Archive for 'Buying Real Estate'

Ignorance Of The Law

Is NOT Your Get Out Of Jail Free Card

                   While working my full time job as an undercover police detective, I had the opportunity to see a lot of things “behind closed doors.” One of the most powerful phrases most investors and Americans do NOT understand is the title of this short article. I can not tell you how many folks, after being arrested for a crime, would say “I did not know that was against the law.” 

          With the help of media and lenders and our economic market today, the word “real estate” has transformed into an almost bad word. In fact, many consumers are looking for ways to “get back” or get even, or sue the very folks who helped them graduate into homeownership. This means me and you have huge targets on our backs.

          Be very careful in today’s real estate market. Always use the proper disclosures and always do things the right way, the professional way.

          PROTECT YOURSELF NOW! Remember this powerful phrase.

Here’s some simple no-brainer tips and red flags to avoid as a real estate investor.

  • NEVER Buy using a Quit Claim Deed
  • NEVER do “kitchen table closings.” ALWAYS use a “GOOD and REPUTABLE” real estate attorney or title company.
  • ALWAYS buy Title Insurance when you are buying an investment property.
  • If you are selling a property and you want to sell it real bad…. Be very careful about what you do to help your seller. Many times a loan officer or loan broker will ask a Seller to prepare another form or they may ask you to just sign this form and they’ll say “We Do This All The Time.” If you hear this phrase, you might want to run. (Remember, ignorance of the law is not a get out of jail free card.)
  • AVOID buying using a “Contract for Deed, Land Contract, or Agreement for Deed.” Once again, always have a professional full blown closing with a real estate expert attorney or title company. (It is ok for you to sell on Land Contract or Contract for Deed)
  • Some common schemes seen by IRS criminal investigators include:
    • “Property Flipping” — A buyer pays a low price for property, then resells it quickly for a much higher price. While this may be legal, when it involves false statements to a lender who is regulated by the feds, it is not. (Now do you really want to say you are a “FLIPPER” or you “FLIP” Properties… the new F word.) 
    • Two Sets of Settlement Statements — FOLKS, This is FRAUD!
    • Fraudulent Qualifications — Some “professionals” assist buyers who would not otherwise qualify by fabricating their employment history or credit record.

Happy Hunting and watch out for these Red Flags of Fraud.

 

 

Special Report – How Depreciation Benefits Business Owners
 
First of ALL: Do NOT Allow Yourself To Feel Bad about not knowing.

When I began my real estate business, I did not understand “depreciation” until I saw the huge benefits at tax time.

Then I really began to pay attention.
 
Depreciation: A non-cash expense that reduces the value of an asset as a result of wearand tear, age, or obsolescence. Most assets lose their value over time (in other words, they depreciate), and must be replaced once the end of their useful life is reached.
 
There are several accounting methods that are used in order to write off an asset’sdepreciation cost over the period of its useful life.
 
Because it is a non-cash expense, depreciation lowers the company’s reported earnings while increasing free cash flow.
 
Simple Example:
 
Suppose a painter buys an extension ladder for $1,000.00 and let’s assume the life of the ladder is 10 years. Although the painter is out $1,000 cash out of pocket right now in his purchase of the ladder, he can only “write off” $100 per year for 10 years because theladder has an expected life of 10 years. On top of this, the ladder will probably be worthZERO at the end of the 10 year period.
 
CHECK THIS OUT:
 
With real estate, we sort of get to do the same thing like the ladder.
 
We can NOT depreciate DIRT.
 
It lasts forever; however, the things built on the dirt, buildings and improvements have an expected life according to Uncle Sam.
 
RESIDENTIAL Real Estate improvements depreciate on a 27.5 year schedule.
COMMERCIAL is on a 39 year schedule.

What’s beautiful about real estate involves it usually holds it value and since we are at the bottom of the real estate market now, it will almost go UP IN VALUE again… and not down in value like the poor old painter’s ladder.

Example 1
Contractor Buys $10,000 Gutter Machine
Life of Gutter Machine = 10 years (example)
Contractor does NOT get to write off 10k the year of his purchase.
Contractor gets to write off 1k for 10years.
the remaining 9k is carried on his books as an asset and gets reduced 1k each year until it reaches zero.

 
Example 2
Investor with 10 yr Rental bought for $80,000
You generally cannot deduct, in one year, the entire cost of property you purchased, either for use in your trade or business or to produce income, if the property has a useful life substantially beyond the tax year.
Instead, you can depreciate it. That is, you can spread the cost over a number of years, and deduct a part of the cost eachyear.

The kinds of property that you can depreciate include machinery, equipment, buildings, vehicles, and furniture.
 
You cannot claim depreciation on property held for personal purposes.

If you use property, such as a car, for both business or investment and personal purposes, only the business or investment use portion may be depreciated.

You may depreciate property that meets all five of the following tests.
• It must be property you own.
• It must be used in a business or other income–producing activity.
• It must have a determinable useful life.
• It must be expected to last more than one year.
• It must not be excepted property. Excepted property (as described in Publication 946, How to Depreciate Property) includes certain intangible property, certain term interests, and property placed in service and disposed of in the same year.

 
To Your Continued Success!

Mike Butler

P.S. ALWAYS Check with your Tax Advisory and/or CPA before taking action.
 

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NOTES From Video
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80,000 dirt value is 5k
75k over Residential,….. 27.5  (25)
10 years….. Luke will give investor 150k this week for this house?
 
Fred Flintstone 3 Finger Depreciation Formula…
75k divided 25 yr = 3,000 year in depreciation
3k x 10 yrs = $30,000
—->>>> 80k minus 30k depreciation = 50k cost basis…
 
Sell for 150k ….. capital gain of 100k

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INVESTOR NIGHTMARE STORIES
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 Yes, you can be creative and accelerate depreciation pretty darn fast.
do this only if you need it NOW and Yesterday…
500k year.. AGI….
if you got 30k in depreciation,.. yes, accelerating it would be good for short term benefit.
 
100 year AGI….
300k annual depreciation… WHY WOULD YOU ACCELERATE IT???
 
My Battle Plan is to always add to my cost basis to keep bumping.
I want Depreciation to outlive ME..
a lot of investors, veteran, they moan and complain of paying too much income tax..

paid for, FRESH OUT OF WHAT?…. depreciation…

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When You Buy a Rental Property…
EVERYTHING YOU DO TO THIS PROPERTY BEFORE YOU PUT A TENANT IN IT
Becomes Part of the Cost of this investments…\\\
50k.. and do 16,000 in Capitalized Expense Account
 … at the end of year, tx into asset account.
now your investment is 66k….

Nuff on Depreciation

What Kind of Real Estate Should You Buy?

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How to Buy Real Estate without Banks, Money, or Credit… nor Hard Money or Private Lenders either.

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