Investing in real estate in St. Louis, Missouri
What Is Your Return On Investment (ROI)?
A real estate investor generally makes purchase and sale decisions based on the return on investment (ROI) they receive on the equity in a property. Determining your ROI includes factoring in and evaluating your operating income, operating expenses, cost of the mortgage and tax cost/saving.
Cap rate and cash on cash are other valuation methods used by investors. If you are basing a purchase decision based on anticipated appreciation in the property’s value, most would say that is real estate speculating, not real estate investing — which may come with high reward, but with high reward comes high risk.
Maximizing Cost Recovery (Depreciation)?
Are you maximizing your cost recovery (depreciation) on your real estate investment property? Properly depreciating real estate may provide a significant tax shelter for other income. Many individuals and CPAs only divide the property into two categories for depreciation purposes, land and building.
Land is not depreciable and a building (residential) is only depreciable over 27 and a half years. What about personal property (cost recovery over five years) and land improvements (cost recovery over 15 years). If you are not maximizing your cost recovery, you are missing out on thousands of dollars.
Like Kind 1031 Exchange?
Many investors do not understand this concept, and how the IRS allows you to use it. You do not need to buy a property that is actually like the property you sold — you just need to identify and purchase another property within the allotted time period. So, if you sell a strip mall, you do not need to buy another strip mall. You can buy an apartment building, office building, single family homes, etc.
Have You Formulated A Long-Term Plan?
Are you considering investing in real estate? Income, retirement, assets for your children/grandchildren? Depending on your plan, your strategy should differ; if your intent is to leave assets for your children/grandchildren, if done correctly you can purchase a property, hold that property for a couple years while the cost recovery is aggressive, provided a tax shelter for income and then complete a like kind exchange and purchase a different property — repeating this process until death, where all of the gain will die with you. Keeping in mind that equity, which is subject to the estate tax is different than gain.
Using Your IRA Or Roth IRA To Invest In Real Estate?
Many people seem to think that you cannot use your IRAs to invest in real estate. You are not pulling the money out of the IRA, the IRA is simply investing in real estate instead of a stock, bond, mutual fund, etc. Of course guidance is required to do this properly, but the rewards can be significant.
Why choose us: How many St. Louis realtors know any of this? If you or your real estate agent for investors is not making it a condition of the contract that the seller provide their Schedule E for the property you’re considering purchasing, or specifying your depreciable categories into your purchase or sales contract, you may want to look for a new real estate agent.
Have you ever been the buyer of an investment property and wondered why the seller had a statement similar to “Personal Property in this transaction was left as a matter of convenience and has no value?” You should know why the seller included that statement. If you’ve ever been the seller of an investment property and didn’t have a similar statement, similarly, maybe you should have. As an investor, you will work directly with Ted Disabato, the broker and general counsel of TdD Premier Real Estate who can assist you in determining your ROI and help develop an overall strategy for your real estate portfolio.
From offices in St. Louis, TdD Premier Real Estate and TdD Attorneys at Law represent clients in communities throughout the metro area. Contact attorney Ted Disabato at (314) 276-1318 to schedule an initial consultation to discuss real estate investing with an experienced real estate attorney and realtor today.
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the Internal Revenue Service, any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or promoting, marketing, or recommending to another party any transaction or matter addressed herein.