MANAGING YOUR MONEY

Make property your wealth builder
Five tips for incorporating real estate into your portfolio

Nelson Zide, CRB, CRS®, GRI

If you're looking to turn a profit without the volatility of the stock market, real estate may be the investment for you.

We real estate professionals are obviously in a good position to get wealthy through real estate because we know its value and can spot good properties faster than anyone else.

About 15 years ago, I began putting 10 percent of my commissions into an account earmarked for building purchases.

Here are five important things I've learned:

1. Ignore people who say, “Don't use your own money.” You have to spend money to get into the market. Save 10 percent to 20 percent of your commission dollars in a special investment account. If you don’t, you won't have money available when you need it.

2. Invest only in small residential structures—condos, single- and two-family homes, and two- to four-unit buildings. Those properties weather good and bad market conditions.

3. Determine the potential value of a prospective purchase on the basis of its current cash flow. You should also consider cash flow when you sell the property.

4. Having low-income renters lowers your risk because there are always people looking for rentals for $400–$500 per month. The chances of such a property remaining vacant for long are slim. I get nervous about $1,000–$1,500 rentals because it’s expensive to carry a vacancy.

5. Don't let your personal taste get in the way of an investment: You won't be living there. My first investment purchase was a $55,000 home in need of serious rehab. I sold after several years at a nice profit.

Making real estate investments not only benefits your portfolio but also helps you become a better practitioner.

When you buy properties for yourself, you're better able to tell prospects what’s involved in such a transaction than if you were simply a broker or a salesperson. By knowing the ropes from a buyer's perspective, you have more credibility with prospects.

Zide is executive vice president of ERA--Key Realty Services, Framingham, Mass. He speaks extensively on real estate topics for local and state associations and has been investing in real estate for more than a decade.

Editor's note: Next month, Zide offers more tips on investing in real estate.

TAX TIP
Roth IRA heads up

The time is now to make the decision to move your retirement funds from a traditional IRA to a Roth IRA (for a story about the Roth IRA, see “ Roth IRAs,” Today’s REALTOR®, February 1998, page 32, available at the article archives of REALTOR®Magazine at One Realtor Place®). The rollover must be made in 1998 if you want to spread the income due on the converted funds over four years.

For rollovers after 1998, the entire amount will be taxable in the year of the conversion.

Source: California Society of Enrolled Agents