Archives for August 2012

Convention-al Wisdom

“Mr. Chairman, you have the floor”

With the start of the Republican National Convention now upon us, it seems like an appropriate time to speculate on the potential effect on property investors should the Republican’s win the Presidency. I specifically don’t say “if Mitt Romney” wins the general election, because for nearly a generation now, Presidents have been merely figureheads – puppets – of an extensive organization with a platform and a mission. Political parties’ main goal is to simply stay in power. The part about doing what’s right (or best) for the country is just dressing. If you think presidential candidates have some other form of higher calling, like, oh, say…service to the country – well…no. It’s the business of politics, and like property investing, it’s just another business.

So let’s say the Republicans take this one. What will the next four years look like for investors? If you’ll excuse the pun, conventional investment property advice will tend to be quite upbeat and positive on this subject. Not that the concept of lower tax rates for the wealthy is nothing to sneeze at, putting aside the right or wrong of the issue. Obviously, high income earners will benefit. But what will the residential housing market look like down the road with dashing Mr. Romney in office?

Breaking the logjam

I firmly believe a Republican President will immediately break the logjam in Congress. There has been such a glut of stalled, stalemated legislation over the past couple of years. With a majority in the House and a newly elected President, I think Republicans will generate a can-do energy, and push through many currently dead-in-the-water pieces of legislation, due to the long-standing uncompromising feud between the Democrats and Republicans in Congress.

So here’s the kicker: I just don’t think it will matter what the new laws enacted will look like. Simply getting the business of lawmaking rolling again can’t help but grease the wheels of our economy. (Social issues be damned, of course…but that’s not what property investing is about, right?)

The housing market will respond accordingly

The stock market always loves action combined with stability in the political arena. And I think so too will the housing market. I see a Republican win in November as benefiting the residential housing arena, enough to produce a backdrop of stability – with ripple effects reverberating through the U.S. economy. Job growth will probably continue in its anemic pace – but the notion that SOMETHING is getting done in Congress will have a very positive psychological effect on home buyers. And that should lead to increased demand, and a slow, but steady improvement in property valuations in most locales throughout the country.

Which means, of course, that any currently held property investments will slowly start to rebound as well – as their valuations increase with less foreclosure properties on the market, continued low interest rates, and increased buying activity. Sound investment property advice is that it will be a great time to take out new mortgages, as credit markets will also view the increased movement in Congress quite positively, and banks should aid investors seeking new mortgage loans by freeing up increasingly more credit to the industry.

Tough choices

While my politics may not mesh very well with a Republican platform being hammered out this week at their convention, and while I continue to view Mr. Romney as a bit of a cartoon, my thoughts are that the Republican party makes sense for property investors over the next four years. Which means that I’m going to be having lots of fights with myself over the next three months over what ballot to select when I walk into that polling booth in November.

photos courtesy of live.boston.com, washingtonpost.com, channelguidemagblog.com, abcnews.go.com

The DIY Conundrum

Is DIY right for you?

If you’re considering doing any do-it-yourself (DIY) renovation or maintenance work on your investment property, conventional investment property advice says: by all means, go ahead. However be aware there are some pitfalls to this method for saving on cash outlays…For starters, you probably aren’t used to working in the same field as someone you would normally hire to do the work. For example if you’re going to do some carpentry work you’re going to go a lot slower than if a professional carpenter were doing the work. Even “unskilled” work such as painting will go much, much slower for you then it would for a professional painter. How much slower? That’s hard to say. It depends on your temperament and how much experience you’ve had painting.

To illustrate, I myself am currntly in the middle of doing painting on an investment project of mine that’s taking me forever to finish. Why? Because I’m not a painter. I think of past painters that I’ve hired on my projects. They always brought in a veritable army of painters with them. So on any project where I hired the professional painters, there would be at least four or five painters painting all at once all over the place – inside and out. But when it’s just you just you by yourself, things go really, really slowly.

Savings versus sanity

So while you may be saving many thousands of dollars, you’re definitely going to be earning it. Just be ready to do some hard work, and take your time doing it. Obviously your work is not going to be as neat, efficient and good-looking as a professional’s work. Still, you’ll need to live with the at least the bare minimum standard performance that you’re going to offer relative to a paid professional.

If you’re considering doing more serious finely tuned work like plumbing or electrical work, make sure that it’s work that does not require a license to do so, for example, any new installation or new remodeling work. It would have to be simple repair work. And you have to be comfortable doing work with the right amount of knowledge, accomplishing a passable job, and ensuring you don’t kill yourself in the process.

Think you have a green thumb and can do your own landscaping? Well maybe you can. Again, a professional landscaper is probably going to bring a whole lot of experience to the game. A lot more than you can. However they are expensive, and if you can find a nursery nearby, you can solicit some fre advice on the best plantings for your investment property. The nursery still wants to sell you the plantings, regardless if you do the work yourself. Just know that sometimes you’re going to require some heavy-duty equipment you may you have to already own or rent it in order to accomplish some landscaping chores.

The bottom line: can you live with the results?

Clearly if you have the time and the wherewithal to do it, then saving yourself money by doing some basic work is sound investment property advice. Just make sure that you’re okay living with the results. After all, you know yourself. Remember too, that the end product of your labors must appeal to either your prospective tenants, or your current tenants, or to buyers of your property. If your work is so shoddy, you’ll be doing yourself an injustice whilst shooting yourself in the foot.

That said, and in this day and age, if you can save a buck doing it yourself, then it’s certainly worthwhile to try. And if all else fails, and you get so fed up you can’t take it anymore while you’re in the middle of trying to do the work yourself, you can always humbly call on a professional to bail you out. And then the project will look great.

And then, damned the expense.

And you’ll have learned a great deal about yourself in the process…

photos courtesy of doctormacro.com, funny-pictures-lol.com, colourbox.com, reclaimedhome.com

Partnership Property Investing 101

Do you have the right temperament?

If you have the personality type that works extremely well with others, doesn’t have to have “their way,” and can compromise in order to realize a common goal of higher profits – then partnership property investing may be perfect for you. You’ll find it’s a great way to finance investment property. In any business partnership, there will be several key basics you’ll need to understand in order for the concept to work well.

The basic partnership agreement

You’ll need to fully delineate in a formal partnership agreement what each partner is responsible for – that is, who will do the scouting ,searching and locating of properties, who will do the negotiating, who will do the legal work, who will proscribe the repair work to be done, who will do the budgeting and accounting, and then who will actively manage the property. This part would include finding tenants who are qualified, collecting rents and making all necessary ongoing repairs and maintenance. Also spelled out should be who will receive tenant emergency calls, as well as make rent collections.

Of course, ultimately, there needs to be a decision process created and set down in writing. In addition, a plan detailing how much capital in total each partner will be putting up in this new enterprise, as well as whether all the partners will have equal shares or not will need to be laid out. You may all decide all the partners would like to participate in the locating of potential investment properties for the group to acquire. That’s fine too. Just make sure it’s written down exactly how you’re going to individually and collectively locate – and then actually decide – which properties to go after for purchase.

The grand payoff of a partnership

Using a partnership will allow you to create the seed money (that is, down payments) to bankroll either bigger projects, or larger individual projects than you could if you were investing on your own. It’s truly a nifty way to help finance investment property. Profits (or losses) will be shared pro rata amongst the partners. And a good partnership agreement will also spell out the mechanics for when a partner wants to leave the company, when the other partners want to push a partner out, or how to add a new partner to the mix. Certainly, each alternative requires a detailed written plan to avoid potential litigation down the road.

Creating synergy

Like with any business partnership, you’ll be able to utilize your unique set of partners’ synergy, and make the whole greater than the sum of its parts. You’ll be lessening overall financial risk in the process, whilst still maintaining the ability to utilize leverage on any property your company acquires and rents out.

If you don’t already have an accountant and/or a lawyer as one of your initial partners, then you truly must seek out their respective professional help in setting up the partnership, writing the partnership agreement, as well as creating a basic set of bookkeeping standards for you to follow. Of course, if the partnership decides to hire a separate property management firm to manage all its acquired investment properties, then the property manager will be doing all the bookkeeping functions for you. Certainly, a property manager will also remove all the day to day responsibilities for running your properties as well. In the case of a partnership, a good property management company can really help free up the principal partners for the locating, financing and acquiring functions of the business.

Consider all the advantages

Again, partnerships are a good way to gain entrée into the world of property investing by lessening overall risk while still allowing for complete leverage of limited assets. And the same real estate tax advantages will be afforded to the partnership as well. Borrowing funds may be a bit trickier – but then again, all the partners’ separate income and assets will be considered in making a loan to the partnership. But once a particular lender starts working exclusively with the partnership and writes all the mortgages, acquiring properties will become much easier than if you were to do so on your own since you’ll already have a strong working relationship with one banker. As mentioned before, it can be a much more powerful way to help finance investment property.

photos courtesy of fairfaxcountypartnerships.org, thinkglink.com, accounting-financial-tax.com, blog.guidantfinancial.com, managementspecialistsinc.com, dmp.com

Taking Advantage Of Investment Property Tax Deductions

The hidden gold mine

Some of the best financial advantages of investment property ownership are the many ways you can utilize tax deductions on any given property you acquire. As standard investment property advice however, it is always recommended that you consult your tax professional to help you fine tune and go over all the deductions available to you individually.

Here are just a few of the most basic tax deductions available to property investors. Keep in mind, these deductions are for rental properties. Shortly-held properties (flips) will not be allowed these types of deductions, and are subject to either regular income tax rates, or capital gains rates, depending on how long you’ve held the property.

The most basic expenses

Rental properties throw off a great deal of standard deductions that can effectively reduce the gross income of your investment property, thus saving you in taxes. These would include items such as any fees for your property management, insurance on the property, taxes, regular landscaping services (like lawn cutting and snow removal), tax preparation, and any losses from theft or any non-covered insurance losses.

In addition, mortgage interest on any investment property is fully deductible. You’ll need to remember that your total mortgage payment covers both principal and interest (albeit usually a small amount of principal each month). You’ll need to make sure you get your total yearly interest only amount from your lender. In addition, remember too that costs associated with obtaining your mortgage are not considered deductions. So items like appraisal fees, commissions or processing fees could not be deducted. Rather these costs would be rolled into the cost “basis” of your property. They then could be amortized over the life of your mortgage.

Other common deductions

Another common deduction, especially if your rental property is a condominium, are home owner association fees. Many single family homes also belong to local home owner associations to share open space or a beach, for example. These are paid with the home owner association fees. In addition to these fees, if the condominium made any repairs to common areas and you were billed for them, then those costs are deductible as well. However, condominium improvements are not deductible.

Don’t forget that any travel related expenses are deductible as well. Your cost to travel to and from each of your investment properties is fully deductible when you go to collect rent, or meet with a tenant, inspect a unit, or make repairs to a unit. You’ll have a choice of either deducting the actual costs or using the standard mileage rate. Either way, you’ll need to keep very careful records of your travel.

Deciphering repairs versus improvements

All repairs done to your investment property are fully deductible too. Just make sure they are considered repairs and not improvements. Basic investment property advice will tell you that if you’re doing something to your property to keep it in good shape, then that’s a repair. But if you’re adding value to the property, then that’s an improvement. For example, when you first acquire a property and paint all the units – that’s a capital improvement. But after a tenant you’ve been renting to moves out, and you hire a painter to come in and re-paint the unit to spruce it up, that can be considered a repair. Adding carpeting? That’s always going to be considered an improvement. Fixing a leaky faucet? Certainly, a repair. Changing to a new faucet? Improvement. You get the idea…

When you make improvements, while the costs are not deductible, they can be amortized and recovered through depreciation – as well as when you go to sell the property. Make sure you keep accurate records of all repairs and improvements!

Always consult your tax pro

As mentioned earlier here, proper investment property advice says that you’ll definitely want to consult with a tax professional (whose fees will be deductible) before taking any deductions on your taxes. Overall tax laws are voluminous and a tad confusing to the layman. You’ll certainly require the help of a pro in this area so you don’t make any costly errors based on ignorance. After all, the IRS can be very unforgiving. And you’ll also want to feel comfortable knowing you’re utilizing all the possible deductions potentially available to your situation.

photos courtesy of discoverspringtexas.com, ehow.com, trexglobal.com, working point.com, omaharedcross.blogspot.com, taxes.lovetoknow.com

Did You Hire A Contrarian As Your Contractor?

Butting Heads With Your Contractor?

Proper investment property advice says that if you’ve used a contractor for any property renovation, and you’ve butted heads with them, or if they worked very slowly, or did poor work, you know it’s time to look for another contractor. Another way of telling if you need to make a switch is if your contractor uses one or all of the following infuriating statements or questions while on the job:

“Oh, that’ll never work!”

“You want what?”

“Can’t be done”

“Oh, you can’t do THAT!”

Go for upbeat

What you really want is a contractor that is not a contrarian. Basically, someone with a positive disposition. Someone who is intelligent about his craft, upbeat, and has a real can-do attitude. Basically, you’ll know you’ve got the right contractor when he uses one or all of the following soothing statements or questions while giving his all on your project:

“Sure, we can do that!”

“Difficult, but let me see what I can do…”

“Let me know if you think this will work for you”

“I have a few ideas you might like”

Learning through trial and error

A really good contractor is one who brings his own experience melded with his creativity to your renovation. It’s not enough that he’s technically proficient. There are plenty of ways to accomplish a look you desire, without breaking the bank either. Solid investment property advice dictates thats you should look for the contractor that will be cognizant of both – and look out for your best interests – and not simply try to pad the job with work you don’t necessarily need or want.

Being held hostage

You’ll also want to be sure he can provide the number of laborers he promises when he bids on your job. Otherwise, you may end up with just him and another guy doing all the work. And if they are truly slow, you will definitely be held hostage as your job drags on. And it will be impossible to cut him loose in the middle of a project if he already has a relationship going with the local building inspector, or electrical inspector, for example. Switching out might be an indicator by inspectors of potential problems with your job, which could ultimately cost you more delays and money to fix.

Should you switch out or not?

Further, switching contractors in the middle of a project could actually delay you even more – and be even costlier. Certainly, trying to obtain a new contractor “on the fly” will require some wait as they try to clear their schedule to fit your project in with their other ones already ongoing. And at best, squeezing you in with their other projects means more delays for your project, as you will not get their full attention (as they split their time/days between their different projects and yours) until the completion of your renovation.

The bottom line

So even if you do your homework and get a good referral and have checked his references, but he still turns out to be a real contrarian, you will be stuck with him until your project is completed. The best property investment advice in this situation is to be sure to immediately start looking for a better, more positive-looking contractor when your project is done, well in advance of any future project. And make sure to spread the word about his poor performance and contrary attitude to others who might ask you about his services. In this way you can at least help prevent someone else from suffering the same fate – and hopefully drive him out of business.

photos courtesy of carwoo.blogspot.com, j2solutionsinc.com, inquiringhands.com, ehow.com, acanthusandacorn.blogspot.com