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By Simon Volkov
Finding a profitable real estate investment in today’s market can be challenging. With the current economic slump and downturned housing market, investors question if they should buy, sell, trade or postpone purchasing real estate.
One popular real estate investment strategy involves trading real estate. Considering credit has become next to impossible to obtain, investors are realizing it is sometimes smarter to trade like-kind properties.
Trading like-kind properties is known as 1031 exchanges. Investors who engage in 1031 exchanges must adhere to guidelines set forth in Section 1031 of the Internal Revenue Service code. In order to participate in this type of real estate transaction, investors must retain the services of a Qualified Intermediary (QI) who will carry out all aspects of the exchange.
Using 1031 strategies, investors are able to defer capital gains and depreciation recapture taxes on exchanged properties. Real estate is not the only investment property that can be exchanged. 1031 exchanges can also include boats, airplanes and business equipment.
Real estate used as personal residences or vacation homes cannot be exchanged using 1031. The exception to this rule allows rental homes to be exchanged for other rental homes, as long as the property is rented on a regular basis.
Another popular real estate investment is buying distressed properties such as foreclosure and bank owned homes. Distressed real estate is generally sold well below market value because these properties require extensive repairs and renovations.
Foreclosure homes are sold through public auctions. If no one bids on the property, it is returned to the bank. Once the bank owns the house, they either sell the real estate through their in-house loss mitigation department or enlist the services of real estate agents.
Bank owned homes sell for about 80-cents on the dollar. Purchasing distressed homes through banks usually requires more time and effort than buying foreclosure properties. Once foreclosure homes are returned to the bank, the lender negotiates with creditors to remove outstanding liens. Although bank owned homes usually cost more than foreclosed properties, they come with a clean title and less headaches.
Real estate investors often purchase distressed properties for the purpose of house flipping. Flipping houses for profit is not for the inexperienced or faint of heart. Simple repairs can quickly turn into major expenses. Major repairs require licensed contractors, permits and inspections. It is crucial to estimate the true cost of repairs prior to buying foreclosure or bank owned properties. Otherwise, that great real estate deal could become the nightmare of the century.
A lesser known, but highly profitable real estate investment is that of probate properties. Probate is the legal process used to establish value of estates belonging to a person who has died. Probate can wreak havoc on the estate’s financial holdings.
During probate, the estate administrator must pay mortgage payments, homeowners insurance, property taxes, and maintenance expenses. If the estate is unable to pay these expenses the house could fall into foreclosure. Estate executors can sell real estate if they are authorized to do so. Otherwise, the probate court will oversee the sale.
Probate real estate can be a lucrative investment, but investors must engage in a bit of detective work to locate properties. Probate records are a matter of public record and can be located at county courthouses. The decedent’s last will provides contact information for the probate executor handling the estate.
Most probate executors are unaware they can sell real estate during the probate process. Investors who purchase probate real estate can eliminate financial burdens and assist administrators in expediting the probate process.
These are just a few real estate investment opportunities. Although the housing market is currently in a slump, real estate experts predict the bottom will fall out by the end of 2011.
Housing prices are at an all-time low. Investors who purchase properties now can potentially reap massive profits later. As with any investment, it is important to engage in due diligence and avoid investing more than you can afford to lose.
About the Author: Simon Volkov provides a variety of real estate investment opportunities, along with home buying information. His website offers hundreds of articles to help investors stay abreast of the real estate market and provides home buying strategies for first time home buyers. Subscribe to Simon’s mailing list to receive a list of current investment properties at SimonVolkov.com.
Source: isnare.com
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