DuplexesRus

         Listing and Selling duplexes in Austin, San Antonio and Dallas

         Sean Little, Broker/Owner Austin Lone Star Realty

Phone: (512) 243-7696
Email: info@austinlonestarrealty.com
Main Website: austinlonestarrealty.com

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Investment Tips

1. Should I buy a Single Family house, a Duplex or a Multi-Family property as an Investment?

Real Estate as an Investment

There are no perfect investment avenues and real estate investment is no exception.

Your choices are many and for each advantage on tying up your money for investment property, there is at least one disadvantage.  It is important that you go into any venture with your eyes wide open and with your vision not clouded by those who would make you believe that it is the easy way to riches.  It may be a great way of increasing your net worth, but it is not necessarily quick and rarely is it easy!

Advantages

Disadvantages

Offers the potential for increased net worth through appreciation of the property.

Generally requires more "hands on" involvement than other investment options.

Offers potential for excellent return when rehabbing.

Maintenance and repairs can take time, money or both.

Easier to sell than apartment buildings or commercial real estate.

If you are planning as a long term investment, finding good tenants, keeping them & collecting rents can be challenging.

Can be an excellent long term tax break.

You have increased exposure, both legally and financially.

 

Your cash is tied up in "bricks and mortar" and is not immediately accessible.

 

Single Family Property

Advantages

Disadvantages

You can find a house in a neighborhood made up of owners not renters.

Cash flow typically is not as good as duplex and multi-family properties.

Better potential for finding a long term tenant therefore saving you money.

 

There normally is a better selection of single family properties.

 

When reselling single family property you have a larger audience of potential buyers. Owner occupants as well as Investors.

 

 

Duplex and Multi-Family Properties

Advantages

Disadvantages

Normally you can achieve a much better cash flow than single family property.

Lease terms are typically shorter than single family property.

Expenses and vacancies are normally spread out throughout the year since you have 2-4 units' verses a single unit.

Normally surrounded by other investment property.

 

2. Should I buy real estate as a Short Term Investment or Long Term Investment?

Long Term Investment

In most cases, being a Real Estate investor is a bit more than simply buying property, finding a tenant, and letting the cash flow in. Some people are very comfortable with the kinds of activities that investors face almost daily. Others find them challenging, or worse, find ways not to deal with them. If that is the case, your business will almost surely suffer. Spend a few seconds and take a glance inward to see if you have some or all of the traits that you will find in many Real Estate investors.

  • Do you deal well with people on a regular basis?
  • Are you good at keeping records?
  • Does a degree of risk not concern you?
  • Do you have a good amount of free time to devote to your investment activity?
  • Are you willing to do a portion (or most) of the repairs and maintenance yourself or are you willing and able to pay someone to have them done?
  • Are you willing to take an active management role?
  • Can you juggle several tasks at the same time?
  • Would you have the guts to evict a family of five if they didn't pay the rent?


If you cannot answer at least 5 of the above questions in an affirmative manner, you may not have the personality needed to be an effective manager of your own properties. No matter what the late night infomercials tell you, being a real estate investor can be a very time (and emotion) consuming activity. If you are looking to go from a net worth of $0 to a net worth of $1,000,000 in a short amount of time, it is probably better that you invest your money in lottery tickets. Although there are instances where investors have made the "big hit," and have mountains of money to show for it, the odds are stacked against it. It is far more likely that you will devote a good amount of time and effort, spread over a number of years, before you begin to see the fruits of your labor. Real estate investment, over the long haul, can be a very rewarding activity, but it takes a little work, time and patience.

Long Term or Short Term

One of the first decisions you will need to make when considering any property is whether it will be designated as a short term or long term investment. Are your intentions to purchase a property, repair or improve it, and then make a quick sale? Or do you intend to keep the property, rent it, and go for the long term investment potential?

Obviously, the return on investment in a short term is quicker, and the rate will be higher due to the short time of the exposure. There are, however some risks associated with a short term investment. What if the property requires more work (and money invested) than expected? What if you are not able to sell it quickly? In situations such as these, your potential profit could be severely limited.

Short Term

Long Term

The property is in an area where property values are stable but not significantly increasing.

The long term appreciation rate looks favorable.

You have the means or the connections for getting repairs done at a reasonable price.

You do not shy away from the idea of dealing with renters or paying someone to do so.

You are organized enough (and have enough time) to rehabilitate the property yourself.

You do not have the funds available to do a full scale "fix and turn."

Your tax situation can withstand a possible capital gains "hit."

You desire a continuing tax break.

 

Turning a Profit

One of the easiest ways of getting involved in Real Estate investing is to buy a property and sell it within a relatively short amount of time for a profit. It avoids the hassles of dealing with tenants, and since you are buying and selling at basically the same time, it avoids the potential of the bottom falling out of the market and taking your profit potential with it. Due to the short time span, your return on investment, as a percentage, can be higher than almost any other form of investment.

Finding good property to "turn" is one of the most difficult tasks you will face if you intend to do a quick turn investment. You definitely will not be the only prospective purchaser of a property that shows good profit potential. Not only will you have other investors to compete with, more and more first time buyers are competing for the same properties--not to fix up and sell, but to repair and live in. In addition to your own efforts, you may want to enlist the help of a good Real Estate Agent--one who has experience working with investors--to aid in your search.

You will also need to develop a "team" of professionals that is willing to give you top priority. When you "rehab" a house, things must be done in a certain order. For example, any inner wall plumbing repairs must be done prior to any sheetrock work, which must be done prior to any painting or wallpapering. A plumber who makes you wait 3 weeks before getting to the work can not only hold up the entire project, but can also cut heavily into your profit potential. Besides the obvious monetary cost of holding the property while you wait for repairs to be completed, a holdup can push you from a good real estate market time (for example, early October) to a lousy one (for example, the time between Thanksgiving and Christmas) and severely limit your pool of potential buyers.

3. What are the tax Advantages and Disadvantages in owning real estate for investment? (Capital Gains)

Capital gains information for selling your home

Tax information for first-time homeowners

4. What is a 1031 Tax Deferred Exchange?

The 1031 exchange is one of the country's longest standing tax laws. Section 1031 allows owners of investment or business real estate to legally defer state and federal capital gain taxes on the disposition of their property.

The 1031 exchange process provides a means for owners of business and/or investment property to potentially increase their cash flow and net worth by taking advantage of deferred taxes. It can assist owners in diversifying their assets either geographically or by product type. Also an investor does not have to exchange one property for another single property. Owners have the option to exchange one property for two, or two properties for one. A 1031 exchange also may offer advantages in terms of depreciation recapture and/or state withholding taxes.

With the exception of a primary residence, an investor may exchange all types of real property.  "Like-Kind" property is considered to be real property that is held for trade, investment or business purposes.
Examples are:

  • All categories of commercial real estate
  • Non-owner occupied single family residences
  • Bare land
  • Ranches
  • Multi-Family buildings

Learn all about 1031 exchanges through Exchange Facilitator Corporation and Asset Exchange Company