How to Find Off-Market Properties

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Most people think the way to find a great investment property is to search listings on Zillow or call a realtor in their neighborhood. It turns out, these are some of the worst ways to find a rental property. As a real estate investor, your goal should be to make a high return.

By the time a great deal hits Zillow or a realtor is listing the property with a yard sign it’s going to be overpriced, cutting into your ROI. Often with a retail property, you’ll still have a rehab to do so you’ll need to wiggle room in order to keep your overall costs down. And that’s where off market properties come into play.

An off-market property simply means the market doesn’t know about it. A realtor hasn’t listed it and no one is putting out a cheese tray at an open house. Finding an off market deal takes a great deal of patience and the ability to be endlessly creative. 

There are many ways you can find off-market houses. In this post, I'm sharing a few of my tried-and true methods. This is not a comprehensive list, but rather a few of my favorite ways, and a jumping-off point to get your head in the game! 

  1. Knock on doors. Vacant house in the neighborhood? Ask the neighbor if they know who the owner is. If a house is vacant, chances are the owner wants to sell it. They might have back taxes, or there are too many repairs to deal with so you can likely get a great price on it. Don't be shy! You never know what could happen if you simply ask. 
  2. Direct mail. This is perhaps the most popular way to find off-market properties. Pull a list of houses from a website like ListSource.com. Target your favorite zip codes. You’ll want to target owners that have a lot of equity in their house, and that’s easy to do on a website like Listsource. Send the owner a letter or post card letting them know you’re currently buying houses in the area. Provide them with a phone number and make them an offer. Very often I’d send out thousands of these letters and for every 100 letters you should expect about 1-10 phone calls.
  3. 3. Meet ups. Regardless of your real estate goals, you should attend a meet up in your area! Local meet-ups are a great way to find investors who know inside details about off-market deals. You can find a meet-up in your area by visiting meetup.com.

If you want to learn more about making a high-return investment, we can help! Click here to book a free 30-minute consultation about turnkey real estate. 

Real Estate Investing Start-Up Costs

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You probably already know the regular monthly and annual expenses you should account for as a real estate investor, but what should you expect when you’re just getting started? There are a few one-time start up costs you will incur when you begin investing in real estate.

The types of properties that we provide at Morris Invest are single-family homes in America's best rental markets. These properties are typically in the $50-60k range. For this kind of investment, there are a few costs you should expect when you’re getting started.

  1. Setting up your business entity. Typically, this will be an LLC.There are a few ways to do this, but I typically recommend going right to the source—the department of state website where your property is located. In some states, you may need to use an attorney. To set up an LLC, you should expect to pay anywhere from $100-300.
  2. Insurance on your rental property. This amount can vary, as it depends on your location and coverage. Typically, I pay anywhere from $400-600 per year for rental coverage and liability insurance.
  3. Setting up a business checking account. You’ll need to have a business checking account to collect rent every month. Some banks charge a monthly service fee as well as minimum opening deposit. Local banks may have free accounts, so shop around.
  4. Closing costs. When you purchase your rental property, the title company will charge fees. A good rule of thumb is anywhere from $300-500. This amount accounts for running a title search and recording the deed.
  5. Landlord license. This cost is not applicable in every state, but some states do require a landlord license. If your property is located in a state that requires a landlord license, you can expect to pay $100-150 on a yearly basis.
 What should you expect when you’re just getting started with real estate investing? There are a few one-time start up costs you will incur when you begin investing in real estate.

Tax Benefits for Real Estate Investors 2018

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When it comes to taxes, there’s never been a better time to be a real estate investor. The new 2018 tax code contains incredible ways for real estate investors to keep more money in their pockets. In fact, taxes are the number one way that investors make money! In this post, we're sharing five incredible ways real estate investors can benefit from the 2018 tax code! 

  1. Corporate Tax Rate. One of the biggest changes in the new tax law is how businesses are taxed. Previously, businesses were taxed at a rate of 35%. Starting in 2018, businesses will now benefit from a permanently lower tax rate of only 21%. 
  2. Pass-Through Deduction. A last minute provision to the tax law also positively effects investors. This permits pass-through entities, such as an LLC, to take a 20% deduction on passive income.
  3. Business Equipment Deduction. Starting this year, the tax code has broadened the spectrum of "business equipment." Now real estate investors can reap the benefit of deducting equipment for rental properties. The definition has been expanded to include roofs, HVAC systems, fire alarms, and much more. 
  4. Hiring children. In the new tax code, the government has doubled the exemption for hiring children. We’ve discussed on the podcast before how we legally pay our children to do administrative tasks; but now we can pay them more, and pay less in overall taxes.
  5. Estate Taxes. Now, assets can be passed down without having to pay huge taxes. The estate tax exclusion has doubled for both single and married investors. 

To learn more about saving on taxes, we highly recommend Tom Wheelwright's book, Tax-Free Wealth! 

 When it comes to taxes, there’s never been a better time to be a real estate investor. The new 2018 tax code contains incredible ways for real estate investors to keep more money in their pockets.

The Power of Private Money for Real Estate Investing

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Is it possible to invest in real estate with no money? Can you purchase a property with no real estate experience under your belt? ABSOLUTELY! This might sound like a wild idea if you've never heard of it before, but the world of private money is huge! 

What exactly is private money? Private money refers to any money that you borrow from a non-bank. It could be from a friend, a relative, or another real estate professional The beauty of private money is that because it's not regulated by the government, you get to write your own rules.

There is a whole world of money out there just waiting to be invested! If you go to a local real estate meetup you will meet lots of investors looking for partners. They may want to finance deals, or they may want help on existing deals. This is a great way to get started and find some private money partners. All it takes is for you to work up the courage to walk into a meetup and start to befriend strangers. Yes, that is hard to do. I've done it. It takes courage to say that you're a real estate investor, especially when you're just getting started. But the same can be said of any career. You have to start somewhere! 

If private money sounds like the right fit for you, there are some incredible resources you can use to learn more and land your first deal. Getting the Money by Susan Lassiter Lyons is an incredible book that contains tons of great strategies for securing private lending, getting in the right headspace, and so much more. 

Additionally, on our YouTube channel we have an entire Private Money Series! I've created an entire playlist dedicated to finding private money. You'll learn how to create a credibility one sheet, how to decide how to compensate your lender, and you'll even see me set up a lunch meeting with a private lender. 

 Is it possible to invest in real estate with no money? Can you purchase a property with no real estate experience under your belt? ABSOLUTELY! This might sound like a wild idea if you've never heard of it before, but the world of private money is huge!

Tax Tips for Real Estate Investors: The BRA Method

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Accounting for repairs and expenses on a rental property is a topic that creates a lot of confusion. However, the IRS has set forth regulations that are very clear. In this post, I’m sharing a simple mnemonic device you can use to determine whether or not an expense can be written off immediately, or capitalized over time.

The BRA Method refers to Better, Restore and Adapt. Anything that falls under one of these categories counts as a capital expense. These are genuine improvements from when the property was acquired—an improvement that increases the value of the property. 

B – Better - This one is the most obvious. If you’re bettering the property, you’re making an improvement. This means adding something to the property that improves the quality and adds value.

R – Restore – This instance refers to purchasing a historic home, and restoring it to working condition. Restoration means you’ve replaced substantial components of a property in order to bring it back to life.

A – Adapt – In my experience, adapting a property is less common, but it does happen from time to time. Adapting a property means making changes that allow the home to serve a new purpose. 

If you want to learn more about understanding the US tax code, we highly recommend Tom Wheelwright's book, Tax-Free Wealth

 Accounting for repairs and expenses on a rental property is a topic that creates a lot of confusion. However, the IRS has set forth regulations that are very clear. Here's mnemonic device you can use to determine whether or not an expense can be written off immediately, or capitalized over time.

A Quick Guide to 1031 Exchanges

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A 1031 exchange is a powerful tool that allows an individual to save on taxes after the sale of a piece of real estate. This tax deferral program permits the investor to sell a real estate property and then reinvest the funds in a property of equal or greater value. Doing so allows the investor to keep more money in their pocket, and defer all capital gains taxes. Here's a quick overview on how the process works: 

First, the properties involved in the exchange must be held for either business or investment purposes. This information is proven by tax returns, including rental income, depreciation records, and intent. It’s important to have this documentation in place in case of an audit.

There are also regulations in place for the new purchase. The new property must meet the reinvestment requirements. This means the new property must be of equal or greater value than the property that was sold.

Additionally, there is a strict timeline that the investor must uphold. The investor has 180 days to complete the exchange. This begins on the day escrow closes on the sale. Leonard explains that it’s important to work with an accommodator, such as his team. You also must reach out to your accommodator before escrow closing.

Finally, the IRS requires that the investor identify their purchasing plans on day 45. The investor must describe the property or properties they are planning to use as the replacement in the exchange.

For more on 1031 exchanges, check out my interview with 1031 exchange expert Leonard Spoto, and this podcast episode on the six rules of a 1031 exchange!

 A quick overview on how the real estate 1031 exchange process works.

Lease Basics for Landlords

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Although you might think the topic of leases is rudimentary, having an accurate lease is an important part of any rental property investing business. If you want to create passive income and cash flow, there are certain mechanisms you'll want to have in place.

In my experience as a landlord and real estate investor, there are a few important details you need to take into account when figuring out how to construct a lease. 

  • What is the purpose of the lease? A lease is a legally binding contract between the tenant and the landlord. Its purpose is to protect both parties. The lease lays out the obligations, including the length of time, rental amount, procedures for collecting rent and more. Be sure to check out our list of the 5 most landlord friendly states to learn about investing in states that have your back as an investor!
  • What is the difference between a lease and a rental agreement? The two are not interchangeable! A lease is a one-year contract (or other specified amount of time). A lease cannot be changed by either party, and is legally set-in-stone until the lease expires. A rental agreement, on the other hand, is a 30-day agreement that renews at the end of each month, unless either the tenant or landlord cancels the agreement. 
  • Who signs the lease? Either the landlord or their property management company should sign the lease, as well as all tenants over the age of 18. 
  • Who should create the lease agreement? In my experience, my property management companies are able to create a fantastic lease agreement. You can also work with lawyers, or find loose guidelines to use as a starting point online.
  • How long should the lease be? Anywhere from 1-20 pages is an appropriate length for a lease. The more in-depth the lease is, the more protected you will be. However, don't confuse a long lease with a throrough lease! It doesn't need to be wordy, just comprehensive. 
  • What about multi-year leases? I know some landlords aren't too keen on signing a long-term contract, but I've had great experiences with multi-year leases. You can read more about that here.
  • Should you allow pets in your rental? Again, this one is your call. You can hear my stance in this post. 

As always, do your own due diligence before entering into a legal agreement. We are not lawyers or financial advisors, but real estate investors sharing our experience. What is your experience with constructing a lease? We would love to hear your thoughts on our video about leases! 

 Although you might think the topic of leases is rudimentary, having an accurate lease is an important part of any rental property investing business. Don't miss these lease basics for landlords.