Real Estate Question Texas Real Estate 11th Ed The various e

Real Estate Question: Texas Real Estate 11th Ed.

The various estates in land described by the author of your text in Chapter 3 arose mostly out of the struggle between the English Crown’s need for revenue and the efforts of the holders of the land to avoid taxes. Are these estates useful in this day and age? Can you think of substitute(s)?

Solution

Real Estate is not a work where they gain wages or salary of profit. basicaly they are purly gaining commision for their service which they provide to owner of the property and customer of the property.Tax is a metter among owner of the property ,customer of the property and Government.

Real estate development is the act of purchasing real estate, making improvements to the buildings on it or constructing new buildings and selling the real estate again. Real estate developers are professionals who specialize in this type of work. Real estate development can be a highly lucrative business but can also result in heavy losses as well. To succeed as a real estate developer, you must recognize potentially lucrative opportunities and predict market trends.

Commercial developers, who\'ve been in business for a long time, can make some serious dough as long as they don\'t make one mistake.

Residential developer income is as varied as the lawyer income mentioned above. The thing about it is it\'s a capital intensive endeavor. You need to understand the cost of borrowed money. A small timer who loses money on his first deal probably won\'t do a second deal.

To answer your question, it\'s better to be safe (financially) than sorry. I\'ve been doing it for 15 years this month. I will not consider doing a development unless I can realistically expect close to 100% gross return from purchase price to sale price. With this target I usually hope to make about a 300% return on my invested dollars (ROI). I seriously sharpen the pencil to get a quality property to market as quickly, and as cheaply to me, as possible.

Here\'s an easy example:

Purchase $100k home
Put $20k down, finance $80k 30 yr fixed for $500/month
Sell for $200k after rehab
Spend $30k on rehab using \"interest only\" HELOC from primary home, or maybe from savings, or angel investors, with payments being about $150 dollars a month at 6% amortized over 18 years.
Sell FSBO after 3 month rehab.
Less attorney fees and misc closing costs from purchase and sale, walk away from closing w/ $195k gross.
Pay off mortgage of still roughly $80k, leaving $115k.
Pay off $30k HELOC, leaving $85k
Subtract $3k+/- for RE taxes, utilities during rehab, etc. leaving $82k
Subtract 3 months of mortgage payments and 3 months of HELOC payments ($1950 combined), leaving $80.5k.
Subtract $20k original investment, leaving $60.5k net profit before taxes to arrive at a 300% ROI.
Rinse and repeat.

The taxes are huge in this business. In the above scenario, the profit will be taxed as ordinary income, not as a capital gain. The rate would be in the mid-30% range.

Smart investors would defer the tax by doing a 1031 into another property, or better yet, a cash flow positive rental.

Developers make money because they are extremely selective on which projects they buy, they never pay retail initially, and they deliver a finished product many clamor to own.