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There is more to Real Estate than meets the eye (2min read)


April 20, 2016 Facebook Twitter LinkedIn Google+ April News



There is more to Real Estate than meets the eye
 
There are three ways to make money in Real Estate.  They are three separate businesses within the business of real estate with three separate forms to file your income taxes.
 
1. Buy and sale for others.     Schedule C
 
2. Flip houses – buy below market value, renovate and sale at market value.   Schedule D
 
3. Buy multi-units or single family houses and rent to tenants.    Schedule  E
 
Number 1 you need a license. Number 2 & 3 you don't need a license and you can incorporate or form a Partnership and LLC and file a separate return.
 
A. you need to attend Real Estate School and to take Real Estate Basis and Real Estate Math. Once completed, you must take the Pennsylvania
      State Real Estate examination.  Once you pass the test, you have to find a Real Estate Office to practice and hang your license.   
 
B. You need to have a realtor, finance, and a good contractor.  you need to know the neighborhood & market.  That's where the Realtor comes it at.
       I would also recommend a mentor or someone who has done it before trying with no experience.  You can also buy low and sale low.  This is
       called  wholesaling.  You buy low as is and sale as is for 5 to 10 thousand dollars higher to an Investor. Again, no license is needed.  Schedule D
       for short  term capital gain.   
 
. Buy property to hold for rentals.  you can manage them yourself or hire a management company to manage the property for you. I would
      recommend a Real Estate Management company opposed to a small real estate company.  When renting property, you are entitled to a
      deductions called depreciation which is a paper loss. (similar to that of an individual's standard deduction).  The government allows this which
      becomes tax free income.  Example;  Income minus deductions equals net profit. from net profit is depreciation which could be $3,000 or more. 
      That's $3,000 tax free income.  
 
After you have held onto any property for more than a year, it is considered a long term capital gain when you sell it.  The tax rate is 15% on the capital gains calculated separately from your regular tax rate. Also as you may know rents go up and so does house values.  The house you bought 10 years ago may have doubled value or appreciated 50% more than when you bought it.  If you have a rental property, the tenants helped you pay for your investment.  Not only did you make money over the years, now you sale the property and cash out at a 15% tax rate on amount you sold it for over what you bought it for.  The best part about real estate as an investment opposed to the stock market, is real estate is insured.
 
The more rental  properties you have, the more monthly cash flow you have and it's a great way to develop wealth over a period of time.  When you cash out with $100,000 of capital gains, you only pay $15,000 in taxes.  It's a great way to save up for a your children's education and enjoy the benefits of tax free money and supplemental income while you are waiting for that graduation day.  Real estate is a win-win business if managed correctly.  Take your time.  You could set a goal to by one a year. Slow and steady wins the race. Remember, proper planning prevents poor performance.
 
This is a very lucrative and sound investment.   You can start off with a duplex and expand to commercial with the equity and capital gains realized from the residential portfolio.   As you know, you can’t go wrong with real estate in the right location.   You may want to consider this method in addition to your retirement plans.