The Real Deal
March, 2004

THE HOUSE ON RALPH AVENUE

By Esther Muller

I was a new bride in 1968 when my husband and I used our wedding money to put a 10 percent down payment on a $59,000 three-family house on Ralph Avenue in Brooklyn. We rented out the prime apartments and lived in the basement. We were able to live in our home for free because the rental income covered the mortgage. Every dime in those days counted. I was the primary wage-earner since my husband was a full-time graduate student.
We simply did not have enough cash for the monthly payments and for living expenses. The money from our tenants allowed us to supplement our income and, more importantly, afforded us the opportunity for brighter futures.

As real estate professionals, we all know an income-producing property is one of the smartest ways to generate additional revenue. Yet, for some reason, too few of my fellow brokers take advantage of this sure-fire investment. Even as a newlywed with little money, I knew that I was investing in my family’s future by building equity as soon as I could with what I had.

So, for those of you contemplating investing in real estate, I say: Stop
thinking – do it! Focusing on income-producing properties will provide you with a steady stream of extra cash now and can act as a revenue-generator during your retirement years. With today’s concerns about the future of
Social Security and Medicare, who can afford not to take advantage of this investment tool?

If you decided to go it alone as an investor, you assume all the risks but you also enjoy all the benefits. Starting small is an easy way to begin. Consider buying a single family house or studio apartment. The income from that property can be immediately banked or, better yet, used to purchase a larger property that will produce even more income. Form a corporation to protect yourself – this move will shield your personal assets against any claims.

You may wish to share the risk by forming a general partnership with like-minded investors. You’ll have access to larger amounts of capital in a partnership and, therefore, a wider pool of property to consider. But don’t throw caution to the wind. In a partnership, you may be held personally responsible for the company’s debts. And I strongly recommend having an ironclad contract even if the agreement is with friends, family or trusted business associates. This will protect your interests against future disagreements or if the professional relationship needs to be dissolved.

Limited liability companies (LLC) are an increasingly popular corporate form. LLCs have the benefits of both corporations and partnerships without many of the drawbacks associated with those forms. There are some limitations regarding the types of businesses you can create as an LLC.

One of the more common real estate investment devices is the Internal Revenue Code (IRC) 1031 Exchange. It allows an investor to buy property
by using the sales profits from a previously owned property. An IRC 1031 Exchange is especially attractive because it permits the seller to defer all capital gains taxes while it allows him to simultaneously increase his investment portfolio and his return on investment. Before you proceed with
an IRC 1031 Exchange, research it thoroughly or work with an asset management company to take full advantage of its benefits.

While looking into and pursuing these options takes some work, bear in
mind that your industry expertise already puts you ahead of the curve.
Take a class to supplement your existing knowledge. And use your business connections to get the best available legal and financial advice.

An income-producing property is an investment that keeps giving and giving – to you. The house on Ralph Avenue helped to launch my husband into a rewarding career in business. I started several successful real estate companies and have accrued a number of income-producing properties. And while my husband and I eventually went our separate ways, we have nothing but fond memories and gratitude for the road that simple structure put us on.

Ms. Muller is the master teacher at the Real Estate Academy.