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Scream Queens Use Minneapolis Duplexes to Outsmart Wall Street’s Psychotic Killers

October 24th, 2008 categories: Multi-Family Property Investing

These days, it seems Wall Street might as well be the name of the latest Wes Craven horror movie. It’s been a financial bloodbath featuring screams in the night, followed each morning by another casualty and the utter inability of police or government to track down the villain.

More often than not, it’s the potential victims; the scream queens in these nightmares who save themselves. And around my office, I have witnessed more and more of them doing just that.

More and more people are turning to real estate to protect what’s left of their stock portfolio money. But doesn’t real estate have its own sequel to “Halloween” under way? Yes. And no.

Real estate investment properties have four benefits: appreciation, principal pay down, tax savings and cash flow. Many investors during the boom years mistakenly focused their purchases on appreciation. The thinking was, buy now and sell when the market goes up. No matter the market conditions, this is roughly the equivalent of a bunch of teenagers going to a cabin in the woods toting nothing but alcohol for self-defense.

What are today’s investors focusing on? CASH FLOW. It’s what investors should always focus on, regardless of market conditions.

Won’t the property go down in value? Maybe. Maybe not. But if you take the money in your stock portfolio and invest it in the right rental property, as long as it’s rented, you’re realizing a return on your investment.

Example? If you have $100,000 in the stock market, and the value of the stocks you hold plummets or the companies you’re invested in don’t realize profits, you not only lose your original investment, you don’t collect dividends either.

If you took the same $100,000 and purchased a rental house, duplex or fourplex, however, you would continue to benefit from the positive cash flow created by rental revenue, regardless of the decline or appreciation of the property itself.

As chronicled here before, those people who are experiencing short sales or foreclosures on their own homes will not be eligible to purchase a property via a conventional mortgage for anywhere from three to seven years. Those folks are going to need to live somewhere.

The happy ending? Right now, there are actually properties on the market, in decent condition, that cash flow at rates of return not seen in a decade.

I wonder what Jamie Lee Curtis is doing with her money…

Spoken by Kari Lundin | Discussion: No Comments »

Housing Bill Changes Taxable Capital Gains on Twin Cities Duplexes

August 11th, 2008 categories: Multi-Family Property Investing

In the past, one of the most lucrative tax loopholes for real estate investors was the provision that allowed an owner to move into a rental or investment property, and after living there for two years, realize and capital gains tax free, up to the individual $250,000 or married couple $500,000 limits.

In Minnesota, this benefit was especially attractive to those eyeing retirement in warmer climates. Why? Well, let’s say you wanted to retire five years from now. Both the Florida and Arizona real estate markets are, perhaps, in even more dire circumstances than the market here. Theoretically anyway, it might be a great time to pick up that vacation condo on the beach in Santa Barbara.

If you found a bargain, you could rent it out until you were ready to retire. It’s reasonable to assume that over enough time, that property will increase in value. Well, that appreciation is taxable. However, if you moved into the home for at least two years, Congress said they would not tax you on that increase when you sold.

As of January 1, 2009, that is no longer the case. When the president signed the Housing Bill into law two weeks ago, the rules changed.

Now, any properties purchased after that date will be subject to an amended version of this law. Investors will now be asked to pay capital gains taxes for the years of appreciation when they did not live in the property. So, if you owned a condo in Phoenix for five years, and lived in it for two, you would be taxed for the three it was tenant occupied.

If you’ve been thinking of purchasing a vacation property, or an investment property to ultimately move in to, a wise strategy may well be to act before year’s end. In all the doom and gloom of the coverage of today’s market, not one prognosticator has ever said the market housing prices will never increase again. When they do, it would be awfully nice to be able to shield those gains.