- The Washington Times - Wednesday, May 11, 2005

Real estate is still hot. Some markets across the country continue to experience double-digit-percentage appreciation.

Because of escalating prices, investors are using new strategies. Instead of flipping foreclosures, investors are looking to purchase pre-construction units and resell them at the table on settlement day to another buyer.

Still others are beginning to take their profits and move their investment holdings to other undervalued communities away from home.

The market in Washington and some other cities has priced out not only some would-be homeowners and move-up buyers, but investors, as well.

So where can you get a good deal these days when you can’t afford the market where you live? Think long-distance investing.

Real estate has demonstrated its resilience throughout the years, and investors are banking on finding land and homes far from their own neighborhoods to continue building their real estate portfolios.

Keep in mind, an investor can make money off real estate in several ways:

• Purchase fixer-uppers: Invest, fix up and flip.

m Purchase new and flip when construction is completed.

m Purchase, move in and hold.

m Purchase and offer for rent.

Most people gain equity through buying and moving in, but in an overheated market, even fixer-uppers are priced high.

Look elsewhere. There are plenty of undervalued/fixer-upper/foreclosure/vacation properties available in this great land. You just have to be willing to look farther than across town to buy them.

An investor friend of mine recently sold one property in the Washington area, resulting in nearly $300,000 in profit. To delay capital-gains taxes, he went to identify properties outside the region to purchase using the Internal Revenue Service 1031 Exchange option, named after a section of the federal tax code.

In simple terms, an IRS 1031 Exchange allows investors to defer capital-gains taxes when they sell one or more real estate properties if they reinvest all the proceeds into another qualifying real estate investment. For more details, consult www.realtor.org/libweb.nsf/pages/fg408.

In this case, the investor found likely properties about 250 miles away in southern Virginia.

He purchased some development land that can be subdivided later for building, a residential rental property, and then additional raw acreage near the future site of a highway bypass that should result in lucrative appreciation for commercial development.

It’s always seemed curious to me that people are willing to purchase stock in companies hundreds or thousands of miles away but find it hard to consider the same approach to real estate investing.

And just as you can hire someone to manage your stocks, you can do the same thing with a real estate portfolio.

Property management is one of the largest segments of the real estate industry. Thousands of Realtors earn a living doing what investors have no time, expertise or contacts to do: collect rent, pay all the monthly bills, receive calls from irritated tenants, and keep the land and property maintained. Many property managers work with investors who live across the state, the country or the world.

Long-distance investing requires a bit more risk tolerance because now your investment has people living in it. That means some wear and tear.

Someone has to watch out for the home maintenance; make sure renters pay on time; and pay other bills, such as association dues, taxes and memberships. Property managers fill the need.

M. Anthony Carr is author of “Real Estate Investing Made Simple.” Post questions or comments to his Web log (https://commonsenserealestate.blogspot.com).

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