I did consult an accountant , he's an old man now tho so wanted to check with you guys/share the information

As fun160 indicated above with the IRS link, passive income come from two sources:

1. Rentals
2. Businesses where you have no material participation

The definition of "material participation" is very specific, but in general, that's what constitutes passive income. To the IRS, it's not a gray area at all.

So regardless of participation rental income is deemed as passive?

Yes. In fact, the IRS says specifically "regardless of the level of participation."

Spex - What are you views on Real Estate in Australia at the moment? With the Wall Street Journal recently claiming that Australia has been on the outskirts of the GFC when it comes to property but may start to see a dip/retraction now.

I'm specifically interested in Sydney over the next 5 years, and how both regular value properties and ultra prime markets will react to this news - if you have any thoughts I'm interested in hearing them as writing some web content for a friends website. Cheers

hey guys, sorry if this in the faq or whatever. How many "rainy day" mortgage payments you think you need in the bank for buying a new house? My income has the potential to be extremely volatile and while I know I can afford the payments, I'm just a little nervous about taking the plunge.

If it'll make you sleep better at night, 3-6mos is the general recommendation for an "emergency fund." Over time though you're essentially giving away a huge amount of money because those savings will either be losing purchasing power or barely beating inflation.

That's better than all you stand to lose when something unexpectedly needs repair, if there is a lawsuit, a messy eviction process, or there is a long vacancy.

This might be difficult to answer... Anyone have thoughts on the valuation of real estate in the Philippines?

Okay so I've read through this thread and understand all concepts, I need a cheat sheet or something tho for sure

Anyway, when u buy/and sell a property how much is the realtor making? They all seem like shady scam artists to me

While not always, typically agents will make between 2.5% and 3.0% of the sale price on a transaction. Since the seller generally pays both agents out of his proceeds, generally it is the seller who is paying between 5.0% and 6.0% of the sales price to the two agents combined.

If the agent who is representing you seem shady in any way, you should get a new agent. Your agent has a fiduciary responsibility to YOU, and if he isn't fulfilling it, find someone else.

From a newb perspective

They just seem to be getting paid so much for so little

It's that difficult to put a house on craigslist and sell it yourself? Getting a 3rd party involved sEems unnecessary

Only realtors have access to mls ? It just seems like this shady little private club to me

/newb

Yes, only Realtors have access to the MLS. What is so shady about it? If you are selling a property, it will get more exposure if you list it with an agent and this will in most cases more that cover the extra 5-6% that the seller is paying for Realtor commissions (that commission is split half to the selling agent and half to the listing agent).

If you are a buyer then why not get a Realtor to represent you in negotiations and help you with filling out the contract, you don't pay anything as a buyer because the seller is paying for both Realtors involved in the deal.

Also keep in mind that the Realtors do no keep the whole commission, they generally have to split the commission with their office's broker unless they are the broker. So your typical Realtor will usually only get about 1.25%-1.5%.

Well if I find a property as a buyer and the seller is willing to sell it for 100k and give 5k to a realtor I'd rather buy it for 96k

It's just not 5k worth of work....

Someone lists it with a realtor then they are contractually obligated to sell it with them?

Just as an investment standpoint it's a pretty large profit cutting # that seems avoidable

First, I agree that most agents are horrible and don't bring much to the table. Further, I believe that in 10 years, real estate agents will be just like travel agents -- a few niche professionals here and there, but for the most part gone away.

But, despite those beliefs, here and now, real estate agents control the flow of real estate transactions in this country (the U.S.). The National Association of Realtors has a strong lobby, a lot of laws working in its favor and a lot of clout with lawmakers. So, any major changes to the system are a long way off.

That said, you certainly don't need to deal with an agent as a buyer or a seller if you don't want to. But here are some of the challenges you face:

1. As a professional investor who rehabs and sells houses (for both myself and other investors), I can honestly say that of the last 50 or so houses I've sold, not more than two or three have been to buyers who found the property someplace other than the MLS. And those two or three were drive-by or open house buyers. I don't recall ever selling a house to someone who found it on Craigslist or another website other than the MLS. Especially in today's market, serious buyers have real estate agents, and agents find their houses on the MLS.

2. If you're buying distressed properties as investments (REOs, Short Sales, etc), you're welcome to submit offers yourself without an agent. But, in my experience, these types of sales require special contracts, addenda and other documents that -- if you aren't aware of the requirements and don't follow them to the letter -- will get your offer tossed in a pile and never seriously looked at. REO agents aren't going to take you very seriously if you aren't represented by someone who knows the process.

3. A good agent/buyer/seller will take tremendous advantage of you if you don't fully understand the process and intricacies of real estate transactions. A good agent will not only help with paperwork, but also with negotiation, controlling the deal, due diligence, getting concessions, handling appraisals, handling the loan process, etc. Certainly you can do it yourself, but can you do it well?

4. If your a buyer, it doesn't cost you anything to have an agent. If you think that you can get the seller to lower their price by the commission amount because you're not represented, this probably isn't true; if the seller is represented, most likely his agent will get both sides of the commission. And if you're a seller, and you don't want to pay a commission to a buyer's agent, be prepared not to get any serious buyers looking at your property, as their agents will ignore your house.

Ty very much for that well written and detailed post

I have a 2br condo now that is no longer suiting my needs
I want to sell it and buy a duplex or triplex ( 130 paid off on 180k condo fwiw)

My balloon note has about 9 months left (was hard to finance with gambling income, should be easier now given more years of returns)

Anyway im just a newb trying to weigh my options


I don't have any other money available for real estate investing, currently

It's possible, but not in all cases, to get listed on MLS without engaging a real estate agent.

Real estate agents are far from interchangeable. Like with any service, there is a huge deviation between truly excellent agents and all the rest of the pack. The good ones read between the lines, and are proactive in helping you avoid costly pitfalls and tieups. The crappy agents will treat you like a cookie-cutter client, and will not be proactive outside of getting the deal done. The great agents will be more savvy about pricing. Real estate negotiation is a fine art, and the better agent can often earn/save you much more than his/her commission.

Unlike many other services, the brilliant agents can't charge substantially more than the crappy ones. The benefit a great agent can give is well worth what they charge. As for the crappy ones, yes, they are pushing the industry down to an end-game of rock bottom fees and self-service because they truly aren't worth 3% of your home and everyone can see it. The top-notch agents are, though.

Don't sign any exclusivity stuff with an agent until you absolutely know they are a great agent. The great ones aren't necessarily the guys on the sides of buses, either.

So any advice on how to turn my ~175k condo with ~ 130k paid off into an investment property without getting raped by loan feed and agent fees

9 months left on the balloon note
Wouldn't mind waiting about 8 months to complete the transaction (will have another ~3k paid off by then )

http://charlotte.craigslist.org/reo/2598475534.html

offer $1500 and hold a note on this?

Offer less IMO, and show up with $100 Bills.

I don't know exactly how long it takes to acquire one, but you could always try and get your Realtor license and sell the place yourself as your own agent. However, although being your own Realtor will save you money on agent fees, it probably wouldn't be worth it for you unless:

1) You plan on being a full time Realtor
and/or
2) You plan on being a full time Real Estate Investor, and one that does a good number of deals a year at that.

When you use a Realtor, what you are paying mostly for is INFORMATION. When somebody knows something you don't, and especially something you really need to know, that information becomes extremely valuable. With the advent of the internet, it's much much easier to disseminate information, which makes the need for a Realtor decline, but in the pre-internet days people could't just browse every home for sale in the country.

I worked in residential leasing in college and sometime was just amazed at how much money I made for doing almost no work. For instance, I rented out a 2-bedroom place in a luxury building for 6,500/month and collected half of that as a fee. I literally just drove the person to the building, which they easily could have found online, and the building did all the paperwork. Stuff like that happens less and less I think.

On the other hand, I worked for a different brokerage in the Cambridge/Somerville MA area, and the value of the information went way up. All of the real estate there consists of triple-decker homes with 70 year old landlords who barely know how to use the internet. However, the brokerage has literally thousands of relationships with these landlords so someone searching the area through that brokerage has a wealth of information they couldn't otherwise have. That is a service worth the money, imo.

Ya I think the travel agent analogy was good
Maybe not to such a degree but the Internet really makes there value decline

Id be willing to pay 1%
this set rate f 3-5% is outrageous

If you plan on making REI a longterm goal, why not just get a Real Estate license yourself? You would learn more about real estate, learn how agents think, have access to MLS, and save money for yourself and your family on personal/investing opportunities in the future. Seems like a no-brainer. Am I missing something?