Real estate investing is a topic that we can never stop talking about at a dinner table. It truly is a beauty. By this, we do not mean getting a license to sell properties as an agent to earn a commission. What we mean is to buy properties for investment. This type of asset is probably our favorite because you can get checks to your mailbox every month that go straight into your pocket without having to pay any taxes. Yes, you read correctly. Zero taxes, nada. Now, while there is a lot of content to cover on this matter, we will be going over the very basics.
The Business
Before getting into the beauty of the real estate investing world, it is of utmost importance to touch base on the most important point we are about to mention.
Real estate investing is a business itself and should be treated accordingly.
This means that just as with any business, you should be applying fundamental business principles to your real estate investment.
Business Principle #1: STRATEGY
As with any business, you should build, from a top-down approach, a systematic plan to achieve your goals in real estate investment. It’s no difficult task. In implementing this principle, the very first step should be to simply use your imagination. Where do you want your investment to take you? Next, consider what it takes to achieve these goals regarding finances. Clearly and objectively identify the position you are in today. From there, draw out your plan! Literally! Include your vision, your values, and most importantly, your goal. Then, you will want to consider what type of real estate investment makes sense to you. There are a few types and plenty of types of those types. Do your due diligence. Write down your investment criteria and never look outside of those limits. Otherwise, you are likely to stray away from the goals you committed to from the beginning.
Business Principle #2: TEAM
Just like any other successful business, there is a team isn’t there? This is probably the most important business principle. A very knowledgeable, trustworthy, and reliable team. With your team, you can leverage your investing strategies and critical thinking. Be objective with yourself. What are your strengths and weaknesses? What do you know that you don’t know? From there, identify the roles you need to ensure your business is successful. A good place to start looking for team members is through referrals. Ask those you know in business for people they might know that can be part of your team.
Business Principle #3: ACCOUNTING
We must admit that there is an unavoidable bias in favor of splendid accounting services. Nevertheless, ask those you know who are successful in this business whether accounting is essential for their real estate investments. Good accounting will only give reliable and solid financial reporting. Needless to say, this is necessary when assessing your liquidity, activity, and profitability ratios. You don’t want to be making decisions based on misleading data. Otherwise, how are you planning on deciding whether to buy, sell, or refinance a property? Or knowing which one of your properties are doing well or poorly. If you don’t have a P&L for your business then you are not in business. Good accounting goes far beyond keeping the IRS from knocking on your door. It takes to be accurate in making appropriate bookkeeping journal entries. This is the type of value we strive for at Westfront.
Business Principle #4: TAXES
The only way to be profitable in the real estate investment world is by taking advantage of the tax laws that encourage you to do it. As it just so happens, reducing your tax liability starts with your business’ bookkeeping. From there, come up with a tax strategy that is suitable for your situation. It is necessary to take a look at the big picture first. You include your real estate business along with any other business endeavors you are involved in to create the most efficient and effective tax strategy there is for you. That is if you do not want to pay taxes on the checks you are getting in your mailbox every month. Again, we are naturally biased toward this principle. If you feel like your business is lacking this, then a good tax strategist could provide you with invaluable service.