#1 Reason Real Estate Investors Cause Their Own Train Wrecks
Posted @ 10:59 pm - Filed under 1031 Exchanges, Real Estate Investing, Cost Segregation, Depreciation
Today, allow a small list of some questions often asked of me by real estate investors new to the game — and by some not so new. I’ll throw some of my own questions into the mix too, just for fun — and because I can.
How many of them can you answer with confidence? These are questions you’ll want answers to — if you’re a real estate investor — or want to be.
Here we go.
What the heck is a cap (capitalization) rate?
When an agent says an income property is priced at ‘X’ times gross — gross what?
Why should I care about the Starker family, and what could they possibly have to do with me?
Is it possible for your investment properties to appreciate at a lesser rate than your pain-in-the-patute brother-in-law, yet still have superior capital growth?
What is cost segregation? (Hey, I thought this was a real estate investment test!)
Just how did your office buddy sell for such a nice profit, paying no taxes, while not executing a tax deferred (1031) exchange?
Which is more important — your property’s appreciation rate — or your capital’s growth rate?
Pulling $250,000 in cash out, via refinancing, from an investment property which you’ve held for 10 months, won’t be taxed at a special rate. True? or False?
If all your investment properties combined, produce depreciation (tax shelter) of $110,000 annually, and your combined tax rate (state & fed) is 35%. What are your tax savings? Do you save actually any taxes?
How do I know when it’s time to make the next move?
Take a break. What grade would you give yourself so far? Acing the test? Maybe coming up with your own questions?
Is it better in the long run to keep all my properties, refi them, and buy more? OR Should I exchange them when the time is right?
Are the real estate taxes on my investment properties deductible from my ordinary (job) income?
I took some money out of an exchange last month. I was told it’ll be taxed. Is that true?
Why are you advising me to use different financing in Dallas than we used in Boise?
There are two investment options from which to choose — a five year old fourplex — and a couple duplexes, each 20 years old. The cost for each option is identical, as is the financing. Which option do you choose?
What’s a better recipe for capital growth — 10% down in a growth region, (8% annual appreciation) using a neg-am loan — OR — 10% down in a region with a relatively pedestrian appreciation rate (4% appreciation) with an interest only loan?
Is it true that Gillette makes the best blades for head shaving? (Extra credit 
)
Will the Chargers win the race for the #1 pick in the 2008 NFL draft?
I’ll answer the last two for you.
In my opinion, Gillette is far and away the best blade on the market, if, like me, you need to shave your face and your head daily. I cut myself about once a year. A straight razor couldn’t get better results.
The Chargers will fail miserably in their chase for next year’s first pick. Teams finishing with 7-9 records never end up with the first pick.
What’s the point of all these questions?
It doesn’t matter much if you got them all wrong.
Since you know the questions, you can find the answers.
Then what’s the problem, you ask?
Here’s where the head on train wrecks are created.
It’s not the answers you don’t have that will come back to haunt you.
You an get answers.
It’s the questions you don’t know to ask that will wreak havoc — which can result in tragic consequences for your retirement.
Why don’t you sit down for a minute or two. Make a list.
Write down all the questions you don’t know to ask about investing in real estate for your retirement.
This entry was posted on Monday, October 1st, 2007 at 10:59 pm and is filed under 1031 Exchanges, Real Estate Investing, Cost Segregation, Depreciation. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.