If you know the price level at which property in your area is selling, you can instinctively recognize a good deal. Of cause, with experience you will also come to know the general parameters of prices in which you can make the most money. However, even when you find something within your range, it doesn’t mean you should slap down a deposit right away.

Yields on 10-year Treasury notes dropped below 4 percent for the first time in two-and-a-half years Monday, as investors pulled money out of equities for the safe haven of bonds.

Yields on the 10-year Treasury note fell to 3.83 percent Monday, down from a recent high of 5.26 percent on June 12. The 10-year Treasury note is closely watched in the real estate industry because it tends to track with interest rates on 30-year fixed rate mortgages.

Classes of Property 

You will need to classify the “class” of the property involved with your investment. This is a very critical process that, unfortunately, most investors and their accountants only partially complete. Here are the four steps (five, for California and some other states!):

1.Break out the value of the land separately from the structure. Land is not depreciable. Here’s a tip: Many times the value of a bare lot in the area plus the cost of the construction does not equal the total purchase price. The professionals compare the assessor’s statement of value for the land and building with the purchase price. Use the same ratio that the assessor used for land to building against the total price for your property to determine the value ratio between land and building.

What is your Exit Strategy?

Know what you’re doing before you buy a property. And, for that matter, know what you’re doing before you sell a property or exchange one. If you can always start with the end in mind, you’ll be better prepared to avoid unintended tax results.

Possible Exit Strategies

Following is a sample of some possible exit strategies for real estate properties. Your own plan might not be listed, but whatever your plan, make sure you’ve reviewed the financial and tax consequences. Plus, make sure you know what your Plan B is, in case your first plan doesn’t work out.

There are three ways to hold or transact real estate in a way that tax can be deferred. Sometimes you can even defer that tax forever!

1. Installment Sale: If you sell a property over time, that is called an installment sale. In other words, you will receive installments of payments over time. Each payment you receive is composed of at least two parts: (1) principal and (2) interest. The interest received will always be taxable just like any other portfolio income. However, in the case of the principal, it will actually be only partially taxable, depending on how it is apportioned between gain and return of capital.