1. Chapter 4 Group 3 Finding – “The three most important things about a single-family house are location, location, location.” Don’t make a firm offer on the first place you see –even if it meets every criteria you think you have. You don’t know enough yet to buy any place at all. It’s better to be the 5 th or the 10 th investor in the neighborhood. Don’t just go for cheap. You can turn a trashy building around but your property alone will not turn the trashy neighborhood. Buy In Areas You Know Be wary of long-distance deals, you can’t properly manage a building from2,000 miles away. The property manager might not be looking in on buildings often enough or aren’t available in an emergency. It is better to have your rental properties near your own home or office, and better to have multiple properties near each other.

2. Chapter 4 Group 3 Buying - How do I know what buildings are worth? Real estate agents and sellers will give you simplified financial statements. Make sure to cut income by 10% and increase the costs by 15% in the “liar statements”. One of the most important calculations is figuring a building’s capitalization rate. A cap rate is the ratio between what building costs and what it makes. This rate will give you the value of the property. For a buyer, a higher cap rate is best since it indicates a greater return. Buildings will have lower cap rates in less risky, more desirable neighborhoods, and higher cap rates in higher risk, more marginal parts of town. Look at sales comparables that will show you what other similar buildings in the area have sold for recently. In most states sales figures are public records and many are accessible online. County records should note the date of the sale, the price, the annual property tax, size of the building, and the number of units. Operating expenses on larger buildings should equal 30% to 45% of gross rents.

3. Chapter 4 Group 3 Closing the Deal You should conduct a complete due diligence and thoroughly review the buildings finances and its condition. Consider writing a short note to each tenant introducing yourself, telling them you are considering buying the building. By doing this you will learn what’s really wrong with the apartment. Physical inspection is paramount. You are looking for anything that’s wrong with the building now and anything that could be a problem in the future.

4. Chapter 5 Group 3 Tax laws should encourage investors to show losses even if they are making profits. On April 15 you want to show that you are in the red or just breaking even. Government will compensate you for your losses by cutting taxes. Earned income is taxed from the first dollar and passive activity income (monthly rent checks) has no reductions ahead of time. Congress encourages property investment with tax incentives. Land does not depreciate, but buildings on the land do depreciate which lowers taxes. Accountants and lawyers should be your best friends to help you understand the tax laws. Have a separate entity for each property you own to minimize your liability.