Real Estate Investment for Dummies

Title Page
Copyright Page
Table of Contents
Introduction
	About This Book
	Foolish Assumptions
	Icons Used in This Book
	Beyond This Book
	Where to Go from Here
Part 1 Getting Started with Real Estate Investing
	Chapter 1 Evaluating Real Estate as an Investment
		Understanding Real Estate’s Income- and Wealth-Producing Potential
		Recognizing the Caveats of Real Estate Investing
		Comparing Real Estate to Other Investments
			Returns
			Risk
			Liquidity
			Capital requirements
			Diversification value
			Opportunities to add value
			Being aware of the tax advantages
				Deductible expenses (including depreciation)
				Tax-free rollovers of rental property profits
				Deferred taxes with installment sales
				Special tax credits for low-income housing and old buildings
				20 percent Qualified Business Income (QBI) deduction for “pass-through entities”
		Determining Whether You Should Invest in Real Estate
			Do you have sufficient time?
			Can you deal with problems?
			Does real estate interest you?
			Can you handle market downturns?
		Fitting Real Estate into Your Plans
			Ensuring your best personal financial health
			Protecting yourself with insurance
			Considering retirement account funding
			Thinking about asset allocation
	Chapter 2 Covering Common Real Estate Investments
		Seeing the Various Ways to Invest in Residential Income Property
			Buying a place of your own
			Converting your home to a rental
			Investing and living in well-situated fixer-uppers
			Purchasing a vacation home
			Paying for timeshares and condo hotels
				Taming timeshares
				Coping with condo hotels
		Surveying the Types of Residential Properties You Can Buy
			Single-family homes
			Attached housing
				Condos
				Townhomes
				Co-ops
			Apartments
		Considering Commercial Real Estate
		Buying Undeveloped or Raw Land
	Chapter 3 Considering Foreclosures, REOs, Probate Sales, and More
		Finding Foreclosures and REOs
			Taking a closer look at foreclosures
				Preforeclosure
				Notice of Default
				Foreclosure sale
				Redemption period
			Examining lender REOs (real estate–owned)
		Getting a Jump on Foreclosure and REO Competition with Short Sales
			Recognizing seller benefits
			Comparing short sales to other properties
			Finding short-sale opportunities
			Convincing a lender to do a short sale
		Contemplating Lease Options
		Probing Probate Sales and Auctions
			Examining probate sales
			Trying real estate auctions
	Chapter 4 Taking the Passive Approach
		Using Real Estate Investment Trusts
			Distinguishing between public and private REITs
			Taking a look at performance
			Investing in REIT funds
		Understanding Tenants in Common
			Paying for 1031 availability and “hassle free” management
			Asking whether TICs are right for you
		Comprehending Triple Net Properties
			Thinking ahead about landlord/tenant division of duties
			Minimizing the risks of triple net investments
		Eyeing Notes and Trust Deeds
		Looking at Tax Lien Certificate Sales
		Considering Limited Partnerships
	Chapter 5 Fast Money: Small Down Payments and Property Flips
		Purchasing with No Money Down
			Being aware of too-good-to-be-true results
				Surfing for credible websites and podcasts
				Purchasing quality products
				Finding the right advice
			Understanding why we recommend skipping these investments
			Finding no-money-down opportunities (if you insist)
		Buying, Fixing, and Flipping or Refinancing
			The buy-and-flip strategy
			The buy, fix, and refinance strategy
	Chapter 6 Building Your Team
		Knowing When to Establish Your Team
		Adding a Tax Advisor
		Finding a Financial Advisor
		Lining Up a Lender or Mortgage Broker
			Understanding lending nuances
			Building relationships with lenders
		Working with Real Estate Brokers and Agents
			Seeing the value of working with an agent
			Grasping the implications of agency: Who the agent is working for
			Getting a feel for compensation
			Practicing caution when acting as your own agent
			Finding a good broker or agent
			Making the most of your agent
		Considering an Appraiser
		Finding an Attorney
Part 2 How to Get the Money: Raising Capital and Financing
	Chapter 7 Identifying Sources of Capital
		Calculating the Costs of Admission
			Forgetting the myth of no money down
			Determining what you need to get started
		Rounding Up the Required Cash by Saving
		Overcoming Down Payment Limitations
			Changing your approach
			Tapping into other common cash sources
				Dipping into your retirement savings
				Borrowing against home equity
				Moving financial investments into property investments
				Separating investments from cash value life insurance
			Capitalizing on advanced funding strategies
				Leveraging existing real estate investments
				Bringing in partners or other investors
				Seeking seller financing
				Taking on margin debt
	Chapter 8 Financing Your Property Purchases
		Taking a Look at Mortgage Options
			Fixed-rate mortgages
				Examining the pros and cons
				Making a point of comparing fixed rates
			Adjustable-rate mortgages (ARMs)
				Start rate
				Future interest rate
				Understanding ARM indexes
				Future interest rate adjustments
				Avoiding negative amortization ARMs
		Reviewing Other Common Fees
		Making Some Mortgage Decisions
			Choosing between fixed and adjustable
			Your ability and desire to accept financial risk
				Length of time you expect to keep the mortgage
			Selecting short-term or long-term
		Borrowing Against Home Equity
		Getting a Seller-Financed Loan
		Mortgages That Should Make You Think Twice
			Balloon loans
			Loans with no prepayment
			Interest-only loans
			Recourse financing
			Loan guarantees
	Chapter 9 Securing the Best Mortgage Terms
		Shopping for Mortgages
			Relying on referrals
			Mulling over mortgage brokers
				Counting a broker’s contributions
				Keeping up with commissions and other contingencies
			Web surfing for mortgages
		Solving Potential Loan Predicaments
			Polishing your credit report
			Conquering insufficient income
			Dealing with low property appraisals
Part 3 Finding and Evaluating Properties
	Chapter 10 Location, Location, Value
		Deciding Where to Invest
		Finding Properties to Add Value
		Evaluating a Region: The Big Picture
			Population growth
			Job growth and income levels
		Investigating Your Local Market
			Checking on supply and demand
				Building permits and absorption
				Availability of housing alternatives — renting versus buying
				Occupancy levels
				Rental levels
			Focusing on the path of progress
			Considering barriers to entry
				Environmental issues
				Shortage of buildable land
				CANES: Citizens Against Nearly Everything
				Condo conversion and construction defect lawsuits
			Viewing the government’s effect on real estate
		Evaluating Neighborhoods
			Schools
			Crime rates
			Pride of ownership
			Role play: What attracts you to the property?
				Property knowledge sheets
				Commercial property considerations
		Mastering Seller’s and Buyer’s Markets
			Understanding real estate cycles
			Timing the real estate market
	Chapter 11 Understanding Leases and Property Valuation
		The Need to Evaluate a Lease
		Reviewing a Lease: What to Look For
			Comprehending a residential lease
			Making sense of a commercial lease
		Evaluating Real Estate’s Profit-Making Potential
			Determining highest and best use
			Comparing fair market value and investment value
		Reviewing the Sources of Property-Valuing Information
		Establishing Value Benchmarks
			Gross rent/income multiplier
			Price per unit and square foot
			Replacement cost
	Chapter 12 Valuing Property through Number Crunching
		Understanding the Importance of Return on Investment
		Figuring Net Operating Income
			Evaluating income
				Accounting for vacancies
				Calculating concessions
				Deducting delinquencies and collection losses
			Adding in additional income streams
			Tallying operating expenses
			Utilities
				Management fees
				Insurance
				Other operating costs
		Calculating Cash Flow
			Servicing debt
			Making capital improvements
		Surveying Lease Options
			Comparing some of the options
			Accounting for commercial buildings’ common area maintenance charges
		Grasping the Three Basic Approaches to Value
			Market data (sales comparison) approach
			Cost approach
			Income capitalization approach
		Reconciling the Three Results to Arrive at a Single Value
		Putting It All Together: Deciding How Much to Pay
			Examining the seller’s rental rate and expense claims
			Deciding which set of numbers to use
	Chapter 13 Preparing and Making an Offer
		Negotiating 101
			Starting with the right approach
			Building a solid foundation of knowledge
			Becoming intimately familiar with the local economy
			Figuring out the seller’s motivations
			Bringing property-related data to the table
			Assembling attractive and realistic offers
				Factoring in fix-up costs
				Creatively meeting the seller’s price
		Preparing to Make Your Offer: Understanding Contract Basics
			Bilateral versus unilateral contracts
			Elements of a contract
		Addressing Key Provisions in the Purchase Agreement
			Showing intention with an earnest money deposit
			Assigning your rights
			Leaving the buy-and-flip door open
			Installing an emergency exit
			Setting the closing date
			Using contingencies effectively
			Ironing out straggling issues
		Presenting the Purchase Agreement
	Chapter 14 Due Diligence, Property Inspections, and Closing
		Opening Escrow
			Following escrow instructions
			Reviewing the preliminary title report
			Removing contingencies
			Estimating the closing date
		Conducting Formal Due Diligence
			Reviewing the books and records
			Inspecting the property
				Disclosure requirements
				“As-is” sales
				Types of inspections
				Inspector qualifiers
		Negotiating Credits in Escrow
		Determining How to Hold Title
			Sole proprietorship
			Joint tenancy
			Tenancy in common
			Partnerships
			Limited liability company
			Corporations
		Closing the Transaction
			Estimated closing statement
			Title insurance
			Property insurance
			Final closing statement
			Deed recording and property takeover
Part 4 Operating the Property
	Chapter 15 Landlording 101
		Hiring Management Help: Yes or No?
			Evaluating your situation and the possibility of self-management
			Assessing your skills and interests
		Finding and Hiring Pros
			Doing the research
			Talking money
		Testing for Environmental Issues
		Deciding on Rental Policies
			Determining lease length
			Setting the rent
				Examining the return on your investment
				Surveying comparable rents
			Deciding on security deposits
			Creating policies and guidelines
		Working with Existing Tenants upon Property Acquisition
			Meeting tenants and inspecting the property
			Entering into a new rental agreement
			Increasing rents
		Finding Stable, Trustworthy Tenants
			Establishing tenant selection criteria
				Being fair to families and children
				Dealing with tenants with disabilities
			Advertising for tenants
			Showing your rental
				Efficiently scheduling showings
				Showing vacant versus occupied rentals
				Selling prospects
			Accepting applications and deposits
			Verifying rental applications
				Adults’ identity
				Rental history
				Employment and income
				Credit history
				All personal references
			Dealing with rental cosigners
			Notifying applicants of your decision
			Reviewing and signing documents
			Collecting the money
			Inspecting the property with your tenant
		Renovating and Upgrading to Add Value
			Enhancing external appearances
			Improving what’s inside
			Using contractors
	Chapter 16 Protecting Your Investment
		Developing a Risk Management Plan
		Getting the Insurance You Need
			Understanding insurance options
				Common coverages
				Excess liability (umbrella) coverage
				Additional insurance options
			Determining the right deductible
			Selecting potential insurers
			Talking with tenants about renter’s insurance
			Dealing with claims
	Chapter 17 Recordkeeping and Accounting
		Organizing Your Records
			Keeping records up-to-date and accurate
			Filing made easy
		Knowing What to Account For
			Documenting income and expenses
			Creating a budget and managing your cash flow
		Doing Your Accounting Manually
		Using Software
			Recognizing the value of professional accounting software
			Identifying some of the better programs
	Chapter 18 Looking at Tax Considerations and Exit Strategies
		Understanding the Tax Angles
			Sheltering income with depreciation
			Minimizing income taxes
				New tax breaks for pass-through entities
				Understanding passive and active activity
				Qualifying as a real estate professional
		Considering Exit Strategies
			Selling outright
			Calculating gain or loss on a sale
				Step 1: Determine the net sales proceeds
				Step 2: Determine the adjusted basis for the property
				Step 3: Determine the total gain or loss on the sale
				Step 4: Factoring in accumulated cost recovery and suspended losses
				Step 5: Determine total tax liability
			Selling now, reaping profits later: Installment sale
			Transferring equity to defer taxes
				Meeting your goals
				Following the rules
				Counting (and countering) complications and risks
				Calculating the substituted basis
			Using the capital gains exclusion to earn a tax-free gain
			Selling as a lease-to-own purchase
				Working through an example
				Proceeding with caution
			Gaining tax savings by investing in “opportunity zones”
			Transferring your property through a gift or bequest
		Taking in a Final Note on Taxes and Your Profits
Part 5 The Part of Tens
	Chapter 19 Ten (Plus One) Ways to Increase a Property’s Value
		Raise Rents
		Reduce Turnover
		Consider Lease Options
		Develop a Market Niche
		Maintain and Renovate
		Cut Back Operating Expenses
		Scrutinize Property Tax Assessments
		Refinance and Build Equity More Quickly
		Take Advantage of Tax Benefits
		Be Prepared to Move On
		Improve Management
	Chapter 20 Ten Steps to Real Estate Investing Success
		Build Up Savings and Clean Up Credit
		Buy Property in the Path of Progress
		Buy the Right Property at the Best Price Possible
		Renovate Property the Right Way
		Keep Abreast of Market Rents
		Recover Renovation Dollars through Refinancing
		Reposition Property with Better Tenants
		Become or Hire a Superior Property Manager
		Refinance or Sell and Defer Again
		Consolidate Holdings into Larger Properties
Index
EULA