Right now is a great time to buy property for profit. Whether you plan on moving, reselling or renting, making a real estate investment can be a smart move. Here are a few general guidelines critical to making an intelligent real estate investment.
“While it may seem like a great idea to make a real estate investment during a buyer’s market, you need to make sure you are financially secure before diving in,” warns Mary Lynn Stone, President of Century 21 New Millennium. Make sure you have enough cash for the down-payment—usually between 10 and 20 percent, and be sure you have enough money for upkeep and maintenance as well. “If this is going to be an investment property and not your year-round home, make sure you can afford to keep it in good shape while renting or leaving it vacant,” Stone says. “And don’t count on flipping a property right now, unless you are in a position to hang on to the home for five to 10 years before selling.”
“Make sure the property you’re looking at has a few essential amenities that will make reselling smoother, or the possibility for adding them,” says Stone. These include central air, ranked highly as a must-have feature by a poll done by NAR; ample storage space; a good location and a few modern updates like energy efficient features and appliances.
“While most markets are suffering right now, there are a few pockets around the country that are not only remaining stable but appreciating. These are great places for a real estate investment that offer a real possibility of reselling in the near future,” says Stone. Make sure you are extremely familiar with the market you are purchasing in before making any investment decisions.
Investment properties are taxed differently and the longer you hold on to your property, the better you will make out with the IRS. “Any profit you make from an investment is considered capital gains, and so it will be taxed based on your income and the amount of time you’ve owned the property,” warns Stone. “It’s smartest to hold on to your property for more than a year so you will be charged a long-term capital gain, instead of an income tax rate. The difference here can be up to 20 percent more,” says Stone. However, if you make your investment property your primary home, then you can avoid a capital gains tax altogether. To meet this requirement, you must have spent a minimum of two of the last five years residing in the property. “The two years don’t even have to be sequential,” notes Stone. Other factors, like being married and filing joint taxes, can allow you to make even more on the investment without being taxed.
“If you are a frequent investor and are buying several properties in a year, be prepared for the IRS to land you with business taxes as well,” warns Stone.
CENTURY 21 New Millennium. Smarter. Bolder. Faster.
CENTURY 21 New Millennium, www.c21nm.com, is a full service real estate brokerage company specializing in residential and luxury properties. The Virginia locations are in Alexandria, Centreville, Culpeper, Fredericksburg, Gainesville, McLean, Stafford, and Woodbridge. The Maryland offices are located in Annapolis, Dunkirk, La Plata, Lexington Park and Lusby. Its core services include: mortgage financing, investing, settlement services, property management, property insurance, global relocation assistance, and commercial real estate.