Improve Your Business On A Daily Basis

By Than Merrill

Very little separates one good investor from another. While a solid education and access to financing can contribute to success, the manner in which they work is most often the deciding factor. 

Real estate investing, for all intents and purposes, is relatively easy, but far from simple. Accordingly, if you have a proven system that works, it is easy to replicate it for results. However, getting this system perfected requires a significant commitment. Time and effort will reward you accordingly. Sounds easy enough, but not many investors are willing to put in the hard work.

The most successful people in business set goals every day, specifically with the intent of meeting them. This gives them more structure to accomplish everything in the course of an 8 to 12 hour work day. Subsequently, you don’t need to work for 10 hours every day, six days a week, to be successful. Focus your attention on improving your business every day and your accomplishments will add up.

A distinct lack of progress can be particularly frustrating when you are not closing deals. It is at this time, more than ever, that you need to dig in and get to work. Set small goals that can be easily accomplished and go from there. This could be as easy as calling ten realtors on an introductory call. From there, you can set the bar from ten calls to one lunch meeting. After a while, your small successes motivate you to do more and soon enough your thoughts become action. Even if you are only investing part time, there are plenty of tasks you can knock off in just two hours a day that will greatly enhance your business.

Some of the best ideas are thought of by people who will never do anything about them. Instead of filling yourself with regret, allocate just a small block out of your day to taking action. Mailing letters, sending emails, making phone calls, meeting fellow investors and developing systems to improve your productivity are certainly not glamorous parts of the business, but they are critical to your success. The more up to speed you are on your behind the scenes work, the more ready you will be when deals do come along.

Between surfing the internet, reading a magazine or playing on your phone, you can almost certainly find the time to work. Again, you will find that it doesn’t take much, but it does take consistency. If you do just a little, but do it often, you will be pleased with the results. Binge working does not really work. You need to contribute to your business a little bit all of the time.

Most investors do not last one year in the business. They get frustrated that success is not happening fast enough and eventually give up on the business. You can avoid this by working on your business every day. If you do, you will start to see the success and your business will soon take off.

Composure: The Key To Investor Success

By Than Merrill 

Being a real estate investor is not all that it is cracked up to be. Investors on TV shows and late night infomercials may be glorified for viewer pleasure. 

For every five successful deals you have, you will inevitably encounter a series of rough patches. Much of the real estate investing business is a numbers game. If you market to a greater number of people, in theory, you should gain more leads. The more leads you get, the higher conversion rate you have. That means some of these deals will fall by the wayside at some point. This may happen after the initial conversation or at the closing table. However, what you do and how you react when this happens will often dictate what kind of an investor you are. More importantly, keeping your composure will ultimately lead to more success.

Other than losing money on a deal, having a deal fall apart right before closing is the most demoralizing aspect of real estate. You can spend months getting everything lined up, only to find out that someone dropped the ball or someone had a change of heart at the 11th hour. It can be easy to point fingers and play the blame game, but it is at these times when you need to put your best foot forward. Losing one deal is no fun, but it is part of the business. If you berate the attorney or one of the realtors, you may lose future business. Keep your composure and maintain healthy relationships.

This doesn’t mean you can’t fight to save your deal, but at some point you need to know when to back off. If you are in the business long enough, you will realize that deals have a way of coming back around. If you are slow or you needed the closing to move forward with other properties, this can be especially painful. However, if you maintain composure, people will take your appreciation into consideration. You may actually start a relationship that could be far more valuable.

After losing a deal, most investors will throw it in the trash and never look back. However, it is critical to find out exactly why the deal blew up and what can be done to reconcile it. Sometimes it is best to revisit the situation after everyone has had time to think about it. If you are working with distressed property sellers, you have to put yourself in their position. They are selling because they have to instead of wanting to. This is a trying time in their lives and they want to cover all of their bases and take their time. Sometimes they just need reassurance or want to explore one more option before they move forward with you. If you blow up after they have a change of heart, you will lose them forever. If you give them some time, it might be all that they needed.

Losing deals happens to the most seasoned investors. This is why it is important to have a constant flow of deals coming in to always keep your business moving forward. It is easy to be an investor when things are going great, but when things get rough, everyone involved in the deal will be looking at you to see how you react. If you keep your cool, you may actually turn a negative into a real positive.

7 Real Estate Networking Mistakes

Posted by JD Esajian

Real estate agents, investors all those in other related fields are frequently hammered with the message that they need to be networking. It is true that it could be the most important and valuable use of time in pushing through to growth and success but for all the advice that these professionals must be networking there is little, if any on actually how to do it, or perhaps more critical how not to do it. 

So whether you are a mortgage broker, real estate investor, agent, title company rep or insurance salesperson what are some of the big mistakes that you’ll want to steer clear of?

1. Not Getting Started

Despite its hand in hand connection with success and doing more real estate transactions so many real estate agents and other professional are increasingly keeping themselves locked away behind their screens today instead of getting out and shaking some hands. Ducking the flu virus might be a nifty excuse but that won’t put money in your pocket. If you really can’t bear to pull yourself the sofa, try hosting a Google hangout instead.

2. Networking for Individual Sales

Networking events and local real estate investing meetups can be great places to find real live deals, but it I going to be a hard slog and a measly hourly wage if you have to spend hours on end to network for each individual deal or lead. Instead try setting the sights on networking with strategic referral partners that can bring you a dozen or more leads each per month.

3. Networking without a Clear Goal

If you are just a social butterfly that enjoys chatting to strangers you’ll find networking lots of fun, but don’t go unprepared and without a clear goal for each event.

4. Shameless Self-Promotion

Remember, that at professional networking events everyone else is there for what it can do for them, not you.

5. Being Dull

Whatever you do, don’t be dull. It won’t get you remembered and it won’t be much fun either, so enjoy yourself. Loosen up and find one thing to be really passionate about if you want to the real estate agent or investor that gets remembered in the morning.

6. Overspending on Networking

This is a huge trap that gets newbies all the time. Networking is crucial but don’t go broke doing it. The bill can get big fast between drinks, entry, gas and giveaways. Watch your ROI.

7. Failing to Create Action

Don’t fail to seize on the chance to take decisive action. That doesn’t mean you have to hard close on everyone, but take them in the right direction. Get social followers and set appointments.

5 Qualities of Highly Successful Real Estate Investors

Posted by JD Esajian

Real estate investing is picking up steam and many new investors are jumping into the market along with those that are finally returning to the market after a few years off. However, there is a big difference between those who waddle along doing a few deals here and there and those who really achieve incredible success and make the big money.

So what is it that really separates those who enjoy amazing incomes and lifestyles from real estate investing and those who struggle?

Here are 5 traits that are consistently seen among highly successful real estate investors…

1. Innovation

Just as innovation has made the difference in Apple, Google and Facebook rising to the top it is those real estate investors who are the most innovative that shine and enjoy the largest share of the limelight. Fortunately, innovation can be developed and incubated and is not only something a select few are born with.

2. Strong Decision Making

Real estate investors are faced with dozens of important decisions every week so obviously those who are good at making them usually come out as winners. This doesn’t mean having a magical gift for always making the right decisions; it is often a matter of simply being fast and knowing when to delay making rash decisions.

3. Aggressive Goal Setting

How are you going to achieve amazing things through real estate investing unless you have a roadmap to get you there? The ultra-achievers know this and are known for their goal setting habits, setting big goals and developing action plans for achieving them.

4. Incredible Time Managers

We all have the same amount of hours in the day so it is those who use them the best who make the biggest profits in real estate investing and have the time to enjoy them. Learn to delegate, use systems and work smarter.

5. Have Coaches

Just like top athletes and other business leaders highly successful real estate investing pros also seek out coaches and mentors to help them get the edge and time advantages over their competitors.

What Records Should I Keep for Tax Purposes?

By Erin Eberlin

There are many tax deductions available for landlords and property investors, but also very specific ways you must file your taxes. Because of the complex nature of real estate investor taxes, you should keep thorough and detailed records of all important documents, income and expenses throughout the year. Knowing what records to keep for tax purposes can turn filing your taxes from a nightmare and potentially costly experience, into a relatively stress-free one.

Keeping detailed records is beneficial for many reasons:

1. It will make it much easier to file your taxes.
2. Having everything recorded will help keep you from missing out on any deductions, thereby saving you money. 
3. It will help you make sure you are filing accurate claims. Instead of guessing, “I think I paid that contractor $1,000,” by quickly pulling up a spreadsheet, you will know you paid him $850 on July 17.
4.  In case you are audited or the IRS has any questions about items on your tax return, you will have the proof to back up your claim. If you do not have this documentation, you will find yourself spending time and money trying to find the proof. Worse, if you are not able to come up with a receipt, your claim will not be honored and you may even have to pay additional taxes and penalties.

What Records Should I Keep Track Of?

The short answer is you should keep track of everything! The IRS is notorious for auditing small businesses, especially those that show a loss in consecutive years. Additionally, many IRS agents do not understand the tax nuances that apply to real estate investors, making them more likely to question your filing.

You will need to have proof if the IRS questions any of your items or even in the everyday course of business if someone tries to question a payment. You will need to keep permanent records and short-term records.

1. Permanent Records

These are documents that you will want to keep indefinitely.

What are some examples of permanent records?

These are documents that will be relevant and valuable to you well beyond the current tax year, such as:

•  All tenant leases.
• Any sort of legal documents- fines, inspection reports, court appearances.
•  Any type of permit you have taken out on the property.
• Anything you would depreciate- such as property or improvements.
•   If you have your company incorporated as an LLC, LP, S Corporation or other, you will want to keep all records pertaining to this.
• Insurance policies.
• Loan documents- such as mortgages.
• Past years’ taxes.
• Property title/deed.

Short Term Records

By short term, I am not referring to a couple of months. You will want to keep any documents you deem important enough to claim on your taxes for a minimum of five years. How long after that depends on your comfort level. This will help you in case you are ever audited or sued.

What are some examples of short term records?

Anything that counts as income or an expense for the given tax year, such as:

• Advertising costs for your business or property.
• Entertainment expenses- such as dinners or lunches for current or potential customers.
•  Interest paid on mortgage and any credit cards for business use.
•  Legal/professional fees- for accountants, lawyers, insurance agents, Realtors.
•  Office expenses- internet, second phone line for business, office supplies, home office deduction if you have a home office used solely for business.
• Rent received.
• Repairs performed.
• Security deposits received.- When a tenant's lease ends, if you keep part of the security deposit, you must record it as income. If you keep some of it to pay for repairs, the money you spend on the repair is considered an expense, which you can deduct on your taxes.
• Travel expenses for business- such as miles driven for rental activities.
• Utilities paid.
• Wages paid to employees or independent contractors.

How Should I Keep Track of My Records?

You should keep a digital copy (computer) and a hard copy (paper) of all of your records.

1. Digital Copy

You will want to use a spreadsheet or a program such as Quicken Rental Property Manager to keep track of your income and expenses. You should do this as soon as the income comes in or the expense occurs. You will want to include as much detailed information as possible: the date, time, who it was paid to or who paid you, nature of the income or expense, and the amount. You can even include how it was paid or incurred (cash, check number, credit card, money order, etc.).

The level of detail will depend on the software you use or create. Some programs will link directly to your bank accounts and will record your income and expenses for you. Even if you choose a less expensive program, or keep your records on personal spreadsheets, you should still set up separate records for each property, for each type of expense, and for separate types of income. The point is to record as much information as you can at the time of the transaction, so that you can easily create financial reports in the future.

You should always back them up on cd, on an external hard drive and even with a paper copy. They should be printed out at the end of every month and/or the end of the year.

2. Hard Copy

You will want to make sure you have a paper copy of your most important documents. If possible, you will want to store them in some sort of fire retardant filing system or safe deposit box. If you are unable to find one large enough for all your files, you will want to keep the most important ones, such as the titles to the property in this box. Categorize everything by year and then alphabetically sort the files so they are easy to find.

Common Tax Deductions for Landlords

By Erin Eberlin

The federal government allows landlords and rental property owners to deduct certain expenses on their taxes which can offset their taxable income. Being able to take advantage of so many tax deductions is often what makes owning rental property a lucrative venture. The following are the most common tax deductions for landlords.

You may only deduct these expenses if they are considered ordinary and necessary in the line of business:

• An expense is considered ordinary if it is “common and accepted” within your industry. For example, an ordinary expense for a landlord could be paying a contractor to fix a roof leak.

• An expenses is considered necessary if it is “helpful and appropriate” to your business. For example, a necessary expense for a landlord could be buying Quicken Rental Property Manager, to more seamlessly keep track of all the numerous records a landlord must document.

What Are Business Tax Deductions?

Two Points of Caution

1. You must keep detailed and accurate records if you are going to claim any of the following as deductions on your taxes.
2. These are common tax deductions. They do not apply to every landlord, rental property owner or property investor.*
   
   For example, many of these deductions do not apply to those who rent out homes or condos which are also considered their residence. The property is considered a residence if you used it for personal use for greater than ‘X’ number of days in that year or ‘X’% of days that the property was rented out at fair market value. (These numbers will be listed on the current tax year's Schedule E or you may consult with your accountant).
   
   *You must consult your accountant or the IRS to determine the correct way to file your taxes and the proper deductions for your specific situation.

Common Tax Deductions

1. Depreciation

The depreciation expense is used for those things you have purchased for your business which have a useful life beyond the current tax year. For something to be considered depreciable, it has to meet three rules:

1. Be expected to last for more than a year.
2. Be valuable to your business in some way.
3. Different assets, such as a refrigerator and a building, will have different useful lives and there are different types of depreciation that can be used, such as straight line depreciation and accelerated depreciation. Consult the IRS or your accountant to determine the type of depreciation to use and the useful life of each asset you are trying to depreciate.

   2. Passive Activity Losses

   Owning rental property is considered a passive activity. There are complex rules which apply to passive activities, but in short, they limit your ability to claim losses incurred in passive activity against other types of income.
   There are certain exceptions:
   • If you are considered a real estate professional (certain rules apply such as working at least 750 hours a year on real estate related activities), any rental real estate activities you participate in are not considered passive activities.
   • or
   • If you are considered actively involved in your rental activity, you can deduct up to $25,000 in passive rental losses if you make under $100,000. Actively involved means you must have participated in making management decisions, such as finding tenants or deciding on the terms of your rentals, and your interest in the rental activity has never been less than 10% for the year. The amount you can deduct will decrease for every dollar your income is above $100,000. You will not be able to deduct any passive activity loss once your income reaches $150,000.

   3. Repairs

   You may deduct the expense of repairs incurred in a given tax year. Repairs are considered work that is necessary to keep your property “in good working condition”. They do not add significant value to a property. Repairs include things such as painting. It is important to understand that all maintenance you do on your property is not considered repairs. The IRS makes a distinction between improvement and repairs. Improvements are seen as adding value to the property. Improvements cannot be deducted in full in the year they incurred. Rather they must be capitalized and depreciated over their useful life.

   4. Travel Expenses

   Landlords are allowed to deduct certain local and long distance travel expenses that are business related. This does not include commuting expenses, meaning traveling from your home to your everyday office or place of business.
   If you have your own automobile for local travel, you can take your deduction using either the standard mileage rate or using the actual expenses incurred, such as cost of gasoline and maintenance on the vehicle. You can also deduct parking fees and tolls, interest on a car loan and any applicable registration or license fees and taxes.
   If you do not have your own vehicle, you can deduct your public transportation expenses for business purposes.

   5. Interest

   You can deduct the interest you have paid on business related expenses. For example: You can deduct the interest you have paid on mortgage payments or other business loans, car loan payments (but only the part used for business purposes), and the interest paid on credit cards used solely for business purposes.

   6. Home Office

   You can take the home office deduction if you use a part of your home exclusively as an office for your business. You must conduct the majority of your business here to claim the deduction. The amount you can deduct depends on the percentage of your home that your home office takes up.

   7. Entertainment Costs

   Unfortunately, entertainment costs do not refer to costs used to entertain yourself. Entertainment costs mean those incurred during business dealings. For example, taking a client to your country club or giving a potential investor two tickets to the theater are entertainment expenses.

   8. Legal and Professional Fees

   If you hire a professional to do work for you, the fee you pay to them is deductible. This includes attorney fees, accountant fees, real estate agent fees or fees paid to other professional advisors.

   9. Employee Compensation

   If you hire someone to do work for you, you can deduct the wages you pay to them as business expenses. This includes the wages of both full time employees, such as a property manager or a live in superintendent and part time employees, such as a contractor you hire once to fix a roof leak.

   10. Taxes

   You can deduct your property taxes, real estate taxes and sales tax on business related items that are not considered depreciable for the year. You can deduct fees for tax advice and the preparation of tax forms related to your rental real estate property. You cannot however deduct legal fees from defending title of the property, to recover property or to develop or improve property. You must add these types of fees to your property’s basis.

   11. Insurance

   You can deduct the premiums you paid on most types of insurance including health, accident, causality, theft, flood, fire, liability, vehicle, and health insurance for your employees.

   12. Casualty Losses

   If your property was damaged by a catastrophic event like a fire, you may be able to deduct some or all of the loss. The amount you can deduct will depend on your insurance and the amount of damage to the property.

   Other Common Tax Deductions Include:

   • Advertising costs.
   • Rent you paid to others.
   • Telephone calls related to your rental property activities. However you cannot deduct the first line for local service coming into your home. That is considered a personal line.
   • You can credit or deduct expenses paid to make your property accessible to individuals with disabilities or the elderly.
   • If your property is considered a commercial building, you can deducts costs to make it energy efficient.
   *You should always consult the IRS or a certified accountant to decide what deductions are applicable to your specific situation.

How to Deduct Travel Expenses on Your Taxes

By Erin Eberlin

As a landlord or property investor, you can deduct certain expenses related to the travel you must do for your business. You can deduct both local and long distance or overnight travel expenses.

You can deduct these travel expenses if the purpose of the travel was solely for business. The expenses you can deduct must also be considered “ordinary and necessary” in your course of business. For example, driving to the supermarket would most likely not be a necessary expense for a landlord, however it could be necessary for a baker who needs to buy flour.

You may also deduct certain expenses if the travel was a mix of business and pleasure. In this case, you must separate the trip into expenses incurred for business and expenses incurred for pleasure and must only deduct the expenses for business.

It is very important to keep adequate logs and documentation of all travel for business purposes.

What Are Business Tax Deductions?

You should log the purpose of the trip, miles driven (if you drove) and any expenses (gas, lodging, meals, etc.) incurred in case they come into question.

Local Travel Expenses

If you own an automobile that you use for business, you are able to deduct the cost of business related travel. This will include things such as traveling to a hardware store to pick up supplies for your property or traveling to a meeting with potential investors.

For the automobile deduction, you may use either the standard mileage rate or the actual expenses incurred. The standard mileage rate involves deducting miles driven for business use, while actual expenses involves deducting the business portion of expenses such as gasoline and repairs.

Long Distance or Overnight Travel Expenses

If you have to make long distance travel for business, you can deduct certain expenses. Be more careful when deducting these expenses, because the IRS looks more closely at deductions taken for long distance or overnight travel.

You must meet two conditions to be able to take the overnight travel expense:

1. 1.Your business must require you to be away from home for longer than a day’s work.
2. 2. Sleep is necessary for you to properly perform your work.

If you meet these conditions, you can deduct expenses including:

• Transportation Costs (Airfare, Train Fare, Bus Fare, Rental Car Cost, expenses related to using your own car).

• Hotel expenses.

• Meals (you can only deduct 50% of cost).

• Entertainment (if it is directly related to business, for example hosting clients at the theater or a social or athletic club).

• Dry cleaning.

• Phone calls or faxes

*You should always consult the IRS or a certified accountant to decide what deductions are applicable to your specific situation.

What Is the Deduction Limit for a Home Office?

By Erin Eberlin

Even if you have qualified to take the home office deduction on your taxes, you may not be able to deduct all of your expenses in the year they were incurred. You may be subject to a deduction limit.*

Who Is Subject to a Deduction Limit?

Not everyone who takes the home office deduction is subject to a deduction limit. Those whose gross business income is equal to or greater than their expenses are able to deduct all of their home office business expenses for the year.

Those whose gross business income is less than their home office expenses will be limited in their ability to deduct certain expenses.

How Is the Home Office Deduction Limit Determined?

You begin with the gross income from your business.

You then subtract expenses you would deduct even if you didn’t have a home office (mortgage interest, real estate taxes, and casualty and theft losses), but only the percentage for your home office.

What Are Business Tax Deductions?

For example, if you have determined that your home office takes up 10% of your home, then you can only deduct 10% of each expense.

Now you subtract expenses related to your business activity (second phone line, office supplies, depreciation on equipment). You can subtract 100% of these expenses.

This will give you your deduction limit.

Once you have determined your deduction limit, you can then deduct your other applicable business expenses (maintenance, insurance, utilities and depreciation), deducting depreciation last. Again, you can only deduct the home office percentage of these expenses, such as 10% from our above example.

If your expenses are more than your deduction limit, you are able to carry over the remaining expenses to the next tax year.

Keep in mind, anything you carry over will be subject to next year’s deduction limit.

An Example of the Deduction Limit

Your Gross Business Income is $10,000.
Your total home office expenses are $12,000.
You are therefore subject to a deduction limit because your expenses are more than your income.

Gross Business Income........................................................................$10,000 

MinusHome Expenses (Real estate taxes, etc.) 10%.......................................$6,000 

MinusBusiness Activity Expenses (Second phone line, etc.) 100%...................$2,000 

EqualsDeduction Limit......................................................................................$2,000

Your deduction limit is $2000, but you have $4000 in home office expenses that you still want to deduct. You can therefore only deduct up to the $2000 deduction limit and will have to carry over $2000 ($4000-$2000) to the next tax year.

Deduction Limit.......................................................................................$2,000
MinusAdditional Home Office Business Expenses (Utilities, etc.) 10%................$1,800 

MinusDepreciation Allowed ($2200 allowable, but can only deduct $200 this tax year 
because of the deduction  limit)..........................................................................................$200Equals

............................................................................................$0
Depreciation Carryover to the Following Tax Year ($2200-$200)................$2000

*You should always consult the IRS or a certified accountant to decide what deductions are applicable to your specific situation.