Welcome To The Real Estate Acquisitions FAQ’S!
Below You Will Find FAQ’S That We Have Compiled To Help You Understand What Our Real Estate Investing-Acquisitions Looks Like And How It Can Benefit You And Your Legacy!
REAL ESTATE INVESTING FAQs
How Do I Prepare My Home Before I Sell It?
When preparing to sell your home, the first thing to do is make it presentable. This means giving the entire house a thorough cleaning and making small repairs.
Mop the floors, scrub the bathrooms, and get rid of all the grime in the kitchen.
Little things like patching holes in the wall, changing burned-out lightbulbs, and repairing broken appliances can make your place stand out in a crowded market.
And don’t forget about paint — returning the walls to a neutral color can help your house sell quicker. White, creams, and grays can make rooms seem bigger and help potential buyers see themselves living there.
If you’re not moving out before listing your home, you’ll also need to depersonalize and declutter.
Put away your family photos, knick-knacks, and other personal items. You may need to rent a storage unit if you don’t have a place to put them all.
How Long Will It Take To Sell My Home?
On average, a house takes between 55 and 70 days to sell. That includes 25 days on the market and 30 to 45 days for closing.
The exact time it takes to sell a home depends on a few things, including:
- The time of year you’re listing: Homes tend to sell faster in the spring and early fall.
- Conditions in your local housing market: Homes sell faster in a seller’s market, when there is low inventory and high demand.
- The condition of your home: Homes in great condition may sell faster than homes that need more work.
- How the buyer is financing: If a buyer needs to take out a mortgage, this may slow down the process. Financing deals usually take an average of 42 days to close, whereas cash deals take only one to two weeks.
The longer your home is on the market, the more money you lose. You’ll still have to pay your mortgage, taxes, and utilities until the buyer officially closes.
To avoid this, there are some things you can do to help your home sell faster.
You can make impactful repairs, like adding new carpet or painting the interior. However, if it’s a seller’s market and homes are selling quickly, you might not need to make these repairs.
You can also set a competitive price with the help of a top real estate agent.
Clever Real Estate’s partner agents sell homes faster than the national average with lower commission fees.
How Do I Determine The Value Of An Investment Property?
This real estate FAQ is common among new investors looking to buy an investment property. The value of a real estate property can be determined using a number of methods.
However, the most common method for determining how much a property is worth is by conducting CMA or Comparative Market Analysis. This is an in-depth examination of recently sold similar properties in the same area. You can find real value comps using a variety of calculators online.
What Is The Best Real Estate Investment Strategy For Me?
This is also one of the common real estate questions that new investors ask before getting into the business.
Real estate investing offers many property investment options. As a result, many beginner real estate investors tend to be confused about which strategy to use.
However, the best real estate investment strategy for you will depend on the amount of time and money you are willing to invest. It is also important to consider your long-term real estate investment goals and if you are partnering or not with someone via a Joint Venture.
At DoWhatTheWealthyDo.com we JV Partner with our clients to help them obtain turn-key properties that provide them with cash flow and tax deductions via us obtaining a Cost Seg evaluation giving us an idea of prior to buying the property which is a contingency of how much tax benefit there is in the property.
Typically the higher the price and higher the cost of the house-to-land ratio the better the cost seg and tax write-off.
How Do I Find A Profitable Investment Property?
To be successful in real estate investing, you need to know how to find real estate properties that are profitable. To do so, you need to thoroughly evaluate the city, neighborhood, and investment property.
However, this process is a bit complex and time-consuming. You can turn to us at DoWhatTheWealthyDo.com to quickly obtain a Joint Venture Partnership where we will find the properties, make sure they meet the buying criteria we set as partners, and ensure there is a major tax advantage to our client.
Again its all about taking the money you would pay to the IRS and legally writing it off by acquiring a cash flowing asset that appreciates in value.
Can I Begin Investing In Real Estate With No Money?
There are a number of options when it comes to investment property financing. However, not everyone can qualify for a conventional mortgage because you will need to have a sufficient down payment and meet other requirements.
If you can’t buy in cash or don’t have enough money for a down payment, you will need to be more creative. There are a number of ways for new real estate investors to get started with little to no money down. Here are some strategies you can consider:
- Real estate partnerships
- Hard money or private money loans
- Seller financing
- Home equity loans
Should I Invest In Out Of State Properties?
As a beginner real estate investor, you should consider purchasing an investment property that is close to your home. It will be easier to deal with your service providers and tenants if the property is within driving distance.
It is advisable to invest in an out-of-state property only after gaining enough experience. Having said that, it may at times make more sense to invest in an out-of-state property. For instance, you may find that homes in other parts of the US are more profitable or more affordable than those in your area.
It is important for you to do thorough market research and weigh your options before you choose where to invest in real estate however, some of the most profitable deals will be out of your state. That is where we can help.
How Do I Determine The Rent To Charge For My Property?
This is also one of the important real estate questions every investor should know the answer to before advertising their rental property.
The rental value of a property is critical. If over-estimated, the property may remain vacant for a long period of time. If it is too low, it may result in negative cash flow.
To get a fair estimate of the monthly rental value, you will need to look for comparable properties or rental comps in the area to see what they are being advertised for. You should also consider the local market conditions.
How Do I Find The Right Tennant For My Rental Property?
The quality of your tenant will influence the success of your business. The right tenant is one who takes care of the rental property and makes rent payments on time. To find a good tenant, you should conduct thorough tenant screening. Ensure you conduct identity checks, check their employment history, check their credit history, and rent payment history.
Who Pays The Utility Bills?
Utility bills such as electricity, gas, water, and telephone are typically the responsibility of the tenants unless all bills are included in the rents. It is important for the landlord to mention this in the tennacy agreement to avoid any future misunderstandings.
What If The Tennant Causes Damage To My Property?
This is arguably the most common worry of rental property owners. Consequently, it is one of the most frequently asked real estate questions.
To reduce the risk of property damage, the landlord should collect a security deposit when the tenant moves in. The deposit will cover any damage and also remind the tenant to ensure that the property is in the condition they found it when they move out.
If the tenant doesn’t pay for the damage when it occurs, the cost of fixing it will be deducted from the security deposit when the tenancy ends. However, the landlord should allow for fair wear and tear.
There can also be a rider in your agreement that states you get to inspect the property every 90 days and if the house is being damaged far and above normal wear and tear, you the landlord can press to have it fixed at the expense of the tenant or have the right to evict them for breach of contract.
Another idea that your home is not being beat up is to offer monthly housekeeping where you have a maid go in bi weekly or monthly and clean the house up to X hours depending on the rate.
Then build it into the actual rents and advertise the cleaning service. This way you build a rapport with the cleaning company or person and have them take pictures of the place while cleaning.
What If The Tennant Refuses To Pay Rent?
If the tenant refuses to pay, you can issue them a notice to leave the rental property.
Any outstanding rent can be sought through the court. As a precaution, you can take out rent guarantee insurance to insure yourself against rent nonpayment.
The insurance company will pay the rent for up to a specific number of months in the event that the tenant is unable to pay rent for any reason.
Upon application, you will receive a policy document that sets out the terms and conditions that you must abide by. There are other provisions you can put into your rental agreement to help you get them out faster in the event of default.
Should I Make Any Improvements To My Investment Property Before Renting It Out?
It is always good to rent out your property when it is in good condition. Rental Properties that are clean, have good painting, and modern accessories will rent quicker and at a better price.
However, you shouldn’t spend too much money on upgrading the property. Only make improvements that will increase the value of property without costing too much money. And always document the cost and what you did. Then take photos and images of the property PRIOR to the tenant moving in. This establishes a base for future damages.
How Long Does It Take To Get A Return?
Most new property investors who ask such real estate questions are often looking for a way to get rich quick.
Real estate investing can be a profitable business. However, it generally won’t make you rich overnight or even over the course of a few months. You will need to not only work hard but also be patient before seeing big returns. Your returns will also vary depending on your strategy and market conditions.
How Long Does It Take To Get A Return?
Owning an income property is all about making as much profit as possible. Even though market conditions will have a significant influence on property value, there are some factors you can control to increase the profitability of your investments.
Here are some simple ways to increase the profits of your investment property:
- Set competitive pricing
- Screen tenants to minimize unpaid rent and property damage
- Provide additional services at a fee
- Stay on top of maintenance to ensure the property stays in tip-top shape and to avoid expensive repairs
- Upgrade your property through renovations
Should I Hire A Property Management Company?
Owning an investment property comes with some responsibilities. You will need to find tenants, do maintenance and repair work, address issues raised by tenants, deal with taxes, etc.
You can choose to do all these tasks on your own or hire a professional property manager. However, the choice to hire a property manager will depend mainly on your budget and time availability.
Do I Need A Home Inspection?
Yes! It is important to get a home inspection on the investment property you want to purchase.
A home inspection done by a qualified professional will help you find any problems with the property that need to be fixed.
With this knowledge, you will be able to avoid unwanted surprises and you can even negotiate for a lower price.
What Do I Need Before Getting Into Real Estate Investing?
Before you start you will need to educate youself more on strategies and income types you are looking at obtaining. Short term income via STR – Short Term Rental or long term income via a LTR – Long Term Rental.
You also want to obtain and secure enough capital and make sure your credit is good enough to obtain mortgage financing if you are not doing subto purchases or seller financing.
There are many strategies you can choose from it just boils down to which one is the best for you.
At DoWhatTheWealthyDo.com we utilize a combination of strategies and do our best to find properties that are NOT listed on the MLS or open markets.
There we are able to utilize more creative strategies and can offer a JV Partnership with our clients to handle everything for them and they simply come in with the money down and for closing costs while we handle the rest.
Decide how involved or uninvolved you want to be and then pick the direction you want to go and take action.
What Is A Cost Segregation And How Does It Benefit Me?
For income tax purposes, property owners and real estate investors generally depreciate residential rental property over 27.5 years and commercial property over 39 years.
But a residence, office building, warehouse or any other real property is never just the structure alone. It also includes several other elements, such as plumbing fixtures, carpeting, sidewalks, fencing and a lot more.
If you were to purchase these assets by themselves, you could depreciate them over five, seven or 15 years. But they are usually purchased as part of a building acquisition or development and written off over the same useful life as the rest of the building: 27.5 or 39 years.
A cost segregation study is a process that looks at each element of a property, splits them into different categories, and allows you to benefit from an accelerated depreciation timeline for some of those building components. Thus giving you a very nice tax deduction that can drastically reduce what you pay to uncle sam.
At DoWhatTheWealthyDo.com we always look at doing cost seg’s to help our clients pay no taxes to the IRS. We have a variety of ways to keep you from paying any taxes to the IRS which will depend on your total tax liability and net profits as well as available cash on hand.
The benefits to you are massive savings and adding cash flow at the same time.
Why Does A Cost Segregation Study Matter For Property Owners?
Segregating the costs of property matters because of the financial benefits it provides. While the study has an up-front cost, the tax savings from accelerating depreciation deductions can result in significantly increased cash flow over several years.
With a cost segregation study, you get the benefits of time value of money. However, that also means that if you don’t plan on holding the property for the long term, you may not get any benefit from having a cost segregation study because any up-front benefits reverse upon the sale of the property.
Who Performs Cost Segregation Studies?
Performing this analysis on your own isn’t really feasible. It typically involves a team of tax advisors and engineers working together to decide which components of a building should go into each category and how much each element costs on its own. We help put this together with our team of experts.
How Does Cost Segregation WOrk
The goal of a cost segregation study is to identify all property-related costs that can be depreciated over five, seven and 15 years—or written off faster using bonus depreciation, which is 100% through 2022.
To accomplish this, your advisory team reviews available property records, inspections, cost details and blueprints and may also perform a physical inspection of the property.
SELLING YOUR BUSINESS FAQS!
How Do I Keep The Sale Of My Business Confidential?
This is one of the many reasons to use a business broker or intermediary or someone like us if we aren’t already partners.
Most brokers require every person inquiring about the business to sign a confidentiality agreement. This is called a Non-Disclosure Agreement or a NDA. Additionally, we require buyers to submit a profile which includes some basic information about the buyer’s background and financial information.
This is to help determine if the buyer has the ability to buy the business. Even with these steps employees can become suspicious if there are a lot of unusual people or non-typical behavior. We can help you take steps to prevent this unintentional disclosure.
Most sellers realize that if employees, customers, or vendors become aware of a pending sale, they may go elsewhere to do business.
What Do Business Brokers Charge?
Brokers are usually compensated by a commission (normally called a success fee) which is based on a percentage of the sales price. However, every situation is different, and some brokers charge a consulting fee in addition to a commission on the sales price of the business.
For businesses that sell for $1,000,000 or less, the commission rate is usually 12%. For businesses that sell for more $1,000,000, the rate goes into a sliding scale where at $50,000,000 the rate will go down to around 2%.
For businesses with real estate for sale, depending on the real estate laws in your state, there may be two separate listing agreements. If the seller has a prearranged buyer the rate is negotiable.
What Type Of Agreement Would A Seller Have With A Business Broker?
Business brokers require a listing agreement to begin searching for a buyer. All the terms are disclosed in their agreements.
An exclusive listing allows brokers to use more resources to find the right buyer for the business. Fees are usually based on the sales price and payable only if and when the business is sold.
Listing agreements are generally for a minimum of one year. The listing agreement will be a legally binding document. Because of this the seller should have an attorney review it before signing the agreement.
WHAT IS A TAIL?
Practically all listing agreements have tail provisions. What is a tail? The tail on an agreement means that once the agreement has ended, there is still a clause that says if you sell to anyone within 18 to 24 months that the intermediary introduced you to, you still owe the commission or success fee.
Business Brokers will cooperate and share commissions with other brokers/intermediaries in some proportion under pre-arranged terms. These terms and splitting of the success fee will be negotiated at the time of the arrangement.
If you are selling a business on your own and need our help, let’s discuss the terms of the deal and figure out what it would cost to have us as your consultant. Otherwise, we can partner and help ensure the deal goes smoothly by bringing in our own legal team.
How Long Will It Take To Sell My Business?
Smaller businesses that are priced correctly can sometimes be sold in as little as three months. Most of the time even with correct pricing it takes a year or longer to sell the business. Planning ahead is everything. This is something we cover when doing tax advising with you. We need to know when you are looking at selling so that we can begin to build up your profits and reduce deductions so that you can show you are profitable and can sell for maximum value.
Although this may sound like a lot of time, the complexities involved in the transaction, including listing the business, finding potential buyers, interviewing potential buyers, writing contracts, obtaining financing, due diligence and the closing process are all time consuming.
Each step can cause delays if the buyer and the seller are not willing to compromise. Owner financing can help speed up the process. Buyers often feel that if the seller is willing to finance a portion of the sale, the seller has the confidence that the business will be able to make the payments. If a seller is willing to accept 40% or less as a down payment more buyers will be interested.
Will I Be Able To Transfer My Long Time Lease?
Some landlords will allow for the transfer of the lease. Other landlords will do a lease assignment, but still hold you as a guarantor for the duration of the lease.
If the buyer is obtaining commercial financing, the lender will require the lease to be transferred to the new buyer. This is a critical component of the transaction.
Do I Include My Unreported Income In The Value Of My Business?
We recommend businesses report all income and comply with all tax laws. Buyers place high confidence in financial results that are supported by filed tax returns.
What Will Your Services Cost If I Already Have A Buyer?
Finding the buyer is an important part of a broker / intermediary’s role. However, there is a significant amount of work to be performed in advising and closing the transaction. Because you have a buyer, the fee is negotiable.
At What Price Should I Sell My Business?
This is a very complex question. In general, the value of a business is what a buyer is willing to pay. It is not the value told to you by an attorney, an accountant, a consultant, or someone else.
Pricing your business too high will scare away potential buyers and significantly lengthen the time to sell the business. Selling it at too low a price is almost as bad. It is important to have a fair price with reasonable terms and a willingness to be flexible.
Should I Have A Business Valuation Done?
Although it is not required, it is strongly recommended. Setting the value of a business is one of the first steps in the process.
Business values are based on the ability of the business to generate cash flow, its assets, its reputation, and the relative risk of the business. A valuation can help assure you that you are selling at a fair price.
Do I Have To Put An Asking Price On My Business?
Most business buyers want to know an asking price. To estimate a reasonable asking price, many brokers use industry-accepted methods to help the seller determine the best-estimated selling price.
If a price is too high, the business will not sell, if it is too low then you, the seller, did not get enough money for the business. Not all business have an asking price.
In some very hot markets, the lack of an asking price may get some bidding going. However, in these hot markets, the buyers are always aware of the market value. And the buyers know that the seller has a price in mind.
My Business Is Located On A Property That I Own. Do I Have To Sell It Also?
No, in fact separating the business from the real estate is a best practice. Most buyers want a long-term lease on the property.
They may request an option to buy at the end of the lease. If a buyer is obtaining commercial financing for the purchase, the lender will most likely require a long-term lease, unless it is shown that the location is not desirable for the buyers planned business.
Some buyers will have excess capacity in their existing location and not want the property. This can all be negotiated in the terms of the deal.
What Happens To The Cash And Accounts Receivables?
In most situations, cash and accounts receivable remain with the seller. However, this may be a part of the sales price of the business or has been negotiated in.
If the value of the business is based on cash flow, the working capital taken out of the business will affect the value and astute buyers will make adjustments to the purchase price.
In financing businesses, lenders consider the difference between inventory and accounts receivable a simple timing difference. Some sales involve the use of working capital formulas that have adjustment clauses tied to the seller financing notes to adjust for changes that were not anticipated by the buyer. Again something to be open about.
The Business Has A Lot Of Debt, What Happens To The Debt?
Most buyers require that the business be debt free when it is purchased. Consequently, at closing most debts are required to be paid off by the seller using the buyer’s purchase payment.
Additionally, some type of guarantee of undisclosed liabilities will be required of the seller by the buyer. Sometimes there are provisions for offsets against the seller-financed notes for changes in working capital or other undisclosed liabilities.
What Information Is Going To Be Needed To Sell My Business?
A lot of information will be required. Historical financial statements, copies of leases, notes payable, equipment leases, asset lists, accounts receivable aging and many more documents will be required.
Additionally, some narrative description of the business, the reason for selling, profiles on employees and other documents will be required. We can give you a list when the time comes. Good records will make the due diligence process go smoothly.
How Far In Advance Should I Begin To Prepare To Sell My Business?
If you plan on selling your business in the future – today is the day to start planning and preparing. The longer the time frame the better the result will be.
We like to see 3-4 years of proper planning and begin increasing your profits by not reducing it as much and showing year or year gains in a unique way planning to get you the most money for your business.
What Steps Can I Take To Improve The Value Of My Business?
Working with a team of advisors that have experience with getting a business ready for sale would be the best first step. They can advise you on potential problems in your business and possible solutions to buyer objections.
The more time you have to accomplish these steps the better off you will be.
Work with us or a business broker / business intermediary, your CPA or accounting firm, your attorney and your insurance agents.
Be sure to ask each about their experience in the process of selling your business. In general, some of the steps will include:
- Increase your sales volume every year
- Develop a management team that can run the business without your involvement
- Make sure your accounting / financial records are accurate and strong
- Remove family members from the business
- Eliminate or reduce personal perks from business expenses
- Dispose of unproductive assets or idle assets
- Create a sales force that can operate without your interaction
- Diversify the customers
- so that you do not have any one customer with more than 5% of your annual revenue
- Take care of repairs and maintenance issues as soon as possible
- Make sure your insurance coverage will be acceptable to a buyer.
How Much Will I Owe In Taxes For The Sale Of My Business? Can I Minimize These Taxes?
It is not possible to give you a set formula that will tell you how much you will owe until you have a set confirmed sealed and delivered purchase price and closed deal.
There are some things you can do to legally reduce the amount of taxes you will owe.
Consulting with with us on this is an important step in helping figure out the best way to legally sell your business. In many cases having your asset protection structures setup with our Legacy Wealth Trust can eliminate capital gains taxes.
However, if you choose to seller finance, that shall be treated as regular income and will need a different strategy so it all depends on the terms and conditions of the sale.
I Have A Unique Business. Can A Buyer Be Found?
Unless your business requires some specific skill or credentials, a buyer can be found. The business will need to have cash flow that will allow a buyer to get a return on their investment and obtain reasonable compensation for their work.