Kenai Peninsula’s REOs Tempt Veteran & New Investors

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Novice and professional
investors find themselves in competition over Kenai’s
REO and foreclosure opportunities. The goal of building a long-term,
profitable investment is the same for both groups, but the professionals have
an institutional advantage. They have systems in place and experienced
personnel who bring a high degree of confidence to their estimates of the
financial tradeoffs for any candidate property. Novices have to rely on their
own calculations.

For readers unsure of that  ‘REO’ expression, it’s an acronym that is
short for ‘real estate owned.’ Not very illuminating, is it? Better is what
most people mean when they describe a Kenai
REO: a property whose ownership has reverted to a lender.

Whether
buying with cash on the courthouse steps or taking advantage of record low
mortgage rates, every investor needs to boil down the cash flow versus
potential net return when evaluating any Kenai
REO’s potential. First step: consider the ongoing out-of-pocket
expenses:

  • Leasing costs
  • Management cost
  • Capital costs

While
leasing and management fees are fairly predictable, a REO home often requires
more deferred maintenance attention than does a typical occupied home (which
means higher upfront capital expenditures). These expenses help offset the tax
burden future income would create – and there are more:

  • Insurance
  • Taxes
  • Lawn care
  • Tax return preparation fee

New investment property owners might assume that everything they
do on their property is a write-off.
However…not so fast! The IRS has a different opinion. Appropriate
tax-deductible repairs can include painting, fixing a broken sink or replacing
a faulty lock.  Improvements, on
the other hand, add value to your property – and that means they are not
immediately deductible. Investors must instead recoup the cost of improvements
by depreciating that cost over a number of years. Improvement examples include
new kitchen counters, a new deck or a garage addition.  Perhaps the biggest write-off for investors
who opt to finance the investment comes once mortgage payments begin.  The Form 1098 “Interest Paid” amount is
usually fully deductible.

Once costs and deductions
have been projected, the investor can determine whether rental rates being
charged for comparable homes are adequate to support the purchase price being
contemplated. So, whether it’s your 1st or 50th
investment, income properties should be evaluated with the long term in
mind.  Today’s foreclosure and REO market
offers tempting record low prices, but careful analysis still needs to be
done.  If you are considering buying a
REO in (town), call me anytime.  Whether
buying or selling, with the right tools it is possible to produce a valuation
model accurate enough to assist your decision-making process.

Real Estate Websites by Cherie Young