Real Estate Investment: Profitable Properties for Investors

Locating profitable real estate investment properties in today's market can be challenging. However, there is still money to be made in realty. In fact, more deals exist today than ever before. It is simply a matter of becoming educated about available opportunities.

A new trend in real estate investment properties is emerging. Although this technique has been around for years, many investors are finding it enticing. Referred to as 1031 exchanges, this technique allows investors to trade like-kind properties without the need for financing.

Engaging in 1031 exchanges requires the services of a Qualified Intermediary (QI). This stipulation is outlined in Section 1031 of the Internal Revenue Service code. QIs must handle all aspects of the exchange in order for the IRS to classify the transaction as tax-exempt.

Real estate investors are able to defer capital gains and depreciation recapture taxes when trading properties with 1031. Various types of investment properties can be exchanged including equipment, airplanes, boats and real estate.

Homes used as personal residences or vacation homes cannot be traded. The exception to this rule is if the house is rented on a regular basis. Rental properties can only be exchanged for other rental homes and the exchange must be properly documented through the QI.

Other profitable investment properties include distressed real estate such as bank owned and foreclosure houses. Most of these properties require substantial repairs or complete renovations and are generally sold well below market value. Foreclosure homes are purchased through public auctions, while bank owned homes are sold through individual mortgage lenders.

Bank owned homes are nothing more than foreclosure properties that did not sell at auction. Although bank owned homes are generally priced higher than foreclosed homes, they usually have less baggage attached to them.

Foreclosure homes are notorious for having second mortgages and creditor or tax liens attached. Oftentimes, homeowners continue residing in the property until they are forced out through the eviction process. Investors who purchase foreclosure homes must go through the process of removing liens and in some cases evicting homeowners.

Once the house is returned to the bank, lenders negotiate with creditors and tax assessors to reduce or eliminate liens. Bank owned homes come with a clean title, freeing the investor from time consuming tasks and potentially unpleasant encounters with homeowners who refuse to leave.

Bank owned properties are currently selling for around 70- to 80-cents on the dollar. Some investors purchase bank portfolios consisting of dozens of properties. Since they are buying in bulk, the bank sells the homes at wholesale prices. Investors are able to pass these savings along to buyers; allowing them to purchase homes significantly under market value.

When possible, purchase properties through private investors who specialize in purchasing bank portfolios. Buying properties from banks is tedious and usually involves multiple counter-offers. It can take months to close a deal. With real estate investing, time is money so seek out investors offering wholesale properties.

Probate properties can be a profitable real estate investment. This involves locating real estate held in probate courts. Probate is the process used to secure property and personal possessions of a person who has died. It's a legal requirement in all 50 states and is notorious for dragging on for months.

The decedent's estate is responsible for paying outstanding financial obligations. If the decedent did not plan accordingly, the estate can go bankrupt in a matter of weeks; particularly if real estate is involved.

If a mortgage loan is attached to the property, the estate must make the payments or face foreclosure. In order to eliminate the financial burden, the real estate must be sold. Oftentimes, probate properties are sold for what is owed on the mortgage note. It's not uncommon for investors to purchase probate properties in excellent condition for 60- or 70-cents on the dollar.

I believe everyone should have the opportunity to profit from real estate investing; regardless of their income. Take time to study the market, attend seminars or real estate networking events, or participate in investment group forums. Learn the ropes and take the plunge!