Real Estate Investment Guide

Right now is a great time to buy property for profit. Whether you plan on moving, reselling or renting, making a real estate investment can be a smart move. Here are a few general guidelines critical to making an intelligent real estate investment.

Financial Security
“While it may seem like a great idea to make a real estate investment during a buyer’s market, you need to make sure you are financially secure before diving in,” warns Connie Ray, President/Owner of Coldwell Banker Platinum Partners. Make sure you have enough cash for the down-payment—usually between 10 and 20 percent, and be sure you have enough money for upkeep and maintenance as well. “If this is going to be an investment property and not your year-round home, make sure you can afford to keep it in good shape while renting or leaving it vacant,” Ray says. “And don’t count on flipping a property right now, unless you are in a position to hang on to the home for five to 10 years before selling.”

Essential Ingredients
“Make sure the property you’re looking at has a few essential amenities that will make reselling smoother, or the possibility for adding them,” says Ray. These include central air, ranked highly as a must-have feature by a poll done by NAR; ample storage space; a good location and a few modern updates like energy efficient features and appliances.

Strong Market
“While most markets are suffering right now, there are a few pockets around the country that are not only remaining stable but appreciating. These are great places for a real estate investment that offer a real possibility of reselling in the near future,” says Ray. Make sure you are extremely familiar with the market you are purchasing in before making any investment decisions.

Tax Time
Investment properties are taxed differently and the longer you hold on to your property, the better you will make out with the IRS. “Any profit you make from an investment is considered capital gains, and so it will be taxed based on your income and the amount of time you've owned the property,” warns Ray. “It’s smartest to hold on to your property for more than a year so you will be charged a long-term capital gain, instead of an income tax rate. The difference here can be up to 20 percent more,” says Ray. However, if you make your investment property your primary home, then you can avoid a capital gains tax altogether. To meet this requirement, you must have spent a minimum of two of the last five years residing in the property. “The two years don’t even have to be sequential,” notes Ray. Other factors, like being married and filing joint taxes, can allow you to make even more on the investment without being taxed.

“If you are a frequent investor and are buying several properties in a year, be prepared for the IRS to land you with business taxes as well,” warns Ray.