Los Angeles Apartment Buildings
Dedicated to the Search, Listings and
Sales of Apartment Buildings in Los Angeles County
1. Determine Your Time Needed: Talk to a professional real estate agent about cash flow, capital appreciation, tax benefits, management, equity pay down, or pride of ownership (sometimes these items are mutually exclusive).
2. Don't believe the Seller's or Seller's Agent's numbers, Check everything: rent payments, taxes, expenses, deposits, etc. Puffery is an epidemic in investment real estate.
3. Join Your Local Apartment Association. The best local source of forms, pending laws, procedures, and education on investment property.
4. Don't forget you're buying a business. Owning an investment property carries with it great joy and potential as well as very difficult decisions. Getting rid of tenants, who to rent to, whether or not to make that improvement, etc. Remember it's not a hands-off investment.
5. Stay rational, not emotional. An emotional purchase is not always your best investment. Pay attention to the numbers, not necessarily to your heart.
6. Avoid negative cash flow. Unless you expect constant appreciation, don't buy investment property that eats like an alligator, it's no fun! It may cause you pain and force a sale before the benefits of ownership can be seen.
7. Do a thorough inspection. Look at every inch! Hire a professional inspector and ask the tenants questions about the property.
8. Make sure you get Estoppel Letters. Get letters from tenants confirming the statistics of tenancy (make sure their story agrees with sellers interpretation).
9. Inspect, approve, and confirm all documents. Get the building permits, zoning laws, rental applications and leases, by-laws, easements, title policy, inspection reports, purchase contract, insurance, rules and regulations, etc...
10. Get a bill of sale. There are many different types of personal property (appliances and fixtures, for example) involved in an investment sale. Make sure you know who owns it.
11. Have adequate insurance. Get a professional insurance agent to make sure you are covered! Tenants bring liabilities!
12. Treat your tenants as customers. Vacancies and turnovers are your largest expense! Charge fair rents and attend to realistic tenant needs immediately.
13. Select qualified tenants from the start. Check references from previous landlords, employers, bankers, and friends. Check credit, bank balances, and judgments. Drive by where they currently live. A little work up front can save many problems later.
14. Rent Right!. Low rent costs money, but can cut turnover and can decrease vacancies. High rent increases cash flow and the value of the building, but can increase the vacancy factor and turnover.
15. Don't spend positive cash flow! Remember, successful investors have free and clear properties! Apply your cash flow to the payment and speed up that amortization schedule!
We sincerely hope these tips and ideas are of value to you. If there is any way we can be of service please e-mail our office...we consider it a privilege to be of service to you.
1031 EXCHANGE RULES AND TIMELINE
If the relinquished property
is in the United States, then the purchased property must also be in the
United States. Foreign property exchanges are
permitted as long as both the relinquished and purchased properties are
outside of the United States.
The properties must be of like-kind nature; in other words, in
regards to real property, all real property is like-kind. The IRS does
not specify the quality or grade the two properties must have.
In order to obtain the full benefit of a tax deferral, the replacement property must be of equal or greater value to the relinquished property. The relinquished and replacement properties cannot be used by the investor as a primary residence and dealer property held for resale cannot be exchanged. The property sold and the property purchased must be for productive use in, or investment or income purposes.
All proceeds from the sale of the relinquished property must go directly to the Qualified Intermediary and eventually, to the purchase of the replacement property. The investor selling the relinquished property must be the same investor purchasing the replacement property.
Closing Dates to Be Aware of
IRC §1031 demands that a replacement property (property being purchased with the sale proceeds) must be identified within 45 days of the closing date of the relinquished property being sold. Unless an extension is filed with the IRS (Note: IRS grants extensions only during natural disasters or for few other emergencies but will not grant extensions on a case by case basis), the replacement property must be purchased before the 180th day of the sale of the exchanged property or by the exchanger’s tax return due date of that year; which ever comes first.
Rules of Identification
One of the three following rules must be adhered to when identifying your replacement property:
- Three property rule The exchanger may identify up to three potential replacement properties without regard to fair market value.
- 200% Rule Given that their combined fair market value does not exceed 200% of the value of the relinquished property, the exchanger is permitted to identify more than three properties.
- 95% Rule The exchanger may identify any number of properties, regardless of combined fair market value, on condition that the exchanger purchases 95% of the combined values of those properties.
