plan to become financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything at all.

Your goals can include the number of properties you need to acquire each year, the annual cash-flow they generate, the type of property, and the location of each. You may also want to set parameters on the rates of return required.

3. Never Speculate

Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it’s usually 6 to 9 months after the fact when you find out. Don’t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.

4. Invest for Cash-Flow

With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property.

Cash-flow is the “glue” that keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.

5. Be Market Agnostic

The United States is a very large country made up of hundreds of local real estate markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not. Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. There’s an element of timing and you don’t want to buck the trend.

6. Take a Top-Down Approach

Always start by selecting the best real estate markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This can be a big mistake if you don’t consider the investment in light of the market and neighborhood it’s in.

The best approach is to first choose your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, etc.). From there you would narrow things down to the best neighborhoods (amenities, schools, crime, renter demand, etc.). Finally, you would look for the best deals within those neighborhoods.

7. Diversify Across Markets

Focus on one market at a time, accumulating from 3 to 5 income properties per market. Once you’ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that is geographically different than the previous one. Typically that means focusing on another state.

One of the underlying reasons for diversification within the same asset class (real estate), is to have your assets spread across different economic centers. Every real estate market is “local” and each housing market moves independently from one another. Diversifying across multiple states helps reduce your “risk” should one market decline for any reason (increased unemployment, increased taxes, etc.).

Even if you don't live in Texas, you can invest in the Houston Real Estate Market, which is becoming a hotbed of buyer activity that could be really beneficial for real estate investors; just ask the multitude of overseas investors who are choosing Houston as the city of choice to invest in for the foreseeable future.

8. Use Professional Property Management

Never manage your own properties unless you run your own property management company. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good marketing skills, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.

9. Maintain Control

Be a direct investor in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don’t control. You always want to be in control of your real estate investments. Don’t leave it up to corporations or fund managers.

10. Leverage Your Investment Capital

Real estate is the only investment where you can borrow other people’s money (OPM) to purchase and control income-producing property. This allows you to leverage your investment capital into more property than purchasing using “all cash”. Leverage magnifies your overall rate-of-return and accelerates your wealth creation.

As long as you have positive cash-flow and your tenants are paying off your mortgage for you, it would be foolish not to borrow as much as possible to buy more income property.

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Filed Under: General Real Estate, Getting Started, Real Estate Investing

What Causes Red Tide on Florida Beaches (2024)

February 17, 2024 by Marco Santarelli

Red Tide Florida Beaches

As the warm, tropical sun beats down on the sandy shores of Florida, it's easy to understand why the state's beachfront real estate is so desirable. However, in recent years, an unwelcome visitor has cast a shadow over the once-pristine beaches: Red Tide. Red Tide is a naturally occurring phenomenon caused by an overgrowth of algae in the water. In Florida, the red tide was caused by the toxic algae Karenia brevis in 2023.

It grows out of control and produces harmful toxins. It has come earlier and in higher concentrations than usual, causing harm to marine life and posing health problems for humans. It kills fish by producing a potent toxin called brevetoxin that affects the central nervous system of the fish. The toxin can also affect birds and other marine animals. The red tide has been documented in Florida's Gulf Coast as far back as the 1840s, and scientists cannot predict when it will occur.

The cause of red tide is still being studied, but nutrient-laden runoff from farms and developments may play a role. The toxins produced by red tide can cause respiratory problems in humans and animals, as well as harm marine life. The state of Florida has been experiencing a red tide event in recent weeks, with concentrations detected in multiple counties along the coast. In this article, we will explore the causes of red tide, the impact on Florida's beaches, and what measures are being taken to mitigate the effects.

What is Red Tide on Florida Beaches?

Red tide is caused by an algae bloom, specifically Karenia brevis. When the conditions are right, such as warm water temperatures, calm winds, and nutrients in the water, Karenia brevis can reproduce rapidly, creating a dense concentration of cells, or a “bloom.” The toxins produced by Karenia brevis can harm marine life and humans who come into contact with the water or breathe in the airborne toxins.

Will it be a concern for those looking to invest in Florida beach real estate? The impact of red tide on Florida beaches can also have a significant impact on the real estate industry in the area. In the past, red tide outbreaks have caused a decrease in tourism, which can ultimately affect property values and rental income. Homebuyers may also be hesitant to purchase property near areas affected by red tide, causing a potential drop in demand and property prices.

Additionally, homeowners may face difficulty selling their properties during a red tide outbreak. While the long-term effects of red tide on Florida's real estate market are still unclear, it is clear that red tide outbreaks can have significant economic and environmental impacts on the state.

Red Tide in Florida Beaches: Current Status Update

The latest Red Tide Status Update for March 29, 2023, provides a comprehensive overview of the current conditions of red tide in the waters off the coast of Florida. The update reports that the red tide organism Karenia brevis was detected in 83 samples in and offshore of Southwest Florida, three samples from Northwest Florida, and one sample from Florida’s East Coast. The bloom concentrations were present in three samples, and they were in Manatee County and Lee County. The report also highlights the use of satellite imagery from the USF and NOAA NCCOS to track this patchy event.

In terms of concentrations, the report states that K. brevis was observed at background to low concentrations in Pinellas County, background to low concentrations offshore of Hillsborough County, background to medium concentrations in Manatee County, background to low concentrations in Sarasota County, background concentrations in Charlotte County, background to medium concentrations in Lee County, and background to low concentrations in and offshore of Collier County in Southwest Florida.

In Northwest Florida, K. brevis was observed at background concentrations in one sample collected from Bay County, and at background concentrations in two samples collected from Gulf County. Along the Florida East Coast, K. brevis was observed at background concentrations in one sample collected from Palm Beach County.

Fish kills suspected to be related to red tide were reported from Pinellas, Manatee, Sarasota, Lee, and Collier counties. Additionally, respiratory irritation suspected to be related to red tide was reported in Pinellas, Manatee, Sarasota, and Collier counties via the Beach Conditions Reporting System and/or the Fish Kill Hotline.

Finally, the report includes a forecast by the USF-FWC Collaboration for Prediction of Red Tides. The forecast predicts variable movement of surface waters and net southeastern transport of subsurface waters in most areas over the next 3.5 days for Pinellas County to northern Monroe County. This information is critical to help protect the health and well-being of the residents and tourists in Florida, as well as the state's natural resources.

Measures Taken to Mitigate the Effects

The Florida Fish and Wildlife Conservation Commission (FWC) is closely monitoring the red tide event and providing updates on its website. The FWC is also collaborating with other agencies, such as the University of South Florida and the National Oceanic and Atmospheric Administration, to track the event using satellite imagery. In addition, local governments and organizations are taking measures to mitigate the effects of red tide. For example, some beaches have been closed to the public, and cleanup efforts are underway to remove dead marine life and other debris from the beaches.

Causes & Impact of Red Tide on Florida's Beaches

The current red tide event in Florida has been detected in multiple counties along the coast. Concentrations of over 100,000 cells/liter have been detected in Pinellas and Manatee counties. The toxins produced by red tide can cause respiratory problems in humans, such as coughing, sneezing, and irritation of the eyes, nose, and throat. They can also cause skin irritation and gastrointestinal problems if ingested. Marine life, such as fish and sea turtles, can also be affected by the toxins, leading to fish kills and other environmental impacts.

The red tide algae bloom has been causing significant impacts on Florida’s beaches. The bloom, which started in October, has led to burning eyes and respiratory problems among the residents of the state's southwest coast. Dead fish have been washing up on beaches, leading to the cancellation of the annual BeachFest in Indian Rocks Beach, Florida.

The homeowners' association, with help from the city and Pinellas County Health Department, made the decision to cancel the festival due to concerns that the red tide could continue to stick around for a while. The red tide is expected to remain in the area in the coming weeks, and public health was deemed a top priority.

Nearly two tons of debris, primarily composed of dead fish, have been removed from Pinellas County beaches and brought to the landfill. Additionally, about 1,000 pounds of fish have been cleared from beaches in St. Pete Beach since the start of the month.

Red tide is a naturally occurring toxic algae bloom in the Gulf of Mexico that is worsened by the presence of nutrients, such as nitrogen, in the water. The Florida Fish and Wildlife Conservation Commission warns people to avoid swimming in or around red tide waters due to the possibility of skin irritation, rashes, burning, and sore eyes. Individuals with asthma or lung disease should avoid beaches affected by the toxic algae.

According to the Florida Fish and Wildlife Conservation Commission, red tide has been detected in 157 samples along Florida’s Gulf Coast, with the strongest concentrations found along Pinellas and Sarasota counties. The impact of the red tide algae bloom on Florida's beaches is a reminder of the importance of protecting the environment and reducing the presence of pollutants in the water.

In conclusion, the red tide phenomenon, caused by the Karenia brevis algae bloom, has been detected in multiple counties along the coast of Florida. The toxins produced by red tide can cause respiratory problems in humans and animals and harm marine life. Florida's beaches have been significantly impacted, with concentrations of over 100,000 cells/liter detected in Pinellas and Manatee counties.

The Florida Fish and Wildlife Conservation Commission and other organizations are closely monitoring the event and taking measures to mitigate its effects. It is essential for individuals to avoid swimming in or around red tide waters to prevent skin irritation, rashes, burning, and sore eyes. This event is a reminder of the importance of preserving natural resources and taking measures to reduce nutrient pollution in waterways to prevent harmful algae blooms from occurring.


References:

  • https://myfwc.com/research/redtide/statewide/
  • https://apnews.com/article/red-tide-florida-beach-health-risk-842c0576451b2a007d57abd44448e03e

Filed Under: Trending News Tagged With: Florida, Red Tide

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