In the Mood for Equity? – Part 2 of 2

Some people think we just sprinkle sunshine.  We think it’s more like singing in the rain.

Long time listeners know we were bullish on real estate from 2002 to 2005.  We still liked it going into 2006, but also started talking about hedging strategies.  We’d be lying to say we anticipated the mortgage meltdown and all of the resulting carnage to the economy and real estate values.  Even the really smart people we talked to, like Robert Kiyosaki and Walter Sanford, who’d started sounding the alarm in late 2005, couldn’t tell us why. They just knew the market would change. They had faith in the cycle (see Part 1).

Many consumers were attracted to real estate in the wake of the tech bubble.  Its strong history of stable appreciation, the fact it’s tangible and easy to understand, plus low interest rates, liberal loan programs and an international investment community eager to buy mortgage-backed securities (oh my, how things have changed!), all fed the fire.  Of course, standing here in 2010, we know the reality of cycles cannot be avoided – and in spite if its remarkable history, real estate was not immune.

The lesson?  Cycles are real and inevitable.  The good news is that cycles go both ways.  If the cycle down was inevitable, is it reasonable to think that a cycle up is also inevitable?  If the cycle down occurred with a reason that was only understood after it happened, then is it reasonable to think that the cycle up might also occur before we understand the reasons why?  If we wait until the reasons are obvious, the cycle may have passed the point of ideal opportunity.  Hmmm.  That’s a dilemma.

There’s no doubt it takes a certain amount of faith to invest.  This is certainly true if you’re seeking to optimize cycles.  By definition, you have to be willing to invest when most others aren’t.  That’s how you buy low.  Duh.  But should man invest by faith alone?  We don’t think so.

So in addition to faith in market cycles, there are some things to think about when investing in real estate.  And these things are fairly unique to real estate:

When properties produce enough income to pay a fully amortized mortgage, after allowing a reasonable amount for expenses and contingencies, then even if prices don’t increase over the long haul, you’ll build equity through amortization (the pay down of the loan with the tenant’s money).  What other investment can say that?

And even though you should never base an investment decision solely on the tax advantages (a revenue starved government can be fickle), investment real estate has a strong history of favorable tax treatment.  Few investments can claim this.  If you really pay attention and use strategies like cost-segregation and are careful to organize yourself (or your spouse) as a full time investor, the tax benefits of investment real estate can contribute substantially to your overall wealth building program. We could go on, but that’s not our main point.

Here’s where we think real estate gets exciting.  It doesn’t take much of a mood swing to affect real estate prices. That’s bad when the mood swings down as we’ve just seen.  But if you’re cash flowing as previously described, it’s not a train wreck.  You’ll get wealthy over time as the property gets paid off.  Even though it’s a much slower road, it keeps you safely in the game for the long haul.  Most people who got killed in this downturn (aside from losing their non-real estate sources of income), were carrying an unsustainable number of negative cash flow properties with no plan B.  We aren’t opposed to a little negative cash flow when a property has good upside, especially when you’re just getting started and prices are running away from you, but you need to be sure you can handle it if the market turns (as it did).  And just because it might make sense to buy one or two that way, don’t buy several unless you’re sure you can carry them if needed.

But when it comes to market appreciation (passive equity),  when consumer confidence begins to swing up, even small amounts of extra cash flow dedicated to real estate can have a dramatic affect on property values.  For example, when a buyer is willing pay an additional $300 per month on a 6% 30-year mortgage, the lender will provide an additional $50,000 in purchase loan.  That means that the buyer can afford to pay up to $50,000 more for the property even though they are only confident by $300 a month.  Of course, the property needs to appraise in order to justify the higher price to the lender.  This can be a challenge for the first properties sold in a market that is turning.  It’s another reason why real estate cycles more slowly.  You’d never have to wait for an appraisal to bid up the price of a stock.

But once the first property is sold, every comparable property in a 1 mile radius will have a better chance at appraising at the higher price – making it easier for each subsequent buyer to get the loans necessary to convert their $300 a month into $50,000 of equity for the seller.  If you didn’t get that, take a minute and think it through.

Once a few properties close at the higher price, IF there is the right supply and demand imbalance (big IF, but that’s what we look for when selecting areas to invest), the market will heat up, things will move faster and the up cycle will be in full swing.  If you wait for all that to happen before getting in, you’ll find it’s much harder to acquire properties that will cash flow.  Chasing trends is always dangerous – even in real estate.

Which brings us full cycle (pun intended).

If you believe in the resiliency of the American economy, the permanency of real estate in the lives of people, the probability of a growing population and the inevitability of real estate market cycles, then when do you want to be a buyer?  Real estate and loans are on sale today – at prices we haven’t seen in some time – and if the cycles are true, we may not see conditions like this again for awhile.  With as slow as real estate cycles are, it would be a shame to miss the next one.

We’re not telling you to buy.  We’re just saying don’t get lulled to sleep watching the glacier and then miss the opportunity.  Fortunately, with real estate, no matter what shape you’re in right now, you have time to expand your education and organize your resources to participate in the next cycle.  We encourage you to keep steadily advancing.

We’d love to hear what you think – and more importantly, what you’re doing.  If you’re stuck, let us know and we’ll work on a radio show or tutorial to help.  Just Ask the Guys or use the Feedback page.

In the Mood for Equity? – Part 1 of 2

It’s funny how when the economy stinks and all the news is doom and gloom, people suddenly become interested in economics and politics.

“It’s the economy, stupid.”

When everything’s good, people go about their business and don’t worry too much about what’s happening on Wall Street or in Washington.  The Real Estate Guys audience has actually grown over the last two years, even through real estate investing fell off the hot list of things to do.  We think it’s because people are concerned and many are downright scared.  They’re looking for insights to help them understand what’s happening – and what’s coming.

One of the things the talking heads say is very important is consumer confidence.  The theory is that when people are confident, they spend money.  When people spend money, businesses make profits, hire more people; they buy more equipment, supplies, etc – and even give out raises!  Then people become even more confident and spend more money and the cycle builds…until something comes along to burst the bubble.  Ahhhh, those pesky bubbles!

When the bubble bursts the consumer confidence cycle does a u-turn and the whole cycle works in reverse.  People stop spending; businesses lose sales and profits, and cut back on people, supplies and plans to expand.  No raises are given.  People become less confident, spend less money and the downward spiral continues…until something comes along to turn that cycle around.

Don’t you wish you knew what those “somethings” that break the cycles are?  Us too.  But we don’t.  We’re not sure anyone does.  Even though “experts” like to talk all about the reasons behind the phenomenon (and all have different opinions, so don’t be shocked if you can’t find a consensus), the smartest investors we’ve met have simply accepted that these “mood swings” which drive business cycles are one of life’s great mysteries.  They happen.  Just accept it and act accordingly.  Our observation is that faith in the certainty of the cycle is one of the keys to investor confidence.

Important distinction: “investor” confidence is different than “consumer” confidence.  Investors are confident in the certainly of the cycles.  Consumers are confident in results once they’re reported.  Investors get in ahead of the next wave up.  Consumers wait until the results are in and then get in.  Investors get out ahead of the next wave down.  Consumers wait until the results are in and then get out.  You don’t have to be a rocket scientist to figure out how it works out for each.  One buys low and sells high.  The other buys high and sells low.  It takes substantial emotional fortitude to “buy the dips” – especially in a market as fickle as publicly traded stocks.  It also takes courage to stop buying or to diligently shop for the right deal, especially when everyone around is racing to buy anything because all they see is sunshine!  Seasons change and so do markets.

Right now, the world is fixated on the economic cycle.  Underneath that, stock investors watch stock market cycles.  Some on a daily basis!  Others watch currencies and commodities like gold and oil.  Those are all exciting.  They move pretty fast, there’s lots of data and opinions readily available, and they’re easy to trade.   That’s why those markets move fast.

Real estate is more boring.  The most meaningful data is highly localized, so there isn’t as much information easily accessible.  And we all know how challenging a real estate transaction can be, so “easy to trade” will never apply to real estate except when talking about publicly traded REITs.  Over the last 8 years, we’ve witnessed one of the most dramatic and extreme cycles in the modern history of real estate.  From 2001 to 2006 we saw a substantial and rapid (by real estate standards) run-up in values as prices went far over the trend line.  Over the last 3 years we’ve watched arguably the most precipitous fall off in values since the Great Depression.  But that process took 8 years!  That’s a very slow cycle when you compare it to almost every other type of asset class.  In fact, the cycle is so long that many people don’t even think about it as a cycle.  It’s like watching a glacier and trying to think of it as landslide. It is, but it doesn’t seem like it.

Nonetheless, when you think it through, it’s most logical to conclude that real estate isn’t dead.  Real estate isn’t going out of style.  More people, not less, are coming in the future.  People’s need for real estate to live in, work in, farm on and recreate to isn’t going anywhere.  There will always be demand for real estate.  And if there’s money in the economy, sooner or later it will find it’s way into real estate -when the mood is right.  So logic dictates that this current price suppression is part of a cycle even though it doesn’t feel like it.  The glacier doesn’t appear to be moving.

So the question is:  Are you an investor or a consumer?  Do you have faith in the cycle or are you waiting for results?  Is your mantra “think and do” or “wait and see”? The answers to those questions will affect the actions you take and where you are in 10 or 20 years relative to the cycle.  If the cycle is real, then real estate could easily be worth much more in 20 years than it is right now.  Will you?

Tomorrow in Part 2, we’ll take a look at why income property is one of the safest ways to buy “dips” and maximize your upside, while substantially reducing your downside.

1/24/10: Practical Tax Tips and Insight with CPA Tom Wheelwright

It’s the most wonderful time of the year….

Not Christmas. Tax time!  This is the time of year when all the bills from the holidays show up in the mail, along with your 1098’s, 1099’s, W2’s, 1040’s and our personal favorite, the K1.  Let the fun begin!

Before you tune out, we invite you to listen to our recent interview with CPA Tom Wheelwright.  He promised us he could make taxes fun, to which we said, “Great!”

So we broke out some month-old eggnog, stoked the fire in the fireplace, and tossed a few chestnuts into the pan for some good old fashion roasting.

Huddled around the microphones to talk taxes:
•    Your Host, Robert Helms
•    Co-host and Financial Strategist, Russell Gray
•    A man who has probably paid more taxes than everyone else on the show combined, The Godfather of Real Estate, Bob Helms
•    Certified Public Accountant, Tom Wheelwright

Like little kids on Christmas morning, we came into the studio to open up gifts of tax wisdom from one of the brightest real estate tax advisors we know.  After a few opening comments, we got Tom Wheelwright on the phone and started the grilling.

Tom opened up with some paradigm breakers as he explained that taxes are not only fun, but actually a very powerful tool for wealth creation.  Wow! Sounds good to us!

Then we asked him, “What are the most common and costly mistakes most real estate investors make?”  One of his answers astounded us when he told us about a special form every investor should know about, but few use properly.  Getting it wrong can cost you many thousands of dollars!

It would be sacrilegious to talk taxes and leave out 1031 exchanges, but for most experienced investors, the 1031 is old news.  And in today’s challenging economy with so much equity in hiding, who cares about a 1031 anyway?  So Tom gave us some great tips on why we might NOT want to use a 1031 exchange.  What????

Now that the eggnog was kicking in, we got into some of the tax changes for 2010 (and beyond) that affect real estate investors.  Then he gave us the inside scoop on how to find a great real estate CPA.

Before we knew it, the show was over!  Time flies when you’re having fun.  The topic wasn’t as taxing as we thought!

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Historic election stunner in Massachusetts! What does it mean? Why should you care?

If you’re a die hard, true blue Democrat, you’re bummed.  And if you’re a progressive liberal with a groupie crush on Barack Obama, you’re borderline suicidal.

On the other hand, if you’re a dyed in the wool, gun-toting Republican, you’re thrilled. And if you’re an ultra-conservative, Obama demonizing, big government conspiracy theorist, you’re euphoric – and possibly hung over.

But what if you’re just a regular American, who goes to work everyday, pays your bills, and are busy trying to navigate all this change while you’re building toward financial security – and maybe even financial independence?  In that case, it seems, you’re in the majority.

You see, this isn’t about which team won.  The talking heads, though they feign “objectivity”, all really have a team they’re pulling for.  But when things get really tough, most Americans don’t care about political parties.  They don’t care WHO is right.  They want to work and enjoy the fruits of their labor.  And right now, it seems, they want more balance.

“Healthy tension” is a more accurate word to describe “balance” or a move to the middle.  Massachusetts, like it or not, was a move to the middle.  This is the place where Americans seem to be the most comfortable.

Back in the old days, people would have antennas on their house to capture the television broadcast signals.  These antennas were up on poles that could be 10 feet or taller!  To hold them up, the homeowner would attach wire cables high up the antenna pole and then to 3 or more corners of the roof.  Then they’d cinch those cables up real tight so they pulled against each other with the antenna stuck securely in the middle, where it stood tall and strong against the gusts of winds and storms that would blow against it.

Of course, if one cable snapped – or even stretched and lost its resiliency – the antenna became unbalanced.  In this weakened state, even a modest storm could easily knock it down.  When this occurred, the homeowner would get up there and tighten up (or replace) the loose one and restore healthy tension.

The American people, in their wisdom, using their rights of free speech and to vote, have jumped up on the roof of the house and are attempting to restore healthy tension.  If you’re on one side or the other, you don’t like it because you have to work so much harder and wait so much longer to advance your agenda.   To which the people in the middle, say, “Good.”

When things get too extreme one way or the other, or if things change so fast that people can’t keep up (whether that’s in understanding the change or adapting to it), then Americans want to move to the middle.  That’s where they are comfortable. That’s where they feel safe.  That’s where they have confidence.

Now there’s an interesting word. Confidence.  Don’t they say that consumer confidence is the key to economic recovery?

Bill Clinton and Ronald Reagan were opposite in many ways, yet America thrived under both.  The reasons can be debated, but one worthy of consideration is that both were great communicators held in check by an opposite party Congress (just as their respective Congresses were held in check by them).  People felt like they knew what was going on and it wasn’t too much too fast.

So, as we often ask, what does this have to do with you and your real estate investing?

Well, in our (not always so humble) opinion, quite a lot actually.  Here’s why (and it’s pretty simple):

When things are changing too fast, it demands too much of our attention.  When people are uncertain and uncomfortable, they don’t act until the dust settles.  Without the American people taking action, nothing happens.  You can’t legislate motivation or confidence.  And we’re finding out, you can’t stimulate it either.  It’s the product of an environment.

Conversely, when things are chugging along at a comfortable pace, people can make plans.  They can assess risks and take action.  Americans are not the kind of people who like to be taken for a ride – no matter who’s driving.  We like to be in our own driver’s seat.  This is especially true of entrepreneurs and small business owners.  When people are confident they start businesses, they hire people, they make investments, they spend money.  In case you hadn’t guessed, this is all very good for the economy and for your real estate.

Your personal satisfaction with the election results is really just a function of which side you’re “pulling” for.  Whichever side that is really doesn’t matter (for purposes of this discussion). What’s important is that everyone is pulling and that the tension pulls us into the middle.  That’s good, not because of the policies or the gridlock, but because it makes the majority comfortable and eventually confident.  We know it’s hard to get excited when your team “loses”.  But this recent election isn’t the big win or big loss so many want to make it out to be.  It’s a glimmer of hope for one group and a reality check for another.  It’s tense, which is what makes it good long term for the economy and for your real estate.

Even more good news:  it will take time for a renewed healthy tension to restore confidence.  And even more time for that confidence to actually show up in the economy – because most people take a Wait and See approach.

This is where YOU have opportunity.  Because when the swells of recovery are rising on the horizon and the average person isn’t moving until it’s upon them, there’s still a lot of time for you to get in position to ride the next wave.  Keeping with the surfing analogy, not every swell will turn into a wave you can ride.  But some will.  So, proceed carefully, but proceed.  As we like to say, Think and Do is better than Wait and See.  Surf’s up!

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1/17/10: Organizing Your Real Estate Investing Business

This is the time of year when you find out how organized (or not) you are.  The holidays are a distant memory, football games are few and far between, and all your year end statements are coming in.  Plus, it’s not only a brand new year, but a brand new decade!  It’s hard to believe Y2K was ten full years ago!

For this week’s show, we thought it would be fun…okay, it’s not really very fun…let’s say, “useful” to focus on organizing your real estate investing business.  It’s one thing to know it’s important to do, but it’s a completely different thing to actually know what what to do and then actually do it.  We can’t help you in the “actually doing it” department.  That’s up to you.  But we can give you some practical things to think about from our experiences and observations over the years!

Sitting upright behind the shiny microphones in The Real Estate Guys’ studios – with their pencils neatly lined up and every hair in place (those that are left) are:

•    Your prim and polished host, Robert Helms
•    Co-host and chief pencil sharpener, Russell Gray
•    The Godfather of Real Estate, Bob I-never-forget-where-anything-is Helms
•    Special Guest, technology guru and creator of The Real Estate Investor’s Virtual Office, Adrian from TREIVO.com.

Working from efficiently typed and indexed notes, The Real Estate Guys kick off this episode discussing the important role of your Personal Investment Philosophy and Strategy – and the significant impact they have on how you organize your real estate investing business.

Staying to the script, we move on to the topic of finding and organizing the team of advisors you’ll need to be able to gather and interpret information and opinions to help  you make good investing decisions.

Have you noticed how many different contacts, documents and factoids you have to keep track of as a real estate investor?  And if you have multiple properties in multiple states, the confusion can multiply pretty fast!  What’s an investor to do?

Thankfully, our special guest Adrian from TREIVO is one of those technology wizards who decided rather than complain about being buried in minutiae, he’d design a system to keep track of everything.  So we took some time to get to know him and find out how his systems can help organize our real estate investing for better profitability.

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Oh no! Vacancies are up!

If you’re a regular follower of The Real Estate Guys, you know we like to see the opportunity in every problem.  This is the time of year when all the reports on the previous year – as well as the the predictions for the New Year – are all over the airwaves and internet.

One that caught our eye is from the Wall Street Journal on January 7th:  U.S. Now a Renters’ Market – With Apartment Vacancy Rates at 30 Year High, Landlords Cut Prices 3% in 2009.

Oh no!

If you’re a landlord competing for tenants and trying to eke out positive cash flow, this is bad news.  The problem, as the article (and common sense) details, is a lousy US job market.  People are “clustering” (moving in with friends and family), so even though the people are still out there, the demand for rental units is down.

Stop right there.  Have you ever clustered?  There’s nothing more fun (not!) than moving back home with mom and dad – or sharing a bathroom with a roommate.  As soon as things get better, what is the FIRST thing you want to do?  Get a place of your own!  Hold that thought.

Now, let’s go down memory lane.  Do you remember when every 3rd person you met was a real estate investor?  Folks with no experience and very little real estate education rushed in to buy real estate to make a quick buck – or in some cases, a quick tens of thousands of bucks – as the flood of money pouring into real estate created hyper-appreciation.  Ahhh….those were the days!

But now those days are over.  Lots of those rookie owners are now facing not only their first, but undoubtedly the worst, real estate correction in their lifetimes.  While some have already been wiped out, many others are still struggling to hold on.  But they don’t want to be real estate investors any more.  In fact, they never really were real estate investors.  They were mutual fund investors (i.e., hands-off-just-send-me-the-statements-showing-my-net-worth-growing investors) who ended up in real estate because it was the hot commodity at the time.

In other words, they are what true real estate investors affectionately call “Don’t Wanters”.  Maybe you have some properties you don’t want,  so you’re a Don’t Wanter.  But, we’re not talking about having a problem property (that’s just part of the game), as much as we’re talking about people who are leaving real estate investment never to return.  They don’t have the heart to stick it out during the tough times.  Maybe we should call them Quitters (not in a bad way – real estate investing isn’t for everyone).

This is where the true blue investors have opportunity.

How much effort is going into job creation in the US right now?  We know that’s a loaded question.  But we didn’t say how much effective effort is being put out.  Just how much effort?  There’s no question that it’s a top political priority.  If this current group doesn’t fix it soon, a new team will get a chance.  But sooner or later someone is going to fix the problem.  If you don’t believe that, then it’s time to move somewhere else (how’s your Chinese?).

Meanwhile, people struggle. They cluster. They hunker down and watch expenses.  They save when they can. And they dream longingly about the day they can get out on their own.

What about builders?  Are they cranking out new rental units?  Heck no!  The credit crunch and economic uncertainly have put the kibosh on that.  And in certain markets, there simply isn’t any room to build anything new even if someone wanted to.  Markets like San Jose and San Francisco California.

Hmmmm.  Arent’ those two of the three markets the Wall Street Journal article said led the decline in rental rates?  (Yes, they are – as you’ll see when you read the article).

Do you see the picture yet?

Amateur investors with rental properties in markets “that had brisk growth until the recession” (again, quoting the Wall Street Journal) – whose properties are now experiencing declines in income.  Those declines might be temporary, but when you want out, you don’t think long term. You just want out.

Might the Quitters be interested in selling?  Since income properties are valued by the income they produce (more income equals more value and vice versa), those properties are worth less (not to be confused with “worthless”) now.  That is, they’re on sale.

Meanwhile, potential tenants are clustered on the sidelines waiting for economic recovery to give them the jobs they need to move out.  And with few new units coming on line, they will be competing for the available units – which seem to be abundant now (hence the price declines).  But again, the population didn’t substantially decrease – so at its core, the demand is still there.  But without jobs, people are…well, let’s say “enjoying each others company” more often.

Conclusion?  Now might be a great time to strategically acquire rental properties from don’t wanters in markets with good prospects for recovery, but poor prospects for an increase in supply. Because when you combine growing demand with capacity to pay (jobs) with limited capacity to increase the supply, you have a formula for increasing cash flow and value.  But if you wait until all that happens, you’ve missed it.

As Wayne Gretsky once said, you have to “skate to where the puck is going, not to where it is.”

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1/3/10: Happy New Year with Gary Eldred – What Does 2010 Hold?

The easiest thing in the world to do is predict the past.  But what about the future?  As we enter a brand new decade, what does the future of real estate look like?  To find that out, The Real Estate Guys climbed the proverbial technology mountain to connect with a real estate sage – all the way from Dubai!

Sitting on the mountain top for this broadcast:

  • Your real estate guru, Robert Helms
  • Pillow fluffer and co-guru, Russell Gray
  • Trump University faculty member, best selling author, seasoned real estate and renowned consultant, Dr. Gary Eldred, PhD.

Digging through technological challenges, The Real Estate Guys mined some golden nuggets of wisdom from special guest, Gary Eldred who called in all the way from Dubai!  As someone who has studied, taught, invested, and consulted on real estate for decades, Dr. Eldred has earned the right to have an opinion.  We talk stocks, bonds, gold and real estate.  Gary tells us which asset class he believes will outperform all others in the new decade – and why.

Gary also reveals his strategy for hedging against economic uncertainty.  He tells us which type of mortgage he prefers right now and why.  As one of the most well traveled investors we know, we also were intrigued by Gary’s comments China, India and Africa – and how what’s happening there affects real estate in the US and other parts of the world.  Of course, since he was calling from Dubai (where he is currently working) and Dubai’s been top of the financial news recently,  we made sure to talk about that too!

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7 Real Estate Resolutions

Resolutions and New Years are as ubiquitous as Peanut Butter and Jelly.  So, rather than buck the trend, we thought we’d go with the flow.  As you enter this brand new year, here are 7 real estate resolutions for you to consider:

1. Set up (or clean up) a Budget and Bookkeeping System

Ironically, the person most likely to make this resolution is the least likely to need to – and vice versa.  However, like it or not, having a budget and accurate books is critical to making good business decisions.  Your budget is your game plan for revenue and expenses.  It gives you something to manage your daily activities to and will alert you quickly when something is wrong.  But more than that, your budget also empowers much of your tax and asset protection strategy.  The why behind that comment is a much bigger discussion, but if you don’t understand it, you will after you meet with your tax and asset protection advisors.

Unlike a budget, which is just a plan, bookkeeping is the actual daily discipline of tracking your real world activities so they can be measured against your plan.  Way before computers, “garbage in, garbage out” was already an unavoidable truth.  If your books are sloppy, then your reports and resulting decisions will be sloppy too.  So, like getting rid of the holiday “pudge”, it will take effort and discipline to get your books in order – and keep them there.  Sorry, that’s just the way it is.

2. Design and Implement an Aggressive Tax Avoidance Plan

With good books, one of the easiest areas to improve profitability is to optimize tax deductions.  This is one of the ways you are financially rewarded for keeping good books.  Keep in mind that “avoidance” is NOT tax “evasion”.  To avoid a tax liability is to not create it in the first place.  That’s good.  To evade a tax liability is to fail to pay once you legitimately owe.  That’s bad.  The good news is there are lots of provisions in the tax code to help you avoid tax liability, but you need to implement them before the tax year ends.  As you’re going through the process of preparing your tax returns, don’t just whip through it to get it done (as tempting as that is!).  Rather, take time to understand what you owe and why; then go to your tax advisor with the right question: “How can I avoid or reduce this tax liability?” (as opposed to the much poorer question, “How much do I owe?”).  Keep the questions and answers in your Tax Strategy Journal.   Then, implement the changes early in the new year, so when you’re preparing your tax returns next year, you’ll be getting the full benefit of the changes you make now.

3. Property Manager and Tenant Appreciation

Remember, as a real estate investor, your property managers are your “employees” and your tenants are your “customers”.  Think like a business owner (because that’s what you are) and make sure you measure (bookkeeping again!) and reward the performance of your employees.  This doesn’t necessarily mean you have to write big checks.  You can add value to the relationship in other ways.   Strong and sincere expressions of thanks go a long way.  All business people love referrals, so you can reward great performance with your word of mouth advertising.  Maybe you have a time share or vacation property that is going unused and you can reward a top performer with a weekend (or more) someplace special.  For your best tenants, you might buy them a gift certificate for a local restaurant or movie theater.  Be creative!   The point is that this is a people business and people like to be appreciated.

4. Estate Plan Update (or Implementation)

Estate planning is spending time and money today to prepare for an event that is inevitable, but no one wants to deal with.  It just isn’t fun.  If it was, then you wouldn’t need resolve (as in a “resolution”) to handle it.  Who makes a New Year’s resolution to eat more treats?  We just eat them naturally because it’s fun and easy.  Estate planning is not fun or easy (unless you’re weird), but organizing your estate plan is important because you can’t fix it once you’re gone.  And if it isn’t done right, your loved ones can literally lose a fortune (yours).  You might not think you have enough to worry about right now.  But that means you should have a large life insurance policy to handle things if you pass away before your real estate riches kick in.  If you don’t have such a policy, then add that to your resolution list.  If you already do, then you’re certain to need an estate plan.  See?  There’s no escaping it.  It’s like death.

5. Asset Protection Update (or Implementation)

Sadly, getting sued is almost as inevitable as dying.  And the more you have, the more you have to lose.  So proper insurance and entity structures are critical.  Again, there isn’t space to get into all the details of a proper asset protection plan, but here are a few items to consider.  First, asset protection doesn’t just protect what you have now, but also what you plan to accumulate later. Also, some insurance policies won’t pay if your property is in an entity, but you are the insured (and vice versa).  We like to have an insurance attorney review our policies to be sure we are getting the protection we need.  Of course, entity structuring will have an impact on your tax and estate strategies as well, so it’s wise to have all your risk mitigation advisors (insurance, asset protection, estate and tax) work together on your plan.  It’s not cheap.  Sorry.  But if you start with a strong tax avoidance plan, you can probably pay for everything from your savings. 🙂

6. Explore a New Market

Whew!  We need a break from all this death and taxes stuff.  Who wants to be a real estate investor so you can buy more insurance and pay more legal bills?  No one.  But exploring strange new markets and boldly going where no man has gone before (theme from Star Trek begins to play…) – well, that’s much more enticing.  In the (almost) wake of the mortgage meltdown, we’re emerging into a brave new real estate world.  Resolve to get out of your bunker and go out and survey the post-apocalyptic landscape.  We think you’ll find there’s a lot of opportunity out there in 2010.

7. Add to or Update Advisory Board

In case you haven’t noticed, there’s a lot to think about when you’re serious about being a real estate investor.  You’re far more likely to procrastinate when you don’t know the short path to a quick answer.  Having a complete and competent advisory board is very important.  So make a shopping list and go stock up on big brains to put into your speed dial.

Failing to Plan is Planning to Fail

Each one of these topics could be a whole radio show (many of which are) or the focus of a Mentoring Club broadcast or live seminar.  For now, we just want to help you focus on these 7 key items early in the New Year, so you can be sure to include them in your planning.   This decade has the potential to be one of the best ever for real estate.  What you do in this first year will be your foundation for the entire decade.  Be sure to take this opportunity to build it right!

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Happy New Year!

Wow!  2010 already! As we stand on the threshold of a new decade – one that promises to be one of the best ever for real estate investors – The Real Estate Guys wish you health, happiness and prosperity. We look forward to sharing this new decade of opportunity with you!

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