Real Estate Investment Dream Team
Advice from Experts Can Lower Costs for the Real Estate Investor
Sep 18, 2008
Before plunking down money for a property, real estate investors must ask themselves many questions, such as whether the tax write-offs for a particular property will boost the return on investment (ROI) and whether the area in which a property is located will mean higher property insurance premiums. When deciding whether to sell properties in their portfolios, investors face questions about the timing and characterization of a sale, among other things. Unless investors have the expertise to answer these questions, they should include tax professionals and insurance agents -- not just real estate agents and lawyers -- on their team of experts.
Tax Advisers and Real Estate Investment Plans
Before putting a property purchase or sale in motion, an investor should consider speaking with a tax professional. Advisers such as tax attorneys, certified public accountants, or other tax experts who have experience with real estate investing are excellent sources of information about the types of investments that fit an investor’s particular investment plan and capabilities. The tax adviser should be familiar with the tax laws of the jurisdiction in which the investor’s property is located.
Competent tax advisers can help can help an investor’s bottom line by recommending specific strategies for buying or selling property, such as:
- Owning property as a specific type of partnership or corporation
- Selling property outright or over time by taking back a mortgage
- Structuring a sale as a 1031 tax-deferred exchange, in which the investor delays payment of the capital gains tax on the sale of one property by buying another property of the same kind and of at least equal value
Tax laws are extremely complicated and always changing. Understanding the various tax laws and rules and how they interplay is beyond the ability of most non-tax professionals. For these reasons, the smart investor does not hesitate to make a competent tax professional a permanent member of the team of experts.
Insurance Agents, Real Estate Operating Expenses, and ROI
The cost of premiums for fire and liability insurance on a property is often overlooked by investors when trying to estimate the ROI on a property. An experienced, independent insurance agent – which means that the agent is not committed to only one insurance company – is ready to disclose what insurance companies consider to be an insurable risks and the range of premiums charged by insurers in particular areas. This helps the investor make an informed decision about whether to avoid certain areas because of the high premiums charged.
An insurance agent also helps an investor look at a neighborhood from the perspective of the insurer. For example, out of concern about declining property values, some insurers are reluctant to issue policies for properties that are near boarded-up buildings or on streets where there are several “For Sale” signs.
An insurance agent will also ask the investor to find out certain facts about a property, such as the age of the building, roof, heating system, and hot-water heater, and the dates when the plumbing and electrical systems were last upgraded. Some of this information can give leverage to the investor when negotiating with the seller about price or concessions.
With the assistance of an insurance agent, an investor can also find a comfortable level of deductibles and determine which type of insurance coverage is either indispensable or unnecessary for the location and type of property involved.
Optional Members of the Real Estate Investing Team
A real estate investor may also want a mortgage broker or lender, an appraiser, and a title insurer on the team of experts on an ad hoc or even permanent basis. Another optional member of the team is a property inspector, whose role will be discussed in a future article.
