May 2015 MONTHLY Creative Real Estate Say Yes to Long-Distance Landlording Kevin Ornter, CEO Renters Warehouse Despite a few common misconceptions, deciding to be a long distance landlord can create a number of tremendous investment opportunities. Long distance landlording allows you to invest outside of local markets and enables you to capitalize on developing markets, or buy property in a more affordable location. For some, owning property in a specific location provides opportunities for tax deductions, while others like the idea of having a home in a particular area they hope to return to someday. Of course, being an out-of-town landlord isn t without its challenges; troubles with tenants and difficulties ensuring the rent is paid on time rank at the top of the list. And of course, there s always the financial risks that may follow from purchasing property in an unfamiliar market. But the good news is that these obstacles don t have to hold you back. These days, it s easier than ever to be a long-distance property owner. A growing number of investors and landlords are seizing the chance, and picking up properties that are outside of their locales. If you re considering investing in out-of-town properties, here are some tips for each stage of your long distance landlording journey to help ensure that you re able to get the most out of your investment. DO THE MATH When investing in out-of-town properties in popular areas, it can be tempting to jump the gun to get in on the action. But just because it s in a hot market, doesn t mean it automatically qualifies as a solid investment it s still important to do the math. Calculate all of your estimated expenses and make sure the property will pay for itself. Pay careful attention to the actual return, instead of the gross yields that local agents may provide. Add up monthly mortgage repayments and running expenses. Include taxes, maintenance, repairs, insurance, as well as property management, or HOA fees. Also, consider any potential upfront costs. Will the property need any repairs before you can rent it out? Up-front expenses are a significant cost to consider since any time and money that you have to spend initially will immediately cut into your profits. RESEARCH THE AREA Conducting research ahead of time is an important step that will help you to determine the financial viability of an investment. While both local and out-of-town properties require See YES, Page 2 WHAT S INSIDE Say Yes to Long-Distance Landlording...1 Trivia...3 Real Estate Investing Meets IRA Tax Benefits...4-5 Take Advantage of Your MNREIA Benefits...5 May Meeting Info...8
YES, Continued from Page 1 research, purchasing property in a market that you re unfamiliar with will require a bit more diligence. Don t assume that buying a property cheap is a great investment; you will want to make sure that you ll be able to keep the property occupied. Be sure to research demographics, and find out if the area is one that s poised to experience growth. Look into new local developments, which can help you gauge the local job market. Determine what the CMV (current market value) is for nearby properties, and find out what other similar properties are renting for. Have a look at Zillow or Trulia to see what other rentals in the neighborhood are listed for. Don t operate on assumptions; be sure to do your homework up front. TRY TO ESTABLISH LOCAL CONNECTIONS Once you ve purchased an investment property, it s important to establish connections in the local area. While you shouldn t rely on the neighbors near your rental to keep you up to date on everything, it s a good idea to connect with them, and ask them to call you if they notice anything suspicious. Having friends or relatives in the area can also help, but it s best not to have to rely on them for everything. After all, this is your commitment not theirs! Try to touch base with local businesses, and compile a list of contractors: groundskeepers, locksmiths, plumbers, and electricians so you can call them at a moment s notice if something needs repaired at your rental. Having a pre-established network in place can be a lifesaver. When an issue arises, you ll be able to refer to your list and will know exactly who to call. CHECK IN ON THE RENTAL It s a good idea to check in on your property periodically. Showing your face at the rental sends a positive message to tenants that you care about your property, and lets them know that you are still in the picture. Don t forget to budget in the expense of traveling to and from the rental at least once or twice per year, ideally more often. Of course, if you have a property manager or some decent connections in the area, these trips can be more infrequent. Keep in mind though, that any travel expenses to and from the rental can be deducted since the trip is for business. MAKE IT EASIER: HIRE A PROFESSIONAL PROPERTY MANAGER Choosing a good property manager is a must for A reputable property manager can take a tremendous burden out of long distance landlording, and can make it easy to own and operate multiple rentals in different locations. landlords who live a significant distance from their rental properties. A reputable property manager can take a tremendous burden out of long distance landlording, and can make it easy to own and operate multiple rentals in different locations. It s worth noting that not all agencies are created equal, and finding an experienced and reputable property management company is especially important when investing in out-of-town properties. Don t miss out on an excellent opportunity simply because the property happens to be located out of town. Many professional investors have had tremendous success investing in properties that are outside of their local regions. Being diligent with research upfront can prevent major problems down the road. Taking the time to check out all of the facts before you buy, and establishing your rental to run independently of you being around 24/7 is a wise strategy that will help you to set your investment up for success. PrairieGold Landscape Architecture, LLC E: PGLandArch@charter.net T: (612) 759-9662 W: http://pglandarch.weebly.com CONSULTING & DESIGN: Site & Land Development Planning/Code Research Grading & Drainage Design Curb Appeal Planting Design Amenity Design Design Build Project Management & Calculation Construction Drawings & Architectural Graphics 2
Test Your Knowledge with Trivia April Meeting Trivia Recap 1. Who is not presenting at the Underground Marketing Retreat? A) Mike Jacka B) Victor Jernigan C) Ron LeGrand D) Lee Phillips 2. How do you determine if a seller is motivated? A) They tell you how much they want B) They tell you how many bed & bathrooms there are C) They tell you about updates they ve made D) They tell you about their situation 3. Who should you have on your buyers list? A) Rehabbers B) Wholesalers C) Landlords D) All of the Above 4. What should be the first area to fix up when doing a rehab? A) The kitchen B) The bathroom C) The yard D) The living room 5. What is the 1% Rule when purchasing a property to hold? A) You re down payment should never exceed 1% of the purchase price B) The gross monthly income of the property must be at least 1% of the purchase price C) Only 1% of the purchases will have positive cash flow D) None of the Above 6. What information should a good Wholesaler provide to their buyers? A) Accurate repair estimates B) After Repair Value (ARV) C) MAO D) All of the Above Congrats to this month s WINNER Cathy Scobie Thank you for everybody who participated in our Trivia game. Be sure to visit our vendors for a chance to win $50 REIA bucks! Rates Advertise in the MnREIA Newsletter Size Vendors Member Non-Member Full Page $350 $400 $475 1/2 Page $200 $250 $325 1/4 Page $100 $150 $225 1/8 Business Size Ad $25 $75 $150 Reach more than 1,000 active real estate investors monthly! All ads need to be submitted by the 1st of each month. Please email all submissions to Anna@MnREIA.com or call (763) 432-2809 for more information. 3.2% MLS listing fee Investor Special $320 initial listing fee. 3.2% if sold. (2.5% buyer, 0.7% listing) Call or text for details. Aldrich Real Estate, LLC 612-250- 9392 3
Real Estate Investing Meets IRA Tax Benefits Clay Malcolm New Direction IRA, Inc. Many investors are unaware that an IRA (Traditional or Roth) can utilize both the tax advantages of the account and their favorite real estate investment strategies at the same time. The IRS allows IRAs, HSAs, and 401(k)s to invest in a wide variety of alternative or hard assets including real estate. This allows investors to utilize their existing real estate expertise to make money for their retirement: fix & flip, fix & hold, partner with other investors, be a real estate lender, buy into a private real estate fund, use debt leverage to increase buying power, buy and sell commercial or residential property, trust deeds, options, etc. The rules for IRAs, including self-directed accounts, began with the inception of the Traditional IRA in the mid-1970s. As far as what an IRA can invest in, the IRS only prohibits life insurance and collectibles as assets, which leaves a whole world of investment options for your retirement savings. Included in these IRS rules is the fact that IRA providers get to choose the investments they will service. Banks and brokerage houses often limit their account holders to publicly traded securities, stocks, mutual funds, etc. As a result, it has sometimes been difficult for investors to find an IRA provider that services alternative assets, in this case real estate. For an account holder, it then becomes critical to choose an IRA provider that handles real estate. When you start a self-directed IRA, you don t necessarily have to start from scratch in terms of available dollars. If you have funds in an existing IRA, HSA, or old 401(k) that you would like to use, you can perform a tax free transfer or rollover to an account at a self-directed IRA provider that handles real estate assets. The most common process that we encounter starts with an investor that becomes aware that they can have their retirement funds invest in real estate. They open an account with us, perform a rollover or transfer from one or multiple IRAs or 401(k)s, and those funds are used to purchase all or part of a property. More and more account holders are choosing self-directed IRAs because they allow the account holder to control and diversify their retirement investments as well as give them the ability to adapt to economic conditions. One of the benefits of the increase in popularity in self-directed IRAs is that IRA real estate investing is becoming more convenient. For instance, some providers now offer features such as online IRA bill-pay and technology that allows tenants of IRA-owned rental property to pay their rent online, directly to the IRA. Because there are a myriad of investment options, let s take a look at some of the possibilities. The most common means of investing in real estate with an SDIRA is for the account to purchase and own property outright. This is done by account holders with the desire and ability to fund the full purchase price of the real estate from their account. The IRA (which is a legal and financial entity, separate from the account holder s personal finances) is the title holder. The IRA pays for purchase and maintenance (including taxes, insurance, etc.) and receives proceeds from rental or sale. If you are comfortable using debt leverage, the IRS allows IRAs to secure non-recourse loans. In this scenario, the IRA is still the title holder and receives the property s income. From that it pays the debt service as well as the other property expenses. If your account does not have enough funds to purchase a property outright, and you do not wish for your IRA to take out a non-recourse loan, there are several options available. Your IRA can partner with other entities, such as other IRAs, the account holder s personal financ- 4
ONE OF THE BENEFITS OF THE INCREASE IN POPULARITY IN SELF-DIRECTED IRAS IS THAT IRA REAL ESTATE INVESTING IS BECOMING MORE CONVENIENT. es, other individuals, or a company (LLC, C-Corp., etc.), to fund the purchase of the real estate. The IRA would then be considered a tenantin-common with the other entity or entities. SDIRAs can also invest in real estate indirectly. Your account can buy private stock in an entity which then purchases and owns real estate. Another available option allows you to make real estate loans via promissory notes to individuals or entities. These loans can be secured by collateral or not. The borrower may use the funds as a construction loan, bridge loan, or even a mortgage. As far as the type of property, your IRA can purchase residential real estate, from single-family homes to apartment buildings. If you are more familiar with commercial real estate, you can use your expertise to invest in office buildings and other properties. If your background lies in agriculture or development, your IRA can purchase farm land or raw land. One of the final variables in IRA real estate investing involves your distribution strategy. Once you reach age 59.5, you are able to take distributions from your IRA without the 10% penalty. It is a common strategy (but not required) for an IRA holder to begin taking periodic distributions of the IRA s rental income after they pass this threshold age. Generally speaking, distributions can be taken in cash or in-kind, meaning that the asset itself is distributed to the account holder. Therefore, when it comes time to distribute the value of real estate, the IRA can sell the property, receive the sale price in cash, and then distribute that cash as the account holder sees fit. Or, in the case of in-kind distribution, the account holder has a couple of options. One option allows the account holder to distribute the entire property in-kind by retitling the deed from the IRA to the account holder personally. At this point, you are free to use the real estate as a primary residence or vacation home, or you can choose instead to continue renting the property and personally collect the rental income. If the property is in a traditional IRA and the tax burden of distributing the whole property (the value of the property on the date of distribution would be added to your income for that year) is too much, the account holder can distribute percentages of ownership over the course of any number of years to spread out taxes due. If the property was purchased with a Roth IRA, you will be able to make a qualified distribution of the property without having to pay taxes on that distribution. Take Advantage of your MnREIA Benefits MnREIA s affiliation with National Real Estate Investors Association is designed to support each member s investment goals and needs. Home Depot and Sherwin Williams are just a couple of the outstanding benefits extended through a MnREIA membership. The Home Depot is the fastest growing retailer in U.S. history and we are committed to helping you grow your business. Get exactly what you need from knowledgeable store associates. The Home Depot provides in-store special orders, advance order pulling and job site delivery, guaranteed low prices and more for less with Volume Pricing and Bulk Pricing. Get in and out quickly with dedicated Pro cashiers and truck loaders. Value-packed Pro-only vendor programs and exclusive services, make your job easier with The Home Depot! Enroll online at www.mnreia.com. One of our most popular and most used benefits, Sherwin-Williams offers unbeatable pricing to MnREIA members. Enjoy deep discounts on paint, applicators, floor covering, paint sundries, wall covering, spray equipment, and even window treatments! Contact your MnREIA Team for information on this great discount. 5
Trivia Answers Questions on Page 3 1. C. Ron LeGrand 2. D. They tell you about their situation 3. D. All of the Above 4. C. The yard 5. B) The gross monthly income of the property must be at least 1% of the purchase price 6. D) All of the Above 6 WHAT'S NOT TO LOVE, MINNESOTA? WE'RE SEEKING RESULTS-DRIVEN REAL ESTATE AGENTS TO JOIN OUR PROPERTY LEASING TEAM. Add more consistent income with leasing We provide 100% of client leads Enjoy best-in-class technology and training ASK US ABOUT AVAILABLE TERRITORIES TODAY! Contact us: 952-224-9607 RentersWarehouse.com
Professional Real Estate Websites Premium Websites are also available for: $29.95 per month (Members) plus $199 setup fee $39.95 per month (Non- Members) plus $249 setup fee Premium Websites include: Customizable Websites Buyer / Seller Forms Single Family Property Analyzer Add YouTube videos on any page, (including your Property Leads) Over a year s worth of Training Videos Your Properties Syndicated across the net Go to www.mnreia.com or call our office at (763) 432-2809 to get started today!! Repair Estimate Worksheets o Mobile Version (for smart phones) Scope of Work (automatically generated from the Repair Estimates) Market other peoples Properties (to build your buyers lists and build credibility) Add Custom Special Reports All MnREIA Members receive a FREE Website Activate Yours Today at: www.mnreia.com Use Coupon Code (MNREIA07) to wave the $199 on the Setup Fee p ne financial group 100% loan including purchase and repairs Points and fees can be financed Never pay an application fee or prepayment penalty First rehab draw is advanced at closing 9 month term Ask about our frequent borrower discount program Fast Closings True, no money down loan 7
Minnesota Real Estate Investors Association, Inc. 7040 Lakeland Ave. N #200 Brooklyn Park, MN 55428 (763) 432-2809 PRSRT STD U.S. POSTAGE PAID TWIN CITIES MN PERMIT # 1181 www.mnreia.com NETWORKING TRAINING EDUCATION MAY MEETING Your Retirement Account can be a Real Estate Investor Meeting Details Location: Ramada Plaza Minneapolis, 1330 Industrial Blvd. N.E. Minneapolis, MN 55413 Time: 6 PM 9 PM Date: Tuesday, May 05, 2015 Learn how to look at a property, ask the right questions and easily construct multiple offers that will increase your chances of getting your offers accepted. As well as what to do with the properties once you have them under contract Put IRA and 401(k) money into your real estate investment strategy. The valuable Clay Malcolm information in this presentation can be used for your personal retirement accounts, and it can also be used if you are raising money for a deal that has not related to saving for retirement. During this fast-paced presentation, learn how to have your IRA or 401(k) invest in real estate, the asset you know best, while keeping the tax advantages. The majority of retirement account holders are unaware that their IRA (or other tax advantaged account) is eligible to invest in real estate deals, but it can, and without incurring a tax penalty. Utilize the strategy that is the best fit for you: fix & flip, fix & hold, partner with other investors, be a real estate lender, land speculation, private real estate fund, debt financed purchases, commercial or residential property, multi-unit, etc. We will discuss account types, IRS rules for participation, and the key strategy considerations that go into making money for retirement by investing in real estate. Feel free to bring questions! PROGRAM HIGHLIGHTS: Self-Directed plan types. IRA owner s role in the process Partnering scenarios Prohibited transactions and disqualified persons Debt Leverage within an IRA Property management within an IRA. How to expand your money raising efforts using self-directed IRAs. 8