Archives for April 2015

Team Building: Dealing With Selling Agents

How to be very choosy

In trying to figure out how to choose a Realtor for your investment property searching help, it is best to choose a reputable local area real estate agent with a broker’s license. You’re not simply choosing an agent, as I outlined in my last article. In the great debate over whether to use a real estate broker vs agent, the broker is always the one with the heavier experience, greater state-sponsored real estate education – and experience. And by reputable, I don’t mean the one with simply the well-known hyper-local reputation for their salesmanship skills. You know, the one with a plethora of listings, representing many different local sellers. To the inexperienced eye, one might get the impression that these “local legends” of real estate are the go-to people to represent your interests.

Don’t be deceived

Nothing could be farther from the truth. Consider these key elements in your analysis of who to hire as your agent – be it for buying or, when it comes time to sell, as your personal sales rep. An agent who has a ton of property listings is going to be very busy, for sure. Ultimately, how much time can they realistically devote to you as a buyer of investment property? Also, consider that agents that primarily list properties are known as selling agents. Temperamentally, they are more suited towards representing sellers, not buyers. In this same mode, they will be ill-prepared to represent you as a buyer – let alone fully understand your needs as a buyer, and as an investor.

Using their connections

In addition, consider that primarily listing agents, while being well-connected with large numbers of family and friends within a community (probably an area they may have grown up in to boot) may be thought of as a major plus, but there is a downside…a big downside. These same listing agents with the great local reputation for taking listings do just that – take listings. They obtain most of their listings by breathing. Years of family and friends throwing off sellers for them to represent have created what I call a monster. The monster of not thinking much, not being able to think creatively, nor the ability to push hard for those they represent. They are simply used to having listings handed to them.

Beware a stockpile of listings

These same listing agents with their perennial stockpile of listings don’t have to work hard for a living (if you think pushing paper is working hard). They also tend to be removed from the most basic understanding of what they originally had to learn: namely, their local state real estate law. For example, I just ran into one Realtor in my area that was representing a seller. And it has been a very ugly experience. Items on her listing sheet did not match town records. (And town hall and the local building department is the first place a proper listing agent needs to go when taking a listing – to ensure, or at least be able to explain, any discrepancy between town records and what is actually in a home. In my example, she had never checked that town records showed a half-bath in the basement where a full bath actually existed. When I questioned her about it for my buyer, she got extremely defensive, huffy and irate. Eventually she came back to me with a statement that she has never met a Realtor who checks town records. And, naturally, I have never met (until her) a Realtor that did not.

Speed to impress

So be very, very careful when interviewing these “know-it-all” agent types with their large stable of listings. Instead, ask how they would represent you as your buyer’s agent for investment property. What exactly will they do for you, and how often? At the very least, they should rattle of instantly that they will create automatic searches to be delivered daily to your email, of houses matching your criteria you’re looking for. They should also impress you by their speed at getting back to you in simple communications, and their overall investment property knowledge. Without a doubt, you must make sure they know how to read a pro forma income statement. It’s also a good idea to work with someone who regularly works as a buyer’s agent, representing buyers’ interests (whether investor or not). Buyer’s agents tend to be made up of a very different temperament than seller’s agents. They tend to bend over backwards to please you, and are really excellent, by and large, at listening to what your needs list is, and make great suggestions as to how to acquire a property that fits your description.

Filling in another piece to your team

If you look more discerningly as you choose your Realtor to represent you, you will be able to fill in another excellent piece to your overall investment property team. Make sure you ask the right questions, as outlined above. And never go on a Realtor’s local “reputation” alone. It could prove very misleading – and costly in the end for you. This is because you ultimately may miss out on exposure to prime buying opportunities due to their gross incompetence. Make sure the Realtor you select is proactive, and not used to their old way of doing business as usual. It’s just one of the keys to investment property success.

photos courtesy of orlando-mortgage.org, cutcaster.com, starproperty.my, redoaktx.org, yourdictionary.com

Investment Property Marketing: Dealing With Selling Agents

Selling yourself or using a rep?

So you’ve made the decision to unload one of your investment properties. What next? Try to sell yourself, since you know you have mad salesmanship skills – or, hire a Realtor to market your building. Let me let you in on a not-so-little secret: Realtors comprise quite a monopoly in the Unites States. While you think real estate is much more egalitarian these days, what with easy access to oodles of data from the likes of Realtor.com, Zillow and Trulia, to name just a few sites where real estate information is right at your fingertips, think again.

Sellers of real property in the U.S. who use no representation make up a tiny fraction of the property selling marketplace. And while you may be able to access tons of data quickly, easily, and at zero cost – beware. The information you’re receiving is rarely totally accurate, and most importantly, you’re missing the choicest data – information only Realtors can access. On top of that, if you try to sell yourself, the system is rigged so that Realtors will not show your property to prospective buyers, and you’ll be missing out on most of the buying public…

The Multiple Listing Service

Ultimately, the only way for you to have your property exposed to the full local marketplace of buyers, is to employ the services of a sales rep, namely, your own real estate agent. However, the reality of this monopolized rigged system, is that the commission paid to Realtors is more than made up for by an increased sales price, due to the increase in demand created by the Realtor system of access to properties: namely every local Multiple Listing Service (MLS) in the country, which lists every Realtor-represented property on the market at any given time.

What a Realtor does

A Realtor definition is an agent that represents a seller (or a buyer) in a real estate transaction. They are trying to obtain the best price and terms for the property they represent. This is also known as a fiduciary trust. In effect, as an agent, they owe allegiance to their seller (or buyer). (A buyer’s agent looks to obtain the best deal for his buyer. And the opposite is true for a seller’s agent.) All Realtors are licensed by their respective state that they work in.

Real estate broker vs agent

The difference between a real estate broker and an agent is simple: a higher level of state-sponsored real estate education requirements is completed by the broker compared with a real estate agent. Thus, to obtain a real estate broker’s license, more training hours are required on a greater breadth of real estate related material than is required for a real estate agent. Regardless, either is known as a Realtor, and each has the same requirements of fiduciary responsibility to a seller or a buyer.

How to choose a Realtor

The choice of your Realtor to represent you is a key one before marketing your property. Interview several Realtors, and ask them to generate a Comparative Market Analysis (CMA) for you. The CMA will show several comparable properties that have sold recently in your area, and the Realtor will come up with a market valuation of your property based on the selling prices on these comparable properties. Do not choose your Realtor strictly on which one supplies you with the highest market value for your property! (An asinine trick some unscrupulous Realtors use is to overinflate the market value of your property in hopes of “winning” you as their agent. )

Use logic when choosing your Realtor. Make sure the comparables he/she used are truly similar to your property. If one valuation is so much higher than all the others, be very suspect. These bad eggs like to “control the listing,” and, once they have you signed up with them, will eventually get you to knock your price down as time goes on without a sale. Again – stay away from these devious Realtors! They give Realtors in general a very bad reputation.

Utilizing common sense

In addition, look for the Realtor that uses the most common sense, and can talk to you easily – and straight. You’ll want a sales rep that will be in constant contact with you – and one that knows how to re-orient the marketing of your property as showings of it go on, and feedback is retrieved. A good Realtor knows how to break blunt news about how the buying public is seeing your property to their seller in a very frank way.

photos courtesy of denalipm.com, stjoerealtor.com, ericksonsdrying.com

Figuring Out The Rental Property Depreciation Game

The tax man cometh

It’s tax time…Again. And one of the great advantages of rental property investments is that they act as tax shelters. Hence, they save you from paying more in the way of taxes. One of the chief ways this is accomplished is through the usage of depreciation on each and every investment property you own. When you take the maximum allowed depreciation as deductions against your rental property net income (gross rents minus total expenses on any given property), you can effectively knock out most or all of your net income – on paper that is. When you do this, voila – no rental income to pay taxes on…And this is why rental investment property makes for such an excellent tax shelter.

Offsetting net income

Even though you may be showing a profit with a positive net income, taking depreciation each year allows you to eliminate that profit to avoid any tax liability. As an example of how this works, let’s say you earned $10,000 in rental income last year. However, you had expenses of $7,000. In theory, you had a net income of $3,000. But if your depreciation was $5,000 in this example, you would show, on paper, and more importantly to the Internal Revenue Service, a $2,000 loss. And that loss could also be claimed against other rental property net income, effectively reducing your overall tax bill.

The depreciation schedule

One of the key ingredients of taking this deduction, is your depreciation schedule. Think of depreciation as being comprised of two basic parts. Part one would be the purchase price of your investment property, less the “land” value. And part two would consist of any “capital” improvements you make to the rental property (that inherently add value to it, and become part of the building as a permanent, non-removable feature). So, consider any kitchen or bath rehab costs as elements that would go directly to this part two of capital improvements. Ultimately, these improvements will jack up the “cost” basis of your property. And your cost basis will be placed on a depreciation schedule.

Maximum useful life of a building

The IRS sets most property as having a useful life, for tax purposes, of 27.5 years. Thus, you can deduct as depreciation that percentage of the total building cost each year. The cost of a kitchen rehab, for example, would be placed on a separate depreciation schedule. Let’s say your tax professional recommends a 15 year depreciation for a new kitchen remodeling project. He’ll then deduct that as a separate portion of your depreciation. If the following year you add new flooring to the living room, for example, that would then be placed on another depreciation schedule just for the flooring.

Depreciation and maintenance do not mix

Remember that maintenance items (like snowplowing, grass cutting, plumbing repairs to name a few) are just that – maintenance, or repair items. And their full amount is expensed in the year the expense is incurred. There is no depreciation on repair work. When you fill out IRS form 4562 of your income tax, you will be detailing your exact depreciation for each rental property you own. In addition, you’ll be laying out the depreciation schedule for each and every improvement, based on the useful life of that improvement. Many investors and tax professionals like to use a depreciation calculator to ascertain the useful life of a given improvement. These depreciation calculations are simple enough to lay out and claim on the form. However, it’s always a smart idea to use a tax professional to actually figure out the depreciation to offset your net income, and then calculate and apply the actual sax savings for you.

photos courtesy of amillionlives.net, statenislandlifestyle.com, brokersbestmtg.com, dcmud.blogspot.com, ehow.com

Choose The Best Contract Painters

An integral part of your property investing team

Just like the other members of your property investment team, your painting contractor is the one you’ll want to stick with over and over again. The more you utilize one home painter, the more discount you should accrue for each succeeding project that you employ his services. In addition, painting contractors tend to be very linear in their cost approach to estimating a project. That is, after a few projects, you should become quite adept at estimating within ten to fifteen percent of what your local painter will charge you, based on the size of the building, and the general condition you’re buying it in.

Repeat business

Unlike with plumbers or electricians, or even carpenters, estimating your paint contractors cost is much more simplified – and constant from project to project. After a while, I knew just by looking at a potential property acquisition what my painting costs would be for painting services with my steadily reliable painting company. By using the same local painter again and again, not only was I benefitting from a discounted price for repeat business, but I was becoming expert at estimating this particular renovation cost myself when I searched for other investment properties to acquire.

Owing allegiance to you

One of the most important facets of finding a good panting contractor, is to work with someone that can give you his priority when on the job. Many painting companies have several crews out on multiple projects every day. I like to find a painting service that only does one job at a time, and the owner/head painter is on the job with his workers every day. If a painting service is so large that you never have the same crew for each of your projects, you can never develop a rapport with them. And, when it comes time for you to ask your painting contractor for suggestions that will save you money on a project, you never know if you can trust their advice if the crew is constantly changing. Stick with one local painter and never vary. You’ll be developing a long-term relationship, and your painting contractor will become yet another valued and integral part of your entire investment property team.

How does your painting contractor stack up on project one?

Like with other trades, your first project will be the most important one with your choice of a local painter. You’ll be measuring them to see how well they work with the other trades people, which will be critical. Many tines a carpenter says he’ll be ready for the painters to come in by a certain date, and he’s not. Then the painters take another job, and can’t come back to you in a timely manner, essentially delaying your entire renovation schedule. But if you have a painter who works well with other trades people, they can ask the right questions to determine the best fit for their schedule, based on how the project is proceeding. In essence, a good local painter is very aware that time is money – and looks for every way to help keep you on your schedule – not simply fit you in to his.

Bidding a project out

In deciding upon your choice of painting companies, you’ll want to check out their references – and actually visit local paint jobs they have done. Certainly price is a major component. But don’t let it be the lowest bidder wins. Make sure you obtain at least three price quotes when selecting a painting contractor. And make absolutely sure they are all written out, and for the exact scope of work as each other. Otherwise, you’ll be comparing apples with oranges. In addition, ask your general contractor or carpenter who they’ve had good experiences working with in the past. If they’ve already worked with someone they trust and work easily with, chances are their recommendation will be a good fit for you as well. You can also check with family friends and your real estate agent for referrals of local painters. Regardless of the list you decide to winnow down, make sure you obtain those written estimates first, so you can best compare their respective price quotes.

photos courtesy of danielpaintingservice.com, painting-contractors.regionaldirectory.us, indigo-construction.net, pinonpainting.com, paintingtampabay.com