Foreclosures Are Up 99%

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For Sale … Like it or Not

One of the benefits I get from working with a nationwide group of CPAs, is that I get to keep up with what successful business owners and real estate owners are up to. The real estate market is booming in some areas, crashing in others and just holding its own in others. But, there is one area of real estate that is exploding – the foreclosure market!

I just got this stat from Realty Trac. And, to be honest, I had to read it twice to make sure I had it right. Nationally, foreclosures are up 99%. Go back and read that again – 99%! That’s double through September 2007.

It’s a frightening statistic, but it’s also the next big thing in real estate investing.

There is money to be made in foreclosures, if you do it right. And, there are a lot of programs that will teach you how to do that. But, as I go through all of the information that seminar leaders send me to read about their foreclosure programs (hoping I agree to promote them) – there is one thing that’s missing!

This one missing piece of information can put any profits you might make completely at risk. What is that missing piece? It’s good solid accounting and tax information.

No matter what your strategy for real estate investing is, you always need good accounting and basic tax knowledge.

As I looked through these foreclosure courses I discovered that if there was tax and accounting information included at all, it was not up to date. And, that’s probably the scariest thing of all. People are taking these courses and thinking they have all the bases covered – only to discover they had bad information.

Foreclosure and pre-foreclosure accounting is tricky, and now we can add in the uncertainty of AMT. I was talking to Mark, a very successful investor, the other day. He sold some properties for a great price in 2006 and was excited that he’d held them for over 1 year. That meant this qualified as long-term capital gains. He’d always heard that the maximum federal income tax rate is 15%, so he set aside $150,000 (plus an estimated amount for state income tax) from the cool million he’d netted in gains. Then came the final tax return…and a big wake-up call. Do you know what it was?

Mark knew the basics, but the mistake he’d made was in not keeping up with new tax laws. It got me thinking about how many people get involved in investing or with businesses…without any clue at all as to the tax consequences or the accounting requirements.

When it comes to real estate accounting, you have to get it right or you’ll pay big time when it comes to taxes.

Have you figured out what mistake Mark made? I’ll give you a clue – he understood the basics, but forgot about an issue I’ve been blogging a LOT about. I’m glad, though, that he had the basics down. That was an important first start.

If you’re about to get started in (or are already investing in) foreclosures, take the time to understand the basics.

There are two things to consider every time you buy a property: basis and when you purchased it. Think about those two things as we go through some common scenarios that the creative real estate investor will face as he invests in foreclosures or preforeclosures:

The Questions You Have To Ask

Let’s say you bought a property “at the court house steps” or as we are more likely to do it in Phoenix, AZ, at an attorney’s office who represents the court in this action:

  • Where do you put this on your tax return?
  • When do you set up a business structure (or do you need to)?
  • What if you own it personally and then put it into a business structure?

Buying a REO (real estate owned by the bank) is becoming even more common. Here are some things to consider:

  • What if you’ve bought the property below fair market value?
  • Even better (for you, not the bank), what if you bought it below what the bank had foreclosed on it for?

No matter what type of real estate investing you’re doing, you need to know how to account for the purchase and how to protect it both from lawsuits and from excess tax. The best way to help your Tax Strategist give you the best results is to know the information they need. You don’t need to know all the tax laws, but you (or your bookkeeper) does need to know the accounting.

Our response was huge to the offer a few months ago of Easy Accounting for Real Estate Investors. That’s why I’m going to bring back the offer for one more week. The Easy Accounting for Real Estate Investor home study course is by far our biggest seller at $299. For one more week only, I’m going to slash that price in half – to just $149.50. If you and your bookkeeper don’t yet have your copy of this vital companion to the successful real estate investor, then act now! This is the lowest price it’s ever been at..or ever will be at.

There is one more scenario for the foreclosure and pre-foreclosure market. Let’s say you buy through a creative solution you learned through a book, tape or seminar. Some of the questions you’ll need to answer:

  • When does your ownership actually begin?
  • What is your basis?
  • What happens to the forgiven debt for the previous owner?

Those are just a few of the items to consider when you’re investing in real estate. If you want total Tax Control™, then there are two things you want:

(1) Strong solid education in tax and accounting strategies (2) The best possible advisors developing strategy right up front (not trying to do it after the fact)

Did you figure out what went wrong for Mark? He forgot about AMT. AMT meant that he didn’t pay at just 15%…he paid at 28%. So, his tax was almost double what he had expected to pay! He had to come up with another $130,000 in taxes. Now that’s a bad day.

If you’re building real estate wealth, do it smart. There are a lot of people who say you can’t do it in this market. That’s crazy. My husband and I are still investing in real estate, but we’re doing it in an entirely different way right now. The market changed, so the strategies needed to change.

But, no matter what the strategies, you still need to keep good records. The best investment you can make is in your own education.

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