Don’t march in the parade.

Watch out. Here they come. The parade is about to march on by.

You are about to be barraged with another round of real estate promises, profit projections and programs that “are sure to make you rich.” Yes, you’ve heard it all before, but today is different isn’t it? Now, this time, because of the recent recession and drop in prices, it will really work. Now is the window you have been waiting for. Right? … Wrong! The recession happened for a variety of reasons. And those reasons still exist.

It has been said that life is a wheel and that what goes around comes around. That’s true. But,  it is important to recognize that life is not only a wheel, it is also a parade.

Every time I see another “remake” of an old movie I saw as a kid, I have to wonder why the producers are not smart enough or creative enough to come up with something new.  Sadly, the fact is, they don’t need to. So it is with those that promote the promise of real estate profits. Like it or not, the same old promises that sold programs 10, 20 or 30 years ago still sell today. Not because they really work, but because there are a whole batch of new buyers that just don’t know any better than to buy. Thirty years ago it was me and my friends. Today it is our kids. In the relatively near future it will be our grandchildren. The parade will continue to march on by with new participants, and they will once again spend unbelievable amounts of time and money on the proven failures or the past. Despite their self proclaimed altruism, the promoters that sell these programs obviously find it easier and more profitable to sell the promise of real estate riches than to actually produce it themselves. If they really knew how to do what they claim, they would be guarding that secret in Fort Knox.  Not selling it to possible competitors as part of a magical coaching package.

The facts are simple.  Just like a holiday parade, at the appointed hour, you can expect the marchers to trudge on by with bright colors and big smiles.  While the clowns wave enthusiastically to the crowd, there will be wise and prudent real estate professionals who will watch the parade go by, while quietly amassing amazing amounts of real estate wealth. That is the nature of the business. So, is it even possible for you to make money in real estate? Of course it is.  But you will have to do it as a professional. The men and women that capitalize on real estate have always shared important traits with their successful predecessors. Knowledge, intelligence and hard work.

So if you are serious about making money with real estate, here’s my advise. “Finish your homework, know the market and do the math.”  The benefits for those who pay the price are amazing. On the other hand, if you don’t want to pay the price in time and effort, you can jump in with both feet and find real estate to be an easy business. An easy business in which to loose huge amounts of money. Here’s wishing you success.

 

 

Don’t Panic!

In a market where you read conflicting news about the real estate investment market almost daily, the first and most important thing to remember is DON’T PANIC. Have the courage to fight the short term battle in order to win over the long haul.

Real estate by its very nature is a long term investment. While there are ways to earn income over a short period of time, the greatest wealth building that utilizes real estate as an investment takes time. The compounding of values adds up to a staggering amount if you’ll have the patience to wait a few years. Buying and selling based on short market movements is akin to investors who watch the ticker tape and sell as soon as a stock price looses a little ground. Odd lot buyers (small time investors who buy less than 100 shares of a stock at a time) are notorious for making bad purchase and sales decisions. They seem to watch a stock grow in value until they are finally convinced it will keep going up forever; then they buy. Unfortunately for them, this occurs typically at or near the top of the bell curve and soon the stock starts to slide. When that happens, they panic and sell. They seem to forget that all stocks go up and down in value during differing periods of time, but over the long haul the good ones always go up. Interestingly, there are successful stock speculators who do nothing more that watch the odd lot numbers and then do exactly the opposite. Just think what you could have achieved if you had watched all the small time “get-rich-quick” buyers and then done exactly the opposite. Wow … you would have made a bundle. Therein is the difference between the unprofessional and amature speculator, and the seasoned professional. I did not lose one red cent in the great market downturn! I’m sorry if you did.

Like it or not, to maximize your return in real estate, you will need to weather some storms. This is yet another good reason for buying right in the first place. If you are stretched so tight that you cannot make it through the lean times and are forced to sell, you may never see the fat times full of profit.

The trick, if there is a trick, is to do your homework before you buy. It is far better than being taught a lesson by the marketplace. When you buy, expect some good and some bad, because you’ll have both. Be patient and give the market time to rebound from any corrections and you will benefit greatly. Real estate is the basis for all wealth. Get your share and then let it do its thing over a long enough period that it will meet your goals. Wealth building is most successful with an intelligent mind, a patient attitude and a pocket book deep enough to smooth out the rough spots on the road to success. Good luck in your career, and remember, no matter what happens, don’t panic.

Active vs Passive Investment in Real Estate

If you don’t know the difference between “active” and “passive” investment in real estate, you could well be filing inaccurate tax returns. So when the IRS calls and says you own a pile of taxes and some very painful penalties, don’t be surprised.

If you are a passive investor you are limited to $25,000 maximum in deduction (filing jointly) regardless of the real estate “losses” generated by your investment property. An “active” investor has no such limit. If you don’t know if you are active or passive, chances are astronomical that you are passive and that your losses (tax write offs) are limited. They are also limited as to how they can be used to reduce your tax liability. You see, passive losses can only offset passive income. That means that your passive real estate loss cannot offset your salary, commissions or traditional incomes.

To be able to write off all of the real estate losses generated, you must be a real estate “Professional”. That means that you have to spend 750 hours a year in your real estate business activities, and be able to make that argument successfully.

However, there are different types of real estate oriented business that can provide an avenue for massive losses when others would be severely limited. That however is a topic for a future review. Good luck. If I can answer any questions please feel free to contact me.

 

 

 

 

Are time-shares money down the drain?

A friend of mine is thinking about buying a time-share. I suggested that if he was seriously thinking about it, he should think again.

You’ve probably seen the ads on late night TV. “Own a fabulous time share in paradise for only a few dollars.” And you don’t need to worry about getting bored with the location you bought, because you can trade your time in Rogerville for time in Hawaii, California, Florida or the Bahamas. (Why do you think the industry came up with this trade out deal? Because everybody was so deliriously happy with their purchase and the time-shares were so easy to sell?) The promos sound great don’t they? Advertising messages usually do. They know how to play to our greed, our fantasies and our stupidity. And why do they do it? Consider hotel time shares that cost $10,000 per week to purchase. Lets see; $10,000 times 52 weeks per year equals $520,000.00 per room! Then they earn all the other associated maintenance, association and use fees as well. Do you think this could be profitable for the time-share company? Ya think?

If you’ve ever been to a high pressure time-share sales pitch where you are in a big room with other people who are regretting  having fallen for the “free stay if you sit through our pitch” ploy, you may have noticed an unusual  activity.  You might even have wondered, “Why, when someone buys a time share, do they announce the buyer overhead like they just won the lottery, blow whistles, uncork champagne and every body claps like mad?” Because hype sells. Excitement sells. “I can be special too” sells. “I want people to clap for me” sells. I’ve been there, and as I suspect you already know, I didn’t buy.

The bottom line is that the purchase price of a time share is only the tip of the financial iceberg. Hidden below the beautiful blue water is the monstrosity that actually keeps the beautiful white tip above water. There are the title charges, transfer fees, ongoing forever maintenance fees, taxes, , association dues and then the use fees for when you are actually in the time share unit. About two decades ago I had a friend let me “use” their time-share in Hawaii. By the time I was done paying the cleaning fees, the use fee and the nickle & dime whatever else they charged me fees, I had paid more than I would have had I stayed at a suite hotel on the island, complete with a kitchen and daily maid service. So I guess you could say that I have a bad attitude. (After all, you can say anything you like. I do. Right here in this blog.) That was my last time at a time-share.

In the interest of fairness, maybe things have changed in the last 20 years. Maybe they are all they are claiming to be. Maybe they are the greatest thing since sliced bread. My problem is that the advertising is the same, the promotion is the same and so I’m thinking that everything else might be the same too. But then again maybe I’m a little cynical. Ya think?

Here we go again.

That old adage “What goes around comes around” has once again proven itself true. For years our real estate investments have produced significant tax shelter due to the depreciation allowances. Now I’m at the stage where we are refining our portfolio, reducing its size and condensing the workload to prepare for what we hope is a simple and care-free retirement. This process brings with it a series of unfortunate events (forgive me Lemony Snickets). Like it or not, sometimes you may have little choice but to sell a property(or properties) to meet your long term goals using the opportunities that present themselves. That happened to us this last year.

We had the opportunity to sell a property at a price that was simply too good to pass up. Recognizing that this would result in a taxable event, we went ahead and sold the property. I used the proceeds to pay down significant debt, thereby condensing the amortization schedules on other properties and allowing for retirement three to 5 years sooner than earlier expected. That all sounds great, but it carried baggage.

Now that tax time is here, my accountant called and suggested I make a payment toward the taxes due that I had not yet covered. He seemed concerned with the amount and I had to ask him three times before he told me what he anticipated I owed. It was like getting hit in the head with a brick. The figure was three times my annual salary!

I’m not exactly sure how to come up with this huge block of funds. (Perhaps huge is too aggressive a term to use to describe the amount, but I certainly don’t think so.) As a matter of fact I have no clue. However, I have found that if I simply take a little time to allow the sea to calm and give it some directed thought, a way will appear. My life’s experience teaches me that the world will move aside and let any man (or woman) pass as they move toward their goals. So once again I declair, get out of the way, cause I have work to do, problems to solve and goals to reach.