What Is Cash Flow in Real Estate?

Cash flow in property investment simply refers to the difference between the money you take in and what you spend. Positive cash flow means your income exceeds your expenses, and negative cash flow indicates the opposite. 

It’s a very simple concept but fundamental to real estate investment practices. A positive cash flow will provide an investor with continuous income and financial stability to reinvest in more properties. Understanding cash flow from real estate will help you make informed buying, holding, and selling decisions regarding property.

Why Do Investors Care About Cash Flow From Real Estate?

Cash flow is the lifeblood of real estate investing. It will dictate whether the property will become a financial liability or an asset. Consistent cash flow can provide for mortgage, maintenance, and other expenses. This padding in your bank account will help safeguard against market downturns or other cost surprises. High cash flow properties will also appreciate over time and increase your overall portfolio. The objective of anyone diving into real estate investing is to get the highest return on their investments. 

How to Calculate Cash Flow in Real Estate

Any serious real estate investor must learn to calculate cash flow. The investor will use these equations to understand the property’s profitability and thus be able to make a decent investment decision accordingly. Beyond the cash flow formula, you can use other valuable calculations to enhance the analysis: the CAP rate and the 1% rule. Here are the formulas for the necessary calculations: 

Real Estate Cash Flow Formula

This formula helps determine the profitability of a property by calculating the net income after all expenses.

Cash Flow = Total Rental Income − Total Operating Expenses (Operating Expenses + Vacancy Costs + Repair Costs)

Example of positive cash flow: Imagine you own a rental property that generates $3,000 per month in rental income. Your monthly operating expenses, including mortgage payments, property taxes, insurance, maintenance, and management fees, total $2,000. 

Using the cash flow formula:

$3,000 − $2,000 = $1,000 (Cash Flow)

In this example, the property provides a positive cash flow of $1,000 monthly, indicating a profitable investment. 

Example of negative cash flow: Let’s take the example above with a property generating $3,000 per month in rental income, but now the monthly operating expenses are $4000 because this property has a higher property tax and additional maintenance that must be paid for monthly. 

Using the cash flow formula:

$3,000 − $4,000 = -$1,000 (Cash Flow)

This example showcases a negative cash flow that indicates this wouldn’t be a profitable investment. 

1% Rule Calculation

The 1% rule is a guideline for a quick and easy way to check that the rental income will more than likely pay off most expenses, indicating some possible positive cash flow. Keep in mind that it is an estimation. Here’s how to calculate it:

• Determine the purchase price: Find out the total cost of the property, including any closing costs and necessary repairs or upgrades.
• Calculate 1% of the purchase price: Multiply the purchase price by 1%.

Purchase Price × 1% (0.01) = Estimated Cash Flow

Example 1% rule calculation: Suppose you are considering buying a property for $200,000. To apply the 1% rule:

1% of Purchase Price = $200,000 × 0.01 = $2,000 (Estimated Cash Flow)

According to the 1% rule, the property should generate at least $2,000 monthly rental income to be considered a good investment. If the expected rental income meets or exceeds this amount, the property will likely provide positive cash flow, making it a potentially sound investment.

Cap Rate

Using the cap rate formula, also known as the capitalization rate, will be beneficial when comparing the potential return on investment among different properties. This calculation is more complicated and involves a few extra steps. 

Net Operating Income (NOI) / ​Purchase Price = Cap Rate 

Step 1: Determine net operating income (NOI): Calculate the annual rental income and subtract all operating expenses.

Total Rental Income − Total Operating Expenses = NOI

John owns a rental property that generates $3,000 monthly in rental income, totaling $36,000 annually. His annual operating expenses, which include mortgage payments, property taxes, insurance, and maintenance, amount to $1,000 per month, or $12,000 per year. Calculate his NOI below: 

$36,000 (Rental Income) − $12,000 (Operating Expenses) = $24,000 (NOI)

Step 2: Determine Purchase Price: Find out the total purchase price of the property. The total purchase price can include the property cost, closing costs, inspection fees, and necessary repairs or renovations.

$250,000 (Property Price) + $15,000 (Closing Costs) + $34,600 (Repairs/Renovations) + $400 (Inspection Cost) = $300,000 Purchase Price

Step 3: Calculate the Cap Rate using the above formula (NOI / Purchase Price = Cap Rate)

$24,000 (NOI) / $300,000 (Purchase Price) = 0.08 or 8% (Cap Rate)

In this example, the property has a cap rate of 8%. This percentage means the property generates an 8% return on investment based on its net operating income. A higher cap rate generally indicates a more profitable investment.  

What Factors Affect Cash Flow? 

Several factors may impact cash flow in real estate investing, so it will be important to understand the variables to maintain positive cash flow. Here are the critical elements that influence cash flow most:

• Expenses: Large negative cash flow items include operating expenses like mortgage payments, property taxes, insurance, maintenance, utilities, and property management fees. Other current and nonrecurring expenses that impact your profitability might include major repairs or emergency maintenance.
• Rental income: How much you can charge for rent depends on location, property condition, and market demand. High vacancy or high turnover rates lower rental income, hurting cash flow.
• Rental vacancies: The more vacant a property is, the less rental income will be collected. Effective tenant retention strategies and rigorous screening processes will help minimize vacancies and keep cash flowing.
• Market conditions: Economic conditions, interest rates, and local real estate markets drive rental rates and property values. Shifts in these can negatively or positively affect cash flow.
• Property management: Good property management keeps rent collection, maintenance, and tenant relations in check to provide steady cash flow. Poor management increases vacancies and raises expenses, which will cut profit margins.

By keeping these factors in control, investors can have an inflow of cash to make real estate investing profitable and sustainable.

Baselane’s rent collection platform is an excellent avenue to stabilize your rental income. Baselane provides automated payment reminders and seamless online payment options to minimize late or missing payments. This ensures timely reception of your rental income every single time. The platform also provides detailed tracking and reporting features that allow landlords to monitor payments and manage finances more efficiently. 

Baselane will help property owners maintain consistent income, reduce administrative work, and focus more on growing real estate investments.

Tips to Increase Cash Flow

Increasing cash flow in real estate requires raising income and reducing expenses. Having a strategic approach to managing your properties as a part of your investing business plan can radically improve profitability. Here are some hands-on tips for maximizing the cash flow of your real estate:

• Increase rental income: Renovate the property, add amenities, consider short-term rentals, and adjust the rent to make it more marketable.
• Reduce vacancies: Enforce tenant screening and incentives for lease renewal, and maintain good relations with tenants.
• Lower operating expenses: Check insurance rates, compare property management fees, maintain the property, and invest in energy-efficient upgrades.
• Optimize financing: Refinance your loan, pay off that high-interest debt, and find alternative ways to finance your purchases.
• Increase efficiency: Implement real estate management software, preventative maintenance, and monitor cash flow regularly.

Frequently Asked Questions (FAQs)

What is a good cash flow ratio in real estate?

How do you make sure a property's cash flows?

What type of real estate has the most cash flow?

Bringing It All Together

Positive cash flow in real estate is considered the central factor in any successful property investment. After all, the objective of investing is to make money, right? Every investor must take time and perform due diligence before investing in any property. That includes performing market analysis, properly calculating potential income and expenses, and considering improvements needed for the property to gain a higher rental value. 

Look for properties with potential for solid cash flow, such as multifamily units or short-term rentals in hot spots. Run those properties professionally, tracking their financial performance closely to adjust your strategy as you go. Keeping an eye on financial performance and tweaking your plan as needed will help keep that cash flowing to ensure your real estate ventures are not just profitable but can also provide you with some enjoyment.

The post Cash Flow in Real Estate: Overview, Definition & Calculations appeared first on The Close.

What Is the BRRRR Method?

“BRRRR” is an acronym for buy, repair, rent, refinance, and repeat. It can be done by anyone who can purchase a property, allowing investors to build equity immediately after renovating or repairing it by doing a cash-out refinance. Plus, the exact process can be repeated over and over, massively increasing your equity and investment portfolio.

The price of rent has jumped 30.4% nationwide between 2019 and 2023, so renting out a property is likely to be profitable. However, learning as much as possible before diving into any real estate investing strategy is always important. To find out if BRRRR is right for your next project, check out Kiavi’s free Breaking Down BRRRR e-book below. It covers the method’s pros and cons, tips for getting the right loan for your project, and even the best home rehab trends to attract high-income tenants.

Why the BRRRR Method Is an Excellent Investment Strategy

BRRRR investing enables you to build a portfolio without buying properties in cash. Because you will do a cash-out refinance once the property has been renovated and leased, you’ll make a quick profit that you can use to reinvest in another property while enjoying the advantages of owning a rental. 

When done correctly, the BRRRR method can grow your net worth, generate passive income, and eventually lead to financial independence by enabling you to own and rent real estate uniquely and continuously. Here are some of the more specific pros and cons of using the BRRRR strategy to invest in real estate:

How to Use the BRRRR Method

Let’s take a closer look at the BRRRR, meaning going through it step-by-step. While the process is relatively simple in theory, finding the right property, renovating, financing, and managing a rental can be challenging—even for experienced real estate professionals. Let’s dig into each part.

1. Buy

For the BRRRR method to be profitable, you have to find the right undervalued property. Look for homes you can do low-cost improvements on to increase their value, which will increase your equity in step 4. The more discounted a home you can secure, the more equity you’ll have at this step in the process.

Also, look for properties likely to rent out easily and quickly. For example, condos or apartments near a university will be in high demand. Once you’ve found an undervalued property, it’s time to consider the best option for financing. The typical finance options for the BRRRR method are as follows:

• Hard money loans: These loans are typically short-term and come from a private, non-bank lender. The application process for hard money lenders differs from a typical mortgage; the lender will prioritize the property’s investment potential over your credit. Interest rates are generally much higher than a typical mortgage, generally between 10% and 18%.
• Cash: This means that you would not use any financing and would simply pay for the property entirely in cash. 

Rule of 70%

A smart investment rule of thumb is the Rule of 70%. This rule says you should only spend 70% of the property’s after-repair value (ARV) minus repair expenses. For example, if you’re looking at a $400,000 investment property that requires $80,000 of repairs and renovations, you shouldn’t spend more than $200,000 on it. Ideally, the remaining 30% can be used on closing costs and realtor commissions while still leaving a healthy profit leftover.

2. Rehab

The rehab or renovation part of the process is the part that requires the most elbow grease—but not necessarily your own! Focus on renovations and repairs with the lowest costs that will make the property attractive to tenants. You should know how much you have to spend on repairs after purchasing the home.

The rehab process has three main parts:

• Finding a trustworthy contractor: You’ll need a professional contractor with experience with the types of repairs and renovations you need. Ask other investors and realtors for their recommendations, and then build a relationship with a contractor you can (hopefully) use again.
• Staying on schedule and on budget: Renovations always take time and money. Plus, the longer a renovation takes, the higher your carrying costs. Keeping your project on track is possible, but it takes plenty of work.
• Maximizing your ROI: Make sure you choose the renovations that will have the best ROI and set the property up for long-term success.

3. Rent

If you were doing a fix-and-flip, this is the time you would sell the home. However, with the BRRRR method, this is when you turn your property into a cash-generating asset by finding tenants and renting it out.

You will have to move relatively quickly here because, at this point, your expenses will likely be chewing a hole in your wallet. Make sure you analyze your cash flow thoroughly as you price your new rental. You could hire a property management company to market your property and screen renters, or you can do it yourself with the sales, finance, and communication skills you’ve learned as a real estate agent. 

4. Refinance

After your property has been refurbished and leased, do a cash-out refinance to turn the equity in the house into cash. This moment is when the BRRRR method literally proves its worth in profits! Not only does this save you money, but cash-out refinances also have a lower interest rate than a home equity loan or line of credit (HELOC). Plus, you can deduct the interest from your taxes.

5. Repeat

If you want to build a real estate investment portfolio, you can use the money from the refinance as a down payment on your next BRRRR property. This time, you’ll have more expertise, a growing network of contractors, and a cash-generating rental property under your belt. You might even use the BRRRR method to create a large rental portfolio. By choosing smart properties and the right renovations, the sky’s the limit.

Frequently Asked Questions (FAQs)

What is the 70% rule for BRRRR?

What are the disadvantages of BRRRR?

Is the BRRRR method worth it?

Bringing It All Together

The BRRRR method is an excellent real estate investing strategy that can help agents become investors, build equity, and scale their investment portfolios quickly. However, it takes a lot of time, research, and effort to do it successfully. Make sure you thoroughly research and plan each step of the process using our guide to be successful. Good luck!

The post What Is the BRRRR Method & How Does It Work in Real Estate? appeared first on The Close.

What Does a Property Manager Do?

Generally, a property manager manages rental properties, which can include either commercial or residential properties or units. Property management is extremely important and is often the core of what makes a rental successful for the investor and the tenants. Property managers are usually employed by property management companies or real estate firms, and they handle many properties and units simultaneously.

The responsibilities of a property manager include: 

• Marketing and advertising vacant properties
• Screening potential renters
• Developing lease agreements
• Showing the property or units to potential renters
• Coordinating move-in and move-out inspections
• Handling communications between the tenant, maintenance teams, or owners
• Collecting rent payments and deposits
• Maintenance and repairs of the property

Pro Tip: Since property management is a salaried position you can get with a real estate license, it can be a great option for new real estate agents who don’t have the financial cushion to focus on real estate sales alone. You can be a part-time real estate agent and a part-time or full-time property manager. Although the positions are very different, you can learn a lot about the real estate investment industry by getting into property management.

How Much Do Property Managers Make?

The average salary of property managers in the US is around $50,000 to $55,000. However, like most jobs, the salary can range significantly depending on the location, your experience, and the type of property management you do. However, here are the averages found from a variety of reliable sources: 

• ZipRecruiter: US average of $58,335, with a range of $28,000-96,500
• Glassdoor: US average of $53,889, ranging between $47,000-75,000
• Payscale: US average of $55,831, with a range of $36,000-82,000

Another interesting fact about becoming a property manager is that many companies offer bonuses for specific criteria that ensure the properties stay profitable with high occupancy and renewal rates. This benefit of property management could make it an ideal real estate side hustle. These bonuses can be offered per lease, quarterly, or annually. One study reported that the average property management bonus rate is 12.9%.

Steps of How to Become a Property Manager

If you’re wondering how to get into property management, the process varies slightly from state to state. Interestingly, some states require official licenses, like a real estate license and/or a property management certification, and other states have almost no requirements. Here are the general steps to learn how to become a property manager.

1. Learn About Each Type of Property Management Certification

The first step to answer “How do I become a property manager?” is to understand the different types of management certifications available. Not all positions require a certification, but knowing this information will help you figure out how to become a property manager.

A few of the most common property management certifications and niches are:

• Certified Property Manager (CPM): This is the most well-known certification for general property managers who want to handle a variety of residential and commercial properties.
• Accredited Residential Manager (ARM): This certification, specifically for residential property managers, is ideal for getting a job or improving your skills quickly when you’re new to the industry.
• Certified Apartment Leasing Professional (CALP): This certification is for experienced property managers who want specialized education in leasing and managing apartment complexes.
• Master Property Manager (MPM): This is the most advanced certification available for property managers. It requires at least five years of consistent property management experience. Property managers with this certification are typically the industry leaders and the highest earners.

There are even more property management courses and certifications that will help you increase your success in the real estate industry. Check out national associations like the National Association of Realtors (NAR), the National Association of Residential Property Managers (NARPM), the Institute of Real Estate Management (IREM), and the National Apartment Association (NAA).

2. Define the Key Qualifications to Become a Property Manager

Learning how you become a property manager can be confusing because each state and property management company has different requirements and qualifications. However, a few general requirements are similar to getting your real estate license.

Some of the most common requirements to become a property manager are:

• Being at least 18 or 21 years of age
• Having a minimum of a high school diploma or GED equivalent
• Being a legal US citizen or permanent resident
• Passing a criminal background check
• Completing a certain number of hours of real estate license coursework and a passing score on the Real Estate Licensing Exam (although there are exceptions; see section below for more info!)

3. Complete Your State’s Requirements

The requirements to become a property manager vary drastically from state to state. In many states, property managers must have a real estate license and/or a property management license—this includes managing short-term rentals like Airbnb and VRBO. 

However, in four states (Idaho, Vermont, Kansas, and Maine), the only requirement is being over 18 and having a high school diploma. In addition, many states won’t require you to be licensed if the property you manage is a property you own (such as an Airbnb). Here are a few examples of requirements across different states:

4. Find a Property Management Position

Once you have the requirements to become a property manager, celebrate! It’s time to start applying for positions. One of the best ways to find a property management job is by connecting with local real estate brokers, agents, and investors. Even if you want to start your own property management business, you may want to learn the ropes inside of a company at the beginning of your career. Other than using your connections, property management positions are almost always posted on job listing sites like Glassdoor, Indeed, and LinkedIn.

Keep in mind that your first property management position doesn’t have to dictate your entire career. If you decide to go out on your own, switch brokerages, or go for a different property management position, you can do that with no penalty.

5. Find the Right Property Management Software

Whether working for a brokerage or independently, having the right software is essential for growing your real estate business. Many property management tools offer features for everything from marketing to lead management to accounting.

For example, TenantCloud includes tenant screening, rent collection tools, communication portals for maintenance and communication, and easy-to-read marketing and financial tracking reports. It may be the all-in-one tool you need to be a successful property manager.

6. Stay Up to Date

The best way to flourish in the property management industry is to stay educated about industry trends, regulations, and best practices and to continually improve your skills. There are plenty of resources for property managers, like networking events, seminars, and continuing education courses. Plus, taking courses and earning certifications is a great way to stand out and increase your success and earnings even if you stay at the same company.

You might also consider joining a local professional organization for property managers, such as the National Association of Residential Property Managers (NARPM) or the Institute of Real Estate Management (IREM). These organizations will give you access to training, resources, and networking opportunities to help you grow in the business. 

Bringing It All Together

Overall, learning how to become a property manager is doable for anyone interested in real estate and willing to put in the time and effort. It’s a great career that can help you learn more about the industry and provide consistency for aspiring real estate agents.

The post How to Become a Property Manager in 6 Easy Steps appeared first on The Close.

1. Real Estate Agent

• Average salary: $90,506 per year
• Required skills: Communication, negotiation, persuasion, and market knowledge

Whenever you ask, “What can you do with a real estate license?” the most common career path is to become a real estate agent. You can do this full-time or as a part-time real estate agent. In this role, you’ll represent buyers and sellers as they navigate the real estate transaction process. 

• Buyer’s Agent: Accompany buyers on showings and provide counsel and advice through the property search, selection, negotiation, and contract process. You’ll also connect homebuyers with the necessary area professionals (like mortgage brokers, inspectors, appraisers, and more) to help them reach the finish line.
• Seller’s Agent: Offer counsel to sellers regarding the estimated value of their homes. You’ll also provide a listing strategy, including price, marketing, open houses, etc., and you’ll help them negotiate in the offer process—ultimately getting them at the closing table.

The requirements to become a real estate agent vary per state. Some states only require 40 hours of prelicensing education, while some need more than a hundred hours. Still unsure whether you want to help clients close deals? Read our article on the pros and cons of being a real estate agent.

2. Real Estate Managing Broker

• Average salary: $104,418 per year
• Required skills: Leadership, management, mentoring, knowledge of real estate laws and regulations

Real estate managing brokers wear many hats, but generally, they’re responsible for managing real estate agents. In this role, managing brokers advise agents and provide them with mentorship and professional development. Depending on the structure of a brokerage, they’re also responsible for various elements of office management.

To become a real estate broker, you must complete additional education requirements set by your state in addition to your prelicensing education. You’ll also need some experience and pass the broker’s licensing exam. Do you have what it takes to be a real estate managing broker? Do you want a leadership role at a brokerage? Read our article on the difference between an agent and a broker.

3. Real Estate Instructor

• Average salary: $63,144 per year
• Required skills: Communication, passion for teaching, in-depth knowledge of real estate principles and practices

Besides being an agent or broker, one of the jobs with a real estate license is as an instructor. Real estate instructors teach aspiring and seasoned agents prelicensing and continuing education courses. They cover real estate laws, transaction processes, and ethics to help students obtain and maintain their licenses. If you’re passionate about teaching and want to impart knowledge to aspiring real estate professionals, this job is for you.

Instructors use various teaching methods, including classroom lectures and interactive online discussions. Additionally, instructors must stay updated on real estate laws and market trends and quickly adapt to new real estate developments.

4. Real Estate Analyst

• Average salary: $86,818 per year
• Required skills: Market research, analytical, and data analysis

One technical job with a real estate license is as an analyst. Real estate analysts examine trends and interpret data to provide insights and recommendations for property investments, developments, and other transactions. In addition to observing market trends, they analyze property values and evaluate potential risks. They use all their findings to help clients make informed decisions about leasing, buying, selling, or developing properties.

If you love finance and economics and want to work as a real estate analyst, you must gain relevant experience in real estate firms or financial institutions. Staying informed about market trends and the economic climate would be best. 

5. Real Estate Writer

• Average salary: $81,001 per year
• Required skills: Excellent research, writing, search engine optimization (SEO) and keywords, and creativity

What can you do with a realtor license, you ask? Writing might be the right path if you want to create informative real estate pieces. Real estate writers produce many types of content, such as articles, market reports, strategy guides, copy, and property listing descriptions. If you want to be a real estate writer, prepare to write for various audiences, including home buyers, sellers, and other industry professionals. Some real estate writers can work freelance for brokerages, media organizations, or online real estate publications (like The Close!).

To succeed in this role, you must understand real estate terms and market trends to provide accurate information. Writers must also be adept at SEO techniques to boost their content’s readership and reach a broader audience.

6. Property Manager

• Average salary: $59,796 per year
• Required skills: Communication, financial management, problem-solving, and knowledge of landlord-tenant laws

Property managers handle the daily operations of various properties for owners. You can work for landlords, investors, or building owners by screening tenants, preparing lease agreements, showing properties, and collecting rent. As a property manager, you’ll ensure properties are well-maintained, meet safety standards, and address tenant concerns.

Property managers are also in charge of the financial aspects of these properties. They create budgets, set rental fees, monitor expenses, and report finances to owners. To become a property manager, you must have relevant experience in property management assistance or tenant relations. Some states require certifications like Certified Property Manager, Certified Apartment Leasing Professional, and Master Property Manager will boost your credentials.

For property managers seeking an efficient tool to help manage properties’ finances seamlessly, try TenantCloud. It provides features like online rent collection, tenant screening, and maintenance tracking.

7. Real Estate Coach

• Average salary: $40,970 per year
• Required skills: Leadership, communication, coaching, mentoring, motivational, and industry knowledge

Some other jobs that require a real estate license are as coaches and trainers. Real estate coaches mentor industry professionals to enhance their skills and grow their businesses. Coaches empower agents, brokers, and other real estate professionals by boosting their confidence and promoting career growth. They pinpoint areas where their clients need to improve, conduct one-on-one sessions and workshops, and give continuous feedback. 

Want to coach your fellow industry members? Start by developing your communication skills, managing clients, and producing training materials. Then, work towards marketing yourself, coaching a few clients, and staying updated on training techniques.

Once you work as a real estate coach, you can also be one of the best motivational speakers at industry events. Sharing your insights and success stories can inspire others and establish you as a thought leader in the industry. You may also write a book and create courses to reach a bigger audience and expand your network.

8. Real Estate Attorney

• Average salary: $140,845 per year
• Required skills: Real estate law expertise, legal research, analytical, attention to detail, logical reasoning, and problem-solving

A real estate lawyer manages the legal aspects of property transactions, helping clients navigate the complexities of leasing, buying, and selling. They prepare papers like leasing agreements, eviction notices, title documents, and mortgage contracts and perform title searches to confirm property ownership. Real estate attorneys address all legal concerns while representing tenants, buyers, and sellers.

If you want to be a real estate attorney, you’ll need a bachelor’s degree in pre-law, complete law school and earn a Juris Doctor degree, then pass your state’s bar exam. Lawyers can skip prelicensing education in some states to earn a real estate license. 

9. Home Inspector

• Average salary: $60,383 per year
• Required skills: Knowledge of building codes and attention to detail

Home inspectors assess properties to ensure they meet safety standards before the home sells. They thoroughly inspect a home’s structural elements, electrical systems, plumbing, and roofing, as well as heating, ventilation, and air conditioning (HVAC) systems. Home inspectors are detail-oriented as they identify faulty wiring, water leaks, or structural damages.

To become a home inspector, search for your state’s specific requirements. Typically, these include completing certain training hours and passing a certification exam. Additionally, joining organizations like the International Association of Certified Home Inspectors can offer more networking opportunities and continuing education.

10. Real Estate Investor

• Average salary: $86,796 per year
• Required skills: Market research and risk assessment

Real estate investors buy and sell properties to generate income. The process typically involves buying properties to rent out or renovating homes to sell at a higher price (aka flipping houses). Some investors also purchase land for future development. It takes so much courage to be a real estate investor. While the risk is very high, the potential rewards can be as significant. Always be prepared for market fluctuations, unexpected expenses, and property vacancies.

You may think you don’t need a real estate license to be an investor. While that may technically be true, you should still get a license to make real money doing it. When you’re an investor with a real estate license, you can represent yourself in the sale of your properties, saving you upward of 6% (the typical commission for residential real estate sales). In addition, you can also represent yourself in the purchase of real estate, allowing you to either pocket the commission or negotiate it off the top of the sales price.

Want to start learning about real estate investing? Read Kiavi’s insightful eBook on Flipping Houses 101:

11. Real Estate Appraiser

• Average salary: $61,060 per year
• Required skills: Market research, analytical, and knowledge of appraisal techniques

Real estate appraisers evaluate properties and assess their values before they are insured, mortgaged, or sold. They look into all variables that may impact a property’s value, such as past homeownership, renovations, and developments. If you’re considering working as an appraiser, you must know about local market trends and conditions to succeed. In addition to appraising properties, appraisers also update public records. They note any changes that may impact properties’ values.

To become an appraiser, you must complete real estate appraiser courses, work as a trainee, find a mentor to supervise you, and then pass your state’s appraiser licensing exam.

12. Real Estate Assistant

• Average salary: $45,545 per year
• Required skills: Administrative, communication, and organizational

Another answer to your “What can you do with a real estate license” question is to assist agents and brokers. Real estate assistants help manage the day-to-day operations of brokerages. They receive visitors at a brokerage, respond to emails, answer the phone, schedule appointments, and organize paperwork. If you want to work as an assistant for an agent or broker, your responsibilities will include coordinating property showings, handling client inquiries, and creating property listings. You’ll nail this role if you’re good at juggling multiple responsibilities.

13. Real Estate Content Creator

• Average salary: $47,000-$90,000 per year
• Required skills: Creativity, storytelling, social media, and video editing

Working as a content creator can be fun if you love creating various types of content and actively engaging with your audience. As a real estate content creator, you’ll produce high-quality social media content to attract new clients and retain existing ones. You’ll share your real estate insights, property listings, virtual house tours, and other relevant topics on your Instagram, Facebook, TikTok, and YouTube.

You can start by gathering social media post ideas for your platforms. Learn about the latest digital marketing strategies and analytics tools to know which types of content work best for your target audience. You can also partner with other real estate brands, software, or platforms and promote them on your page to earn extra income.

FAQs: What Can You Do With a Real Estate License

What skills are necessary to succeed in the real estate industry?

Is it possible to have side hustles in real estate?

What are the challenges of a career in real estate?

Which states do real estate agents make the most money in?

Bringing It All Together

You’re still probably asking, “What can I do with my real estate license?” Choosing the right real estate career takes many considerations. Assessing your skills, interests, and long-term goals is essential in finding a path that suits you best. I’m sure there are more jobs you can get with a real estate license besides the ones listed above. What did I miss? Please share them in the comments below!

The post 13 Jobs You Can Get With a Real Estate License appeared first on The Close.

If you want to work with investors, you need to know how to explain their complexities in plain English. To make your job easier, I put together this simple 1031 exchange rules cheat sheet to help you save your clients money at tax time. There’s a lot to digest here, so if you’re in a rush, you can simply download my 1031 Exchange Rules Cheat sheet as a PDF here: 

Download Your Free Branding Guide

Back to Basics: What Is a 1031 Exchange?

A 1031 exchange refers to section 1031 of the Internal Revenue Code, which allows a property to be exchanged for a “like-kind” property. The benefit of a 1031 exchange is that it defers the taxes that would normally be paid on the capital gains from the sale of a property. 

While everyone would like to save money on capital gains when selling their home and buying a new one, 1031 exchanges are only allowed on investment properties. If you don’t have any investor clients yet, check out my quick start guide to building the skills investors look for in Realtors here:

How 1031 Exchanges Work + Examples

A 1031 exchange is the process where a person sells one investment property and purchases another “like-kind” property (or multiple properties) of equal or greater value than the property sold. 

The first property—the one your client is selling—is known as the Relinquished Property, and the like-kind property they are purchasing is known as the Replacement Property. 

The proceeds from the sale may not be received by the seller. Basically, the money cannot hit their bank account. Instead, the money from the sale of their first investment property must be transferred to a qualified intermediary (known as a QI), who will hold the funds until the replacement property is identified and purchased.

When all of the proceeds from the sale of the relinquished property are used for the purchase of the replacement property, the sale is considered an exchange and is not a taxable event. The advantage to your client is that they will not have to pay capital gains tax on the uptick in value of the property they’ve sold. 

When Taxes Must Be Paid on 1031 Exchanges

Any proceeds from the sale of the relinquished property that is not used to purchase the replacement property is called “boot” and is subject to taxation.

Additionally, if the relinquished property has a mortgage loan outstanding on it, the replacement property must have equal or greater debt. If the debt on the replacement property is less than the previous debt on the relinquished property, the difference is called “Mortgage Boot” and is subject to capital gains tax.

This is important to note since many investors want to use their property sale proceeds to buy a lesser-priced property, and thus avoid having a mortgage on their newest investment. Doing so, however, will not satisfy the rule of replacing the value in a 1031 exchange.

Example of a 1031 Exchange

A client has a single-family investment property in Denver, Colorado. They want to sell their Denver property and purchase two duplexes in Chattanooga, Tennessee.

The home in Denver is valued at $600,000 and has an outstanding mortgage balance of $300,000. After the sale, they’ll need to pay the balance of the mortgage, in addition to the cost of closing the sale ($48,000), leaving them with $252,000. 

Since the proceeds from the sale may not be given to the seller, they must find a qualified intermediary to hold the funds until the purchase of the replacement property or properties (in this case, the two duplexes in Chattanooga) is complete.

The qualified intermediary will complete the necessary paperwork that the title company and IRS require to ensure the transaction is completed correctly.

Once the Relinquished Property sale is complete, the seller must identify three “like-kind” replacement properties within 45 days. In this case, the seller is exchanging the single-family home in Denver that they rent out for two duplexes in Tennessee that they will use to generate income through rent and appreciation. 

As such, their desired Tennessee properties qualify this as a “like-kind” transaction, eligible for a 1031 exchange. 

Replace the Total Value

To avoid taxation on capital gains, 100% of the value of the Relinquished Property must be replaced by property or properties of equal or greater value. Therefore, our seller must find properties with a total value equal to or greater than $600,000. 

In this example, our seller identified and contracted the two Tennessee duplexes for the combined sales price and replacement value of $640,000.

Once the properties are placed under contract, the purchase transactions must be completed within 180 days of the date of the sale of their Denver property. The seller must also use the full proceeds from the sale of their single-family home in Denver toward the purchase of the duplexes. Otherwise, any unused portion, or “Boot,” may be subject to capital gains tax. 

Since the proceeds of $252,000 from the sale of the home in Denver isn’t enough to cover the combined purchase price of $640,000 for the two duplexes, the investor will need to either secure a mortgage or bring in the additional cash to make up the difference.

1031 Exchange Rules in Plain English

While 1031 exchange rules can get a little complicated, being able to discuss the basic rules with your clients will help you come across as a true professional. Here is a quick rundown of 1031 exchange rules: 

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1031 Exchange Rules in Plain English

1. Both Properties Must Be Titled Under the Same Person’s Name
The property sold and the replacement property must be titled under the same name.

2. The Second Investment Property Must Replace the Value of the First
The value of the replacement property(s) being purchased must be equal to or exceed the sales price of the investment property being sold.

3. The Purchased Property Must Replace the Debt of the First
Any debt owing on the sold investment property must be replaced by a mortgage of equal value on the replacement property(s).

4. Must Use All the Proceeds
To avoid capital gains tax, all proceeds from the sale of the first investment property must be used toward the purchase of the replacement property(s).

5. Must Exchange for ‘Like-Kind’ Property (or Properties)
The replacement property(s) must be used for the same purpose as the sold property. For example, exchanging an investment property for investment property is allowed, but exchanging an investment property for a second home is not permitted.

6. Must Be Identified in Writing Within 45 Days
The replacement property or properties must be identified in writing within 45 days from the sale date of the investment property that has been sold.

7. Must Close in 180 Days
The purchase of the replacement property or properties must be completed within 180 days from the sale date of the sold investment property. Once the new property is identified, your clients have 180 days from their first closing to close on their replacement property.

8. Must Not Have Access to the Proceeds of the Sale
The seller (or exchanger) may not have access to any of the proceeds from the sale of their investment property until the 1031 exchange process is complete.

Answers to Common 1031 Exchange Rule Questions

No article can answer every question about 1031 exchanges. However, here is a short list of the most common questions your clients may have and how to answer them.

What Qualifies as a ‘Like-Kind’ Property for a 1031 Exchange?

One of the most important and confusing conditions of a 1031 exchange is the “like-kind” property rule. This states that the Replacement Property must be “like-kind” to the Relinquished Property.

The Internal Revenue Code defines a “like-kind” property as any real estate within the U.S. that is held for investment, trade, or business purposes. A “like-kind” property cannot be used as a principal residence or a vacation home for longer than 14 days in a given year.

To make this as simple as possible, think of like-kind property as what the intended use is from an investment mindset versus the intended use from a practical sense. A single-family home that is rented to produce income and appreciation is not similar in a practical sense to a farm that is producing income from selling crops. 

However, to the IRS, they are “like-kind” since their intended use is the same. They are to be used as investments.

Below is a short list of properties that can and cannot qualify as “like-kind” in a 1031 exchange.

List of Like-Kind Properties

How Much Does a 1031 Exchange Cost?

The cost for a typical 1031 exchange can range from $500 to $1,200. The main expense is paid to the qualified intermediary for preparing the required documentation and holding the proceeds from the sale until the exchange is completed.

Can You 1031 Exchange a Primary Residence? 

A 1031 exchange is used to defer the capital gains taxes on investments only. Principal residences, second homes, and timeshares are not considered investment properties to the IRS.

What Is a DST?

A Delaware Statutory Trust (DST) is a fractional ownership in larger investment properties, such as medical offices, industrial properties, or multifamily apartments. A DST provides more options for investors who don’t want to manage properties or desire more diversification. 

Finding eligible DST properties is also less time-consuming because investors are exchanging into existing investments that are already under management.

What Are the Disadvantages of a 1031 Exchange?

• Additional paperwork, regulations, and fees
• Meeting the 45-day rule
• Closing in 180 days
• Replacing the value of the Relinquished Property
• Replacing the debt load of the Relinquished Property
• The risk of greater tax liability if the capital gains tax rate increases in the future 
• Deterrent to some property buyers who may not want the added complexity impacting their transaction

Do You Ever Have to Pay Taxes on a 1031 Exchange?

Yes, a 1031 exchange is a way to defer taxes to another day in the future. Always advise your clients to speak to a CPA to discuss the benefits and risks of a 1031 exchange. 

How Long Must You Hold a Property After a 1031 Exchange?

To avoid a tax penalty for not purchasing a “like-kind” investment, you must hold the property and use it for the same purpose for two years after the purchase date.

How Soon Can You Move Into a Property After a 1031 Exchange?

The IRS is very clear that any property that is purchased as an investment may not be used as a principal residence for a minimum of two years. For properties purchased as short-term or vacation rentals, the exchanger may not use the property for personal use for more than 14 days each year.

Additionally, it is advised that if the intention is to move into the property and make it the exchanger’s primary residence (after two years), then the property should be held for a minimum of five years before reselling it. 

What Does a Qualified Intermediary Do?

The Qualified Intermediary holds the exchange funds in a separate bank account for the benefit of the exchanger until the funds are used to purchase the exchanger’s Replacement Property.

The Qualified Intermediary also prepares the documentation for the 1031 exchange. This includes the Exchange Agreement, Assignments of Purchase and Sale Agreements, Notices of Assignment to both the buyer and seller, the Replacement Property Identification Notice, and lastly, all the accounting and tax forms.

Who Can Be a Qualified Intermediary?

While the IRS doesn’t require a person to have a license or certification to be a Qualified Intermediary, it does have specific exclusions for any person(s) who may have a conflict of interest with the parties in the exchange.

Any person who has acted as an employee, attorney, accountant, investment banker, investment broker, or real estate agent within the two-year period preceding the date of the sale of the relinquished property is treated as an agent of the Exchanger and is specifically disqualified from being a Qualified Intermediary. 

Additionally, children, parents, and siblings are also disqualified as Qualified Intermediaries.

Why Are Unused Proceeds Called ‘Boot’?

The 1031 exchange originated hundreds of years ago when property owners bartered for property. Farmers would trade land for land and livestock or an ox or money. These additional items of value were known as Boot.

The 1031 exchange in the United States originated in 1921 as the first like-kind exchange authorized as part of The Revenue Act of 1921, when the United States Congress created Section 202(c) of the Internal Revenue Code. 

Today, cash received or mortgage debt not replaced in an exchange is known as equity or mortgage boot.

Can You Use 1031 Proceeds to Make Repairs to Replacement Property?

The simple answer is no. Any repairs to the Replacement Property must be paid from additional funds or loans. In some circumstances, 1031 Improvement Exchanges do allow for repair, but they require much more planning and expertise than a typical 1031 exchange. 

Can 1031 Exchange Proceeds Be Used to Pay Fees?

The IRS only allows fees that are required to purchase the Replacement Property to be paid from the proceeds from the Relinquished Property. These fees include title fees, real estate taxes, property insurance, and escrow fees. 

However, property inspections, appraisals, surveys, and loan origination fees are NOT considered required and must be paid out of pocket in a 1031 exchange transaction.

Bottom Line

If you want to work with real estate investors, then you must know the in’s and out’s of 1031 exchanges. As real estate properties continue to rise in price, 1031 exchanges are going to become more common. Investors will need agents who can guide them through a successful 1031 exchange process.

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