Newsletter August 2014

Differences in Listing Agreements

I am not an attorney and I am not giving legal advice, just my own opinion… now that’s clear.
There are three types of listing agreements in Colorado: Exclusive right-to-sell, Exclusive Brokerage Listing, and Open Listing. Exclusive is the most common, and frankly it’s because most agents are afraid that the seller will cut them out of a commission if they don’t have this agreement. In this agreement it says that all communication with anyone interested in the property must be done through the listing agent and that no matter how the buyer is found or who found the buyer, the agent will get a commission. If you are new to selling a home, this is the agreement that I recommend because I’ve known times when the seller inadvertently said something that turned the buyers off.
Exclusive Brokerage Listings are almost identical except for one important point. With  this listing if the seller made first (and only) contact with the buyer or in other words if the buyer went directly to the seller to purchase the property and never contacted the selling agent, then the selling agent wouldn’t get paid. You can see how this would scare most agents. I, however, am not most agent. I use this agreement uite frequently, primarily with “For Sale By Owners” (FSBO’s) who may already have several possible buyers. I know that through my marketing efforts I can bring twenty times more QUALIFIED buyers through a seller’s property then they can and so an Exclusive Brokerage Listing doesn’t scare me.
Open Listings are just that; they are open to anyone. Whoever brings to the seller the buyer that actually closes the transaction is the one who would be paid or, as in a FSBO, gets to keep the commission. I’ve used this agreement a time or two, when I wasn’t going to do any marketing and I already had a buyer or two “in my pocket”. I’ve never heard of anyone else using this agreement; and for good reason. What agent is going to spend dozens of hours and thousands of dollars to market a property just to have another agent go right around them and take a buyer directly to the seller, cutting out the “open listing gent”? But the real estate commission has it available to use if any “special” situations arise.
If you have any further questions or would like more information, please contact me.

How to Make Money in Real Estate Investing

Lower Your Taxes

 Tax incentives for real estate investors can often make the difference  in your tax rates. Deductions for rental property can often be used  to offset wage income. Tax breaks can often enable investors to turn a
loss into a profit.

 Which items can investors get tax breaks? You could claim  deductions for actual costs you incur for financing, managing and  operating the rental property. This includes mortgage interest  payments, real estate taxes, insurance, maintenance, repairs, property  management fees, travel, advertising, and utilities (assuming the tenant doesn’t pay them). These expenses can be subtracted from your adjusted gross income when determining your personal income taxes.

 Of course, these deductions cannot exceed the amount of real estate income you receive. In addition to deductions for operating costs, you can also receive breaks for depreciation. Buildings naturally deteriorate over time, and these “losses” can be deducted regardless of the actual market value of the property. Because depreciation is a non-cash expense — you are not actually spending any money — the tax code can get a bit tricky. For more information about depreciation and various tax alternatives, ask your tax advisor about Section 1031 of the U.S. Tax Code.

Have a Positive Cash Flow

 There are two kinds of positive cash flows: pre-tax and after-tax. A pre-tax positive cash flow occurs when income received is greater than expenses incurred. This sort of situation is harder to find, but they are usually a strong and safe investment. I specialize in finding investors these “cash-cow” type properties. An after-tax positive cash flow may have expenses that outweigh collected income, but various tax breaks allow for a positive cash flow. This is more common, but it is generally not as strong or safe as a pretax positive cash flow.

 Regardless of what kind of real estate you choose to invest in, a timely collection from your tenants is absolutely necessary. A positive cash flow — whether it is pre-tax or after-tax — requires rental income.  Be sure to find quality tenants by doing a thorough credit and employment check. I manage many different properties and I have easy access to many great rental tools. Use Leverage One of the most important factors in determining a solid investment is the amount of equity you are purchasing. Equity is the difference between the actual worth of the property and the balanced owed on the mortgage. Getting a good loan with low interest rates helps increase leverage and cash-flow. I know a few good lenders I can refer you to. And the best part is that the interest on the loan is tax deductible.

Benefit from Growing Equity

 While investing in real estate can be complex, it is often worth the extra work. When compared to other financial investments, like bonds, stocks or CD’s, the return on your investment for real estate purchases can often be much, much greater. Not only do you have a monthly return on your investment, but you also have the benefit of having someone else pay-off your mortgage. And then, when your time as a landlord is over, you can re-sell the property, typically for a huge profit. I should also point out that hiring a property manager like myself eliminates 99% of all the complexity and hassle.

Can We Partner On a Property?

 I am looking for more properties to buy, for both myself and for others. If you know of a  vacant property in your neighborhood, a bank-owned or pre-foreclosure, a For Sale By  Owner or know of someone looking to sell a home; please let me know. We can partner  on the purchase. I get more leads and you get cash; it’s win-win.

 If you or a friend are interested in investing; either time or money, I can help. You can  even use an IRA to invest in real estate, tax deferred or tax free.

Wondering How Much Your Home Is Worth?

 If you’re wondering what’s happening to prices in your area, or you’re thinking about selling your house, I can help. Give my office a call for a no-fuss, professional evaluation. I won’t try to push you into listing with me or waste your time. I’ll just give you the honest facts about your home and its value. And maybe I’ll also give you the “inside scoop” on what’s happening in the housing market near where you live! Just give my office a call or reply to this email to arrange an appointment.

Referrals Welcome

As always, I hope that you have learned something new today. If so, please share this newsletter with a friend. If there is anything that I can do to help you or a friend, please let me know.

Richard Davis, managing broker
RD Realty, LLC

Updated: September 12, 2014 — 4:44 pm
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