Rental Price Growth Gets Cut in Half From A Year Ago

Rental prices have seen aggressive growth over the past five years, but the gas tank may finally be getting low with prices over the past year growing half as much as recent years.

Raising Rents as an Investment Strategy May Get Difficult

A lot of this is market dependent and growth could certainly kick up again, but the rates have been steadily strong prior to this year so it’s worth keeping an eye on this data going forward and adjusting strategy if needed.

Nationwide Rate

As a whole rental prices increased 1.4% year over year, according to data, while the month over month change for October was 0.1%.

Picking Growing Markets Is Important

Many real estate investors in recent years, especially those doing large multifamily deals have used a strategy of acquiring under performing properties, sprucing them up and raising rents as units are turned over.

Then, with the cap rate higher due to the increased rents they can refinance out of an original loan and pull a good chunk of equity or just sell outright for a profit.

It is a solid strategy, but we can’t just blindly assume higher rents will be supported indefinitely.  Capital improvements will help attract higher rents, but in the end the market dictates the ultimate cap regardless of how nice a place is.

This is why it is imperative to pick strong growing markets.  That doesn’t just mean in rental prices, it means a growing population with increasing job opportunities.

That will help provide the market growth needed, but will also hold up the best if we hit a period of stagnation in the future.

Growing vs. Shrinking

Here is a glimpse at some states with the best and worst year over year growth.

  • Arizona: 3.5% growth
  • North Dakota: 2.9% growth
  • North Carolina: 2.7% growth
  • Nevada: 2.6% growth
  • Delaware: 2.4% growth

Rental prices falling:

  • West Virginia: -0.8% growth
  • Louisiana: -0.6% growth
  • Alaska: -0.3% growth
No Red Flags, but Pay Mind

As you can see there are some leaders and some laggards of the 1.4% national average.

The good news is we still have growth in rental prices, the bad news is growth has slowed a considerable amount over the past year.

Again, it is data worth watching, especially for those with the business model of aggressively raising rents on new projects as growth projections may not keep pace compared to recent years.

Reducing Capital Gains Taxes on Real Estate, Legally!

There are many expenses involved when selling real estate taxes is one of the biggest, especially if you have to pay capital gains.

However, if you know the tax rules then the amount of taxes you pay (if any) can be drastically reduced.  Let’s cover a few ways to reduce that tax burden.

Reducing Capital Gains Taxes on Real Estate, Legally!

1.) Short-term vs Long-term capital gains

Properties that are held for more than a year are taxed at the long-term capital gains rate.  This is noteworthy because that tax rate is 0% up to $39,475 for a single filer.  Then it jumps to 15% and holds there all the way up to $434,000.

If you buy and sell a property within one year then it’s taxed as short-term gains and you pay the ordinary income tax rates which start off at 10% up to $9,700 and progresses to 12% up to $39,475 before jumping to 15% and so on and so forth with 37% being the top tax rate.

2.) Increase Your Cost Basis

The price you pay for a property is your cost basis in the eyes of the IRS.  Meaning if you spent 150K to acquire a property and sold it for 200K then you have a 50k taxable gain.

If you completed capital improvements on the property those costs can be added to your costs basis though.  Be sure to keep those receipts so you can tack on that 8K cost for a new roof and reduce the tax burden.

3.) Do a 1031-Exchange

Many investors have heard of this one and it gives you the ability to not pay capital gains (or technically postpone them) on the sale of a property by rolling the money into another property.

It’s deemed a “like-kind” exchange meaning you sell an investment property to buy another investment property that is used similarly.

There is a 45 day window to identify properties to the IRS that you plan to buy and then you must close on one of them within 180 days to avoid triggering the capital gains tax.

Plenty of other rules and methods…

Those are just three ways to alleviate the tax burden, there are many other options out there such as investing from a self-directed IRA and so on.  This is why it’s important to have a solid account knowledgeable in real estate investing.

Be sure to have them work you through the all the options and verify the examples I have given above as I’m an investor, not an accountant.

Having to pay some taxes is a good problem to have.  It means you are doing profitable deals and are buying right.  Always use the property calculator to ensure you buy right!

Here’s Why You Always Add a Buffer to Your Reno Budget

If you have done a couple large renovation projects then you know what I’m talking about.   When estimating rehab costs – always add a buffer on top of your total number.

Here’s Why You Always Add a Buffer to Your Reno Budget

This isn’t about how good an investor is at estimating the costs of repairs and replacements.   Most of us can get good at that with some experience.

This is about the stuff that you generally can’t foresee. The stuff that just pops up, and trust me there will be things that pop-up.  Especially if you are working with properties that are much older.  In fact, the older the property the more likely you will have “surprises.”

Real Life Examples

I’m going to keep it simple and give you a “cheapie” I’ve personally experienced so not to scare you off.  Just know, the surprises can range much higher is cost.

This is one of the reasons I stress performing as much due diligence on a property as you can before purchasing.

There are many “surprises” that can be avoided – then there are some that are just part of doing business.

My latest example fits into that category.

Main Water Valves and Sleeves

We are finishing up a major renovation on a property that was built in 1901.  However, along the way we got caught with a few surprises.  One of which had to do with the main water shutoff and the sleeve pipe that runs to the water department’s main valve.

Long story short is the sleeve had become so cockeyed that it was not possible to access the valve to turn it back on.  Considering you need water in a home this was a bit of a must fix.

The real question was – is the sleeve bad or the valve too.   Either way we needed to have a qualified operator come in a do his thing to repair.

After widening the opening to the exterior piping/valve and doing a little digging out the earth he was able to access the sleeve to replace and test the valve.  

Good news – valve was fine.  Bad news – sleeve needed to be replaced.  $1200 later all is good an we can got water turned on.

Unexpected cost, yes, but at only $1200 feelt like a win.  Here’s the things though.  What happens when you have 4 or 5 items come up that cost that?

Since this property was so old that is exactly what happened because things needed to be up to code.  Replacing the side door entrance became a $1500 costs instead of $300 because of all the layers of siding that had been slapped on over the decades.  The flashing had been bumped out so far it was a mess and we basically needed to re-frame it.

These examples are the cheap ones.  I have heard plenty of stories from other investors that got hit with $5-10K “surprises.”

Add a Reno Budget Buffer

This is why on the majority of big rehab projects I always slap an extra $10K on my total expected budget.

If the numbers still work with that then I know in the end I should come out in decent shape and better yet, if the “surprises” are limited or not existent than the deal becomes even more profitable.

Always be working your numbers and buying right!

To get the full guide on how I buy right check out the videos or the book.  Remember to use the property calculator when analyzing deals!

Why to Use Land Trusts to Transfer Your Property to an LLC

It’s amazing how many tools there are at our disposal when it comes to real estate investing.  I’d like to talk about one that can come in handy when dealing with the issue of getting loans, but wanting to have your property in an LLC.

Note: this is not legal advice, please check with your attorney when making any such transactions.

Get the Loan – Then transfer into LLC by way of Land Trust

Using a land trust is always a good idea, regardless.  It provides anonymity for the owner which protects you because you can’t get sued if it cannot be proven you own the property.

Additionally, when a title is transferred to a land trust it doesn’t trigger the due on sale clause that is part of a traditional mortgage. 

Generally when title changes hands it triggers the loan to be paid in full.

Now push it to the LLC

Once the property is in your land trust you can then transfer the title to your LLC.  Then make sure your LLC has an operating agreement in place to manage that property within the trust. 

Basically this gives us a way to take a property that we buy in our own names, usually in order to qualify for a traditional mortgage, and move it into our LLC.

Remember – owning investment properties in your own name is a liability risk.  Yes, insurance is great but only goes so far.  Having properties in entities like land trusts and LLCs provides protection for you and the assets you’ve worked so hard to accumulate.

If you are just getting started in real estate investing then check out the ScaredyCatGuide to Investing in Rental Properties Video Tutorial



The FOMO is Real in Real Estate

Have you heard the term Fear of Missing Out (FOMO)?  It has become a common term in all types of investing in recent years and rightfully so with most markets continuing to push higher.
What is it to FOMO?
When something is appreciating continuously – whether a stock, a home or even a trading card – people get wound up and scared they are missing out on the action.  They are missing out of the chance to make some big bucks.
This leads people to chasing investments, such as overpaying for a home in a hot market because it “has to go up”

How to Track the Real Estate Market and Shift if Needed

Markets are ever changing and that is no different for real estate.  Though there is the broader real estate market the localized markets within it have their own character too. Keeping a gauge on both is key to knowing when to shift.
What worked for the past five years may not work anymore.   Think about anyone that was buying Bank REO’s (bank owned foreclosures) from 2011-2016 – those layups are gone.  There isn’t more supply than demand anymore and banks are listing these near fair market value.
That is a very specific example of when an adjustment needs to be made, some

Can Real Estate Break Out?

Real Estate is above a level that many thought would never be seen again a little over a decade ago. It has rebounded off the likely GENERATIONAL LOWS back in 2009 and is now making a move over key resistance levels of 83-84 (prior highs). If this were too hold I believe you can be LONG Real Estate for the foreseeable future. Bullish over 84, Bearish Under.

Three Ways to Buy a House With Poor Credit

There are many people out there who want to get started in real estate, but have poor credit and let it become a roadblock.   There are still ways to buy a home with poor credit and I’d like to talk about a few.
Three Ways to Buy a House With Poor Credit
1.) FHA Loans
Yes, that is right.  I said FHA loans.  Believe it or not to qualify for a 3.5% down FHA loan the minimum credit score is 580, which is basically the Mendoza line for poor credit.
If a person’s score is below that they still have a legitimate shot to

Reverse Wholesaling – Same As Wholesaling Done Right

Ever hear the term “there is more than one way to skin a cat.”  Well, it holds true in business and real estate so as long as you are not trying to skin this cat let me share something with you about reverse wholesaling.
Reverse Wholesaling
It seems to be the newest buzz word in real estate investing.  Here’s the kicker, it’s the same thing as regular wholesaling, they just put emphasis on the order you do things.
I like to call it being prepared.  Can we start are own buzzword?  Prepared Wholesaling – boom, done!
What is wholesaling, reverse or regular
Wholesaling a property

House Flipping Back to Peak Levels – Cause for Concern?

House flipping is one of many ways people make money in real estate.  Good money can certainly be made, but generally with much more risk than doing rental properties.
Thus it’s a good idea to keep up to date with the market and the money that is being made on sales of short-term owners, which is the demographic that a flipper falls in.
House Flipping Currently as Prominent as Ever Before
The amount of housing flipping in the fourth quarter of 2018 was the highest it had ever been in the final quarter of a year since the stat started being tracked in