Vince Hoehn of CENTURY 21 Pierce Realty LLC, Manitowish Waters, WI

Day One at GRI Course 3 (see my previous post) has proven to be most interesting. The subject today and tomorrow is “Investment Real Estate and Exchanging”, and our instructor assures us that if we master what he is illustrating for us, we will be able to do something 99% of other real estate agents can’t -- properly and accurately analyze investment real estate ownership and purchases.

Some of the things we learned today:

• Why the costs of purchasing an investment property need to be allocated to four items -- the land value, the personal property value, the building value, and the land improvement value, and how that varies from all-to-common practice.

• What distinguishes residential rental real estate from non-residential rental real estate and why it is important to know the difference.

• Why a proper analysis needs to determine four numbers: the cash flow before tax (CFBT), the principal reduction, the income tax savings (or the tax paid), and appreciation; and how to determine those numbers.

• How to determine and analyze return on investment (ROI) and return on equity (ROE) -- not the same thing.

• Why return on equity should be figured every year on the anniversary of the purchase.

• Why even though an investment’s cash flow may improve from year-to-year, the return on equity may go down during the same period, and why you should care.

• How the Passive Loss Rules enter into the equation.

All good stuff, and information I can put to use. Tomorrow, how to use your IRA to invest in real estate, and exchanges.