Real Estate Investment Procedure: A Primer

By: Bryan Russo
May 23, 2022

Whether you’re a tenant, casual homeowner, sophisticated investor or anything in between, the ubiquitous nature of real estate is such that its presence in your life is inevitable. Knowledge of real estate and how it operates remains some of the most practical and consequential knowledge you can acquire.

Given the above, we strive to ensure our services remain holistic and we assist with any real estate-related endeavor, from the preparation of a single document to a complex takeover of an entire portfolio. Despite this, we specialize primarily in assisting investors with hands-on, personalized guidance on purposeful real estate investing – this article is intended to further substantiate how we accomplish that.

Effective real estate investing involves creating a system whereby the investor is able to consistently and reliably increase the value of their real estate investment. It is important to make the following distinction: wealth is seldom created from the underlying real estate asset itself, but rather from the investors manipulation of that asset. As such, real estate assets themselves are not inherently profitable; their unique characteristics provide investors direct control over the result of their investment by providing the flexibility and freedom to creatively enhance its value. Creating this value commands experience, creativity, hard work, and the ability to undertake a critical and multidimensional analysis of each individual real estate investment – no two investments are the same.

We believe adamantly that, when executed correctly, real estate investing is the single most effective way of creating lasting generational wealth and the freedom it brings.

Investing in real estate is nuanced and full of pitfalls that only costly experience can help investors avoid. The below enumerated list is brief and oversimplified – this list is only intended to provide a general guideline of the standard investment procedure we teach our investors.

1. Show clients how to scout and vet underpriced, mismanaged, abandoned and/or improperly purposed property. These properties are generally purchased utilizing off-market wholesale networks or direct-to-seller mechanisms where we the investor only competes with a minute fraction of other professional investors. This enables investors to purchase real estate at optimal prices and with optimal terms, before the asset is published on any mainstream market. Because these networks have high barriers to entry and generally only consist of sophisticated real estate investors, they operate much differently from the common real estate market in that expertise is presumed and safeguards generally available to novice investors do not exist. It is therefore imperative that novice investors do not attempt to purchase off-market real estate unassisted.

As a general principle, assets that have been advertised on mainstream markets such as the MLS, Zillow, etc. are not viable given their exposure. At best, these investments are suboptimal and inferior relative to off-market property.

2. We teach clients effective methods or schemes of negotiation and capitalize on our experience in and understanding of real estate transactions and real estate law to help them consummate the transaction at the maximally discounted price, with the most favorable terms, and with the least possible exposure to catastrophic risk.

3. Show investors how to Immediately employ an array of sophisticated and often complex methods of value creation. Some examples of the foregoing include, but are not limited to:

– direct improvement of real property
– repurposing of property through land-use designation, zoning changes, participation in local programs or ordinances to procure density improvements, etc.
– fee restructuring and re-categorization
– interior/market rate and delinquency analysis
– utility revenue share, sub-metering or implementation of RUBS billing system to incentivize or compel responsible utility usage
– utility-saving mechanisms to reduce overall usage
– property tax appeals
– replacement or reconfiguration of management
– renegotiation, replacement, or internalization of suboptimal vendor contracts with insurance providers, third party vendors, contractors, etc.

We show investors how to accomplish the above in a fully vertically integrated format. No party to a real estate investment is more incentivized to ensure its success than the principal investor. As such, we advise investors to remove third-party intermediaries and avoid delegation in order to overtake and directly manage every possible aspect of their investment. This provides the investor the ability to avoid potential conflicts of interest, ensure control over their investment, and drastically lower cost.

4. Finally, we show investors how to effectively market and dispose of an asset, defer all capital gains tax due and re-invest capital gains proceeds by completing a Section 1031 Exchange. Given the complex nature of real estate taxation, we often find investors accounting incorrectly and failing to capitalize on several tax benefits real estate can offer. Ultimately, the taxing authority will not help investors capitalize on real estate tax benefits if they fail to claim them. This responsibility lies solely with the investor. We undertake a thorough review to ensure investors utilize available tax saving mechanisms, such as depreciation, homestead exemptions, and more.

We further help investors maximize tax and reduce liability through strategic, long-term estate planning via the utilization of complex estate planning and asset protection mechanisms. This generally involves early establishment of adequate business structures and other legal instruments to maximize tax savings and reduce potential liability through and beyond the term of the investor’s ownership of the asset.

As a general proposition, investors overestimate how much capital or expertise they require to get started investing in real estate. Real estate is a long-term game, and we assist and encourage investors from even the preparatory phases of real estate investing.

For assistance or to schedule a consultation, please email us at [email protected]!