As investment professionals, we get a lot of questions from people about the state of the economy and real estate investment opportunities. There have been times when we’ve been the most popular people at a cocktail party!
Now we’re going to share with you the most frequently asked questions we get from people all over the country. Stay tuned to learn more and maybe you’ll be the one with all the answers at your next social function!
I am considering partnering with a friend for my real estate investing. Is this a good idea?
The answer is maybe. Real estate investing is expensive and partnerships can be a fantastic way to get your foot in the door. But proceed with caution. The best of friends can end up bitter enemies if the partnership goes south.
Bottom line: Decide up front on who is doing what and what the compensation looks like. What is expensive and taxing to one person is not necessarily to the other. Put everything in writing and make sure you have an exit clause. Invariably, one of the two partners will want to exit before the other. Work out all the ‘what if’s’ before risking your finances and friendship.
Good friends can be hard to come by. But money comes and goes!
Will interest rates go back down?
The answer is yes. Then they will go back up again and then down and then up. Interest rates will always shift depending on a variety of reasons revolving around the economy.
Bottom line: Every market has opportunities. Don’t try to time interest rates or real estate values. Find the right property and negotiate a deal that works for you.
What’s a 1031 tax exchange?
A 1031 exchange is an amazing tax benefit allowed by the IRS solely for real estate investors.
Here’s how it works: The IRS allows real estate investors to swap an investment property for one of equal or greater value and defer capital gains.
There are a few hard and fast rules that you must abide by however the 1031 deferred tax exchange is a fantastic tool to help build wealth.
Bottom line: The deferred tax structure of a 1031 exchange allows you to take profits from one investment and re-invest into another. This amazing tax advantage is only given to real estate investors. Thank you, IRS! (How often do you say that?!?)
What is the difference between inflation and stagflation?
We have been hearing a lot lately about inflation but you may also now be hearing warning signs about stagflation. Let’s look at the difference.
- Inflation is the rate at which overall prices are rising and the “real value” of money is falling.
- A low and steady inflation rate is considered a sign of a healthy, growing economy.
- Stagflation is a situation where unemployment is very high, economic growth rate is too low, and inflation rate is high.
- Stagflation occurs when prices continue to rise while growth slows or turns negative.
Is this the time to buy or should you wait for the market to bottom out?
At this point the shift has started. When markets change like this most buyers make the mistake of waiting for the market to bottom out. Oftentimes some of the best opportunities are when the shift first starts. You will not see the bottom posted on the MLS but you can negotiate to a price point that works for you.
Bottom line: This is the ideal market to start low balling. Deals can be created.
Why is real estate the best investment on the planet?
All investments have plus’ and minus’ but real estate has one distinct advantage that sets it far above all other investment choices.
Most investments work pretty much the same, the investment grows based on two funding entities. The investor and market appreciation. Real estate however is a bit different. Real estate has a third source of funding. The tenants. Those incoming tenant dollars create a perpetual source of income allowing the investment to become self funding and therefore self sustaining.
Bottom line: Before investing in anything it’s important to do your homework. When purchased and managed correctly a fully-funded income producing real estate investment can become a perpetual source of income that will last throughout your lifetime and can be handed down, creating generational wealth.