Real estate investment is one of the most frequently searched topics online. Everyone is contemplating whether to buy, sell, trade or avoid investing in real estate altogether. Although the market is in a slump, there are still many opportunities to profit.
One real estate investment opportunity many people are discussing is that of trading homes. With the decline in housing prices and lack of qualified buyers, some investors find it easier to trade like-kind properties.
Trading real estate investments is known as a 1031 exchange. This type of transaction allows sellers to exchange investment real estate while deferring depreciation recapture and capital gains taxes.
Investors who engage in 1031 exchanges are required to hire a Qualified Intermediary (QI) to handle all aspects of the transaction. QIs must adhere to established guidelines set forth in Section 1031 of the Internal Revenue Code.
Using Section 1031 allows investors to exchange all types of investment properties including residential and commercial real estate, raw land, equipment, boats and even airplanes. Houses can be exchanged if they are used as rental properties. However, 1031 prohibits the exchange of personal residences or vacation homes.
Another popular real estate investment is that of distressed properties such as foreclosure and bank owned homes. Many of these properties require substantial repairs to return them to livable condition. Foreclosed and bank owned real estate is typically priced below market value and sold through auctions, government sales or directly through banks.
Many investors purchase distressed properties for the purpose of house flipping. You may have seen television shows featuring real estate investors who purchase dilapidated houses. They can turn an ugly house into a gorgeous show home, than sell the property for profit.
While flipping houses can be a profitable investment opportunity, this technique requires time, patience, money and the ability to locate reliable contractors or volunteers. It is not uncommon for simple repairs to quickly turn into major expenses. Rarely do investors meet their deadlines or sell their houses as quickly as they had hoped.
Some investors engage in a different type of house flipping known as wholesaling. Using this technique, investors purchase properties well under market value and sell the property “as-is” to another buyer. Wholesaling typically yields profits of between 5- and 20-percent.
A little known, yet highly profitable, real estate investment is probate properties. Probate is the process used to establish the value of a decedent’s estate. When a person dies all of their assets are transferred to probate.
Their estate must continue making mortgage payments, property taxes, insurance, and maintenance the home. If the estate does not have sufficient funds to pay these expenses, a judge can order the property be sold.
Sometimes probate real estate is owned outright. If heirs have no interest in inheriting the property, they can choose to sell it. Investors able to purchase probate properties with cash can oftentimes buy real estate for pennies on the dollar.
Probate real estate can be a profitable gem; however, locating properties held in probate requires some detective work. Investors will need to review probate records at the court house where probate matters are handled. Once properties are located, investors must contact the estate administrator to initiate the purchase.
These are just a few real estate investment opportunities. Although the media likes to project gloom and doom, there is little doubt the real estate market will eventually rebound. Those who invest now could potentially reap enormous profits later.