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Archives for January 2016

Environmental Concerns Of Abandoned Properties

Abandoned property falsehoods…

When searching for abandoned properties to invest in, it can be easy to get swept away with the concept of making the great “deal.” However, as most experienced property investors already understand, this is a foolhardy approach abandoned propertiesto investing. As I have mentioned in a recent article here on the abandoned properties game, “if you’re into high-risk property investing techniques that may return higher yields than the more traditional forms of property investing, then by all means consider investing in abandoned property.” I have also said that since these are typically houses that have fallen into disarray due to owner neglect and ensuing abandonment over a lengthy period of time, they will not be on the market for sale. So your real estate agent will not be able to help you out in your searching. In fact, locating a potential money-making abandoned property will eat up much of your valuable time, since you’ll have to do all the search work yourself. However, if you happen to pass by areas with what look to be abandoned houses, then by all means try using these techniques to scope them out further to see if they can be potential cash cows.

Spotting an abandoned house

I have previously instructed here about how to spot an abandoned property, making the approach and contacting the owner of such a property. But most importantly, I have written about how novice property investors need to be vigilant when they are on the lookout for abandoned properties. I have noted how “abandoned properties, whether they be abandoned properties in CT, NY CA…you name the state…are certainly worth investigating. Just keep your laptop or pen and paper handy to write down their addresses as you pass by them when driving. It’s a good idea to take photos of these houses from the street for easierabandoned properties reference back to them later, as you cull through the most viable ones for investment. In addition, be wary of going inside any abandoned property without permission. Abandoned property law still considers it trespassing if you don’t have the express OK from the owner to go inside.”

What I did not go into detail about in prior articles here on abandoned houses, are the host of environmental concerns you need to be aware of as well. They can greatly sink the potential profitability of any new project. Consider an abandoned property as full of environmental booby traps. Here are some of the basic dangers you should be looking or when investigating acquiring any abandoned property…I’ve also written about these concerns in prior articles on environmental dangers. Here are just a few of the most important environmental issues you’ll need to check out with any abandoned property.

Tainted wells

One danger endemic to many areas is tainted wells. With so many houses still property investmentutilizing well systems for their drinking water, wells should be tested every two years for potability. It’s possible for coliform to accumulate, and your body can get used to this harmful bacteria.  Well testing would determine the level of this bacteria in the water supply. And coliform problems can be rectified with simple chlorination of the well water. Potability tests can also uncover any potential problems with fecal bacterial levels. Sometimes older septic fields built too close to the well supply could account for this problem, and would need to be addressed.

Lead paint

The majority of homes built prior to 1978 have some amount of lead paint in them. Property investors can check for lead paint themselves using a simple swab test kit, or by using a home inspector to run the test. (Swab test kits can be bought at most home or hardware stores.)

By rubbing the swab on walls, wood sills or door trim, the test will identify anylocating investment property - environmental concerns existing areas with lead paint in the house. It’s important to note that the mere existence of lead paint does not make it hazardous. This test will not determine how much lead paint a house may contain. But when paint chips off and becomes airborne, it can become a hazard. And of course, children and paint chips are an obvious concern.

The two ways of dealing with chipped lead paint in the house are encapsulation or removal. With encapsulation, the area of chipping paint is painted over and sealed with a protective paint. Removal of lead paint, on the other hand, requires a certified lead paint abatement company to strip the paint off and prevent it from becoming airborne.

Asbestos

One of the simplest environmental hazards to find is asbestos in the house. When checking the basement of any property, make sure you look for asbestos-covered pipes. The off-white colored asbestos is a known carcinogen, and if the asbestos is fraying, it’s certainly airborne – and an immediate danger to anyone breathing in that basement. If you’re still not sure whether the investment locating investment property - environmental concernsproperty you’re scouting out has asbestos-lined pipes, a home inspector can determine it for you. Also, licensed asbestos handling companies can not only tell you if there is any asbestos in the house, but what condition it’s in as well. And they are the only ones that can legally remove and dispose of the asbestos.

It is routine for the seller to pay for the removal or containment (encapsulation) of the asbestos. However, if the property is a foreclosure, or a short sale, the owner may not be able to perform the remediation, and you’ll have to include the removal as another cost of purchasing the property. It’s always best to have the asbestos removed, rather than encapsulated. While encapsulation is certainly less expensive than removal, you could have an issue when it comes time to sell the property. After all, what happens if a water pipe that was encapsulated develops a leak? In that eventuality, the asbestos will have to be removed in order to get at the pipe. And most buyers will not want to deal with that possibility. So removal makes far more sense than encapsulation.

Radon

Another potential danger facing property investors is the presence of radon gas in the house. Since radon is odorless, it can only be detected by testing for it.locating investment property - environmental concerns Like lead paint, there are radon test kits that can be purchased at local home stores to check for the presence of the gas in the house. And home inspectors routinely check for radon gas as well by placing test kits in basements for a period of two to three days to get an accurate read on radon levels.

Any hazardous levels of the gas that are detected can be abated with the aid of radon mitigation companies. To lessen any high levels of the contaminant, a technique known as “sub-slab ventilation“ is used. This solution involves placing perforated pipes under the slab foundation of a house to help vent the radon away from the property.

Underground oil tanks

Another leading concern for any investor purchasing a property is underground oil storage tanks. The risk of an oil leak due to the age of a tank poses a public health hazard due to the potential for soil and water contamination.  It’s best to check with local oil companies to see if they offer an Environmental Loss Protection insurance policy if you’re considering purchasing a house with a buried oil tank. This type of insurance customarily protects you against costs locating investment property - environmental concernsassociated with tanks that develop leaks, and their subsequent removal and soil clean up. Before issuing any policy, the insurer will run tank tests (paid by you) to determine the current tank’s status for insurability.

Many oil companies or secondary insurers use privately licensed environmental companies to perform tank tests. Some will take soil samples to be tested to look for any oil seepage; others will run tank tests to determine if the underground tank has developed any leaks.  If a test comes up negative, you may want to consider avoiding future problems (and paying for tank insurance as well), by either abandoning or removing the existing tank. Abandonment means the tank would need to be emptied, cleaned out and then filled with a special foam-like expansive material, sand or concrete, and all lines leading to the tank would be cut.

If the test is positive, the seller and the company that ran the test would need to notify the Department of Environmental Protection. Then arrangements would need to be made to have the tank and any affected soil removed. When you visit a property, look for the fuel source. If it’s oil, look for where the storage tank is located. If you can’t find it in the house, then look outside as well. If you still can’t find it, it’s probably buried. Regardless, always ask the seller if they have knowledge of any current or prior buried tanks. Many times sellers will abandon oil tanks in the ground illegally, while installing new oil tanks in their basement. If there is an abandoned oil tank on the property, or if one was removed, it must have documentation from the Department of Environmental Protection that it was properly removed or abandoned.

Be prepared

As you can see, the property investor must be aware of these most basic of environmental hazards that lurk within any potential property deal…especially with abandoned houses. And you’ll need to plan for the potential costs of remediation if needed. Just know that these costs can be extremely expensive to take on when you’re making that seemingly wonderful “steal” of a deal on any abandoned property. And that could mean a major financial disaster for you if you don’t plan accordingly for the worst.

 

photos courtesy of  barnettassociates.net, buildingmoxie.com, buzzle.com, propertymanager.com, firehow.com, doityourself.com, factoidz.com

 

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Filed Under: Featured, Fixing Tagged With: abandoned properties, abandoned properties in CT, abandoned property, abandoned property law, investing in abandoned property

What Lies Ahead For The Capital Gains Tax?

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Filed Under: Featured, Financing Property Tagged With: capital gain, capital gains tax, capital gains tax 2016, capital gains tax rate 2016

VRBO, Airbnb And The Short Term Rental Morass

A burgeoning mess…

I have written here in the past about the burgeoning mess that short term vacation rentals have been creating over the last several years. airbnbProperty investors looking to squeeze out revenue from unlikely sources, such as their own home, have in recent years been able to avail themselves of companies like Homeaway, Flipkey, VRBO and Airbnb that offer home rental as a lower-cost alternative to hotels and other traditional vacation lodgings. By going online and booking a vacation stay through private homes offered through these services, the average vacationer can ultimately save themselves a great amount when booking their vacation stay. However, as an investment, it can be risky business.

Homeaway as big business

To best understand just how pervasive these rental companies have become, consider Homeaway. This online service is an umbrella vacation rental marketplace with more than a million vacation rental listings in 190 countries, using several online monikers. Per Wikipedia, overall, this service operates through 40 websites in 22 languages. Theairbnb company offers the most comprehensive selection of rentals for families and groups to find accommodations such as cabins, condos, castles, villas, barns and farm houses.  Unfortunately, this vacation rental marketplace is still, by and large, left unregulated.  So it is ripe for abuse.  In addition, the hotel industry is constantly waging war with these online firms and the private homeowner/vacation rentals they represent.  Most private vacation rentals do not require any local municipality license (though this has been changing  – see below).  In addition, most homeowners renting out their residences do not have to pay hotel bed taxes.  This too has been slowly changing over just the last year or two.  In my small upstate New York community, our local county supervisors just expanded their “bed tax” definition to include not only vacation lodging with area hotels, but also private homes as well.  It’s a trend that’s sweeping the country, as municipalities look to expand their revenue base anyway they can.  Now, enforcing this new bed tax law is another issue altogether…

Risky business

In looking at the risks for a property investment, I have made note of this risk factor before, noting here that “in general, vacation rentals have been a secondary and riskier source of property investments for the experienced investor. They represent a greater degree of risk than airbnbyear-round rental units simply because they tend to be seasonal in nature. So cash flows thrown off from any vacation rental property are not uniformly consistent throughout the year. Ultimately, this makes for a greater likelihood of negative cash flows on an annualized basis. In addition, vacation homes, and time shares as well, are difficult to predict performance over the long term, due to market fluctuations and the overall state of the economy – depending on where they are located. Certainly foreign investments are even riskier, having much greater market fluctuations abroad than in the United States. Values can drop unexpectedly based on demand factor fluctuations. After all, vacations are made up of leisure time dollars. Thus, trying to predict future rental income and cash flows based on prior historical data is a tricky proposition. Also, keep in mind that vacation homes and time shares can be difficult to sell quickly should you need to get out fast.”

A common trend

Keep in mind that local municipalities round the country have been slow to create legislation that clears up the murky waters that home rental vacation investors have to swim in. In a recent news report from the Short Term Rental Advocacy Center (stradvocacy.org, 7/28/15), anairbnb online pro-home rental advocacy group, they note about recent legislation in the San Francisco Bay area: “on July 14, supervisors in the Bay City passed an amendment that would increase scrutiny on short-term renters in order to ensure they are following local regulations. Two amendments addressing complaints by local residents were considered, but in the end the more lenient of the two was passed, giving the recently created Office of Short-Term Rental Administration and Enforcement greater power to impose existing regulations. It also leaves the maximum cap on the number of days people can sublet their homes at 90 days per year; the stricter proposal would have cut the number to 75 days and require STR-hosting sites to submit quarterly reports to the city. “Home-sharing is here to stay in our city,” said Supervisor Mark Farrell. “The proposal in front of me today builds on our current law.” Dale Carson, the leader of a group that opposes STRS said that even with the OSTRAE’s new powers, the 90-day cap will be difficult to enforce. “Pray tell,” he said “how is the city to determine when a host is sleeping in her own bed each night?”

Short term rental pitfalls

I’ve written in several articles here that vacation rentals are inherently riskier investments than year-round rentals. With the advent of Homeaway, VRBO, Airbnb and the like, and their extremely large overseas investment propertyfollowing and popularity in this country and abroad, property investors should know all the pitfalls of this type of investment when considering all their investment opportunities in real estate. At the very least, read up on your local laws regarding short term rentals. These laws are changing fast from community to community around the U.S. As I mentioned in a prior article here, “be wary of one other story that has circulated in the news recently, providing Airbnb with some rather nasty bad publicity. The incident involved a host who rented out their unit to a traveler for a month, only to find that the traveler would not leave. Due to local law, once the traveler occupied the unit for at least 30 days, they were considered a “tenant.” And as such, they were afforded all protections due tenants in tenant law. And the host had to go through a very long, expensive eviction procedure to have the “traveler” removed.” As a vacation renal property investor, make sure you fully understand all local ordinances regarding short term stays, as well as landlord/tenant law before using a service such as Airbnb or VRBO.

 

Photos courtesy of trxglobal.com, fastcompany.com, wired.com, caribreezes.com

 

 

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Filed Under: Featured, Rental Investments Tagged With: airbnb, Flipkey, home rental, Homeaway, VRBO

The Most Cost Effective Investment Property Renovations

Beware over-improvement…

Novice property investors need to pay heed to the axiom that says you inexpensive home renovationsshould never over-improve a property relative to the neighboring houses on the same street. With this in mind, when investing in investment properties, you’ll avoid turning your investment property into a grandiose vanity fixer-upper project. Remember, you won’t be living in the rental property…it’s a business! As you search for properties to invest in, always look for the most basic fixes and repairs that can keep your overall improvement costs down.

The biggest bang for your buck

Like with home owners, there are some improvement projects that bring investment properties the most bang for the buck down the road. When renovating a rental unit, the following renovations tend to be the most cost effective rehab areas you should work on first. Remember, you’ll always want to keep these renovations to a bareinexpensive home renovations minimum – unless your neighbors have million dollar homes with high end appliances in the kitchen, for example.

Keep in mind the basic rehab areas listed below when trying to flip houses. These are the simplest ways of adding value to any rundown home. And they represent the best renovations for property investments. But always remember, you’ve got to improve to the level of the next door neighbors – and not way above them. This is the safest way to keep your renovation costs in check.

Kitchen renovations

I have written in prior articles here about remodeling investment properties. And certainly kitchen rehabs offer the highest return on your investment dollar. Just make sure not to overdo it! I’ve recommended “sanding and painting the existing cabinets, and then replacing the old appliances…If not, keep your kitchen redo budget in inexpensive home renovationsline with like homes’ kitchens. Don’t forget that new track lighting, a new sink and new faucet can really spruce things up inexpensively. Laminate countertops are OK, unless everyone else on the block has granite. Then you must spring for the granite. Avail yourself of planning and design help from local home improvement centers.”

I’ve found that Home Depot and Lowes each have excellent kitchen departments, with experienced kitchen design pros on staff. If you purchase your cabinets from them (and they have a good deal of excellent quality stock to choose from), you can avail yourself of their design services for free. Use them. It’s a very cost-effective way to skirt high design costs, especially if you’re not a kitchen design expert (and who is?).   Also keep in mind that some local hardware stores, if large enough, also offer cabinetry and free design service as well…

Bathroom rehabbing

I have also noted here in the past that you’ll want to keep things as simple as possible. I have pointed out that “if you can just change outinexpensive home renovations existing toilets, sinks and towel bars, you’re lucky. But sometimes old tile walls look terribly dated, and/or you’ve got to spring for a total gut renovation.” I have also said that you should keep material costs down by using big box stores for less expensive building and plumbing materials. When purchasing bathroom vanities and cabinets, the large chain stores offer great looking cabinetry that can look as good as designer cabinets at a fraction of the cost.

Upgrading the plumbing system

I have also written here that “if a house hasn’t had any plumbing upgrades in the past twenty years, you really need to consider changing out all lead pipes to the more recent plastic tube piping of today. While the labor cost is high, the materials cost is low. In addition, any dated plumbing fixture should be upgraded as well – from dishwashers to washing machines, and everything in between.” In so doing, you’ll avoid some major headaches down the road, as older pipers tend to leak and burst quite easily with age.

Paint jobs

It’s best to concentrate on interior painting first.   Exterior paint jobs tend to be twice as costly, and may not offer the bigger return on your painting contractorsinvestment dollar. However, if the exterior of your building makes the house look like it should be demolished, then, by all means, spend the bucks to have it done as well. With interior painting, it’s best to stick with off-white, neutral colors. This is because, the more out of the norm the color you choose, the narrower the range of buyers or renters who may like it. I have noted here that you should “also keep in mind that light equals bright. And bright is a flipper’s moneymaker. Remember too, that keeping the whole house the same shade of color keeps an evenness to the potential buyer’s eyes as they move from room to room. This makes for another positive impression on any house you’ll be flipping.”

Flooring upgrades

I have also pointed out before how “carpeting is still the cheapest way to go – but it has no “wow” factor to it. Refinishing old wood floors is a great way to go – if the existing floors are hardwood to begin with. If not, consider using some of the new engineered hardwood flooring available on the market today. Or, one can simply upgrade with the “look” of wood, using laminate hardwood flooring. This is what most buyers today expect. Naturally, if you do go with any carpeting, keep it very neutral colors – beiges or grays, to appeal the largest group of buyers.”

Developing your skill set

As you continue to acquire new properties, and gain more experience in property renovations, you’ll certainly be developing a skill set forbest investment property repairs streamlining these basic renovations outlined above. You’ll learn where to find the least expensive materials for any given project. I’ve noted before how that “with this facility, and an increased knowledge of what local stores (including big box stores like Lowes and Home Depot) offer the best deals on these materials, you’ll quickly become expert at estimating, then purchasing the most inexpensive, durable and functional materials for your rehabs. Ultimately, your capital spending budget for each investment property will be kept in check, lowering your overall carrying costs, and increasing your monthly cash flow in the process.”

Figuring your ROI of investment property

When determining your best ROI for renovations, you’ll need to divide the annual positive cash flow amount by the expected total amount you’ll be putting into the property when you buy it. This will include your down payment (or, the total amount if you’re paying all cash) roiplus all closing costs on the purchase. It will also include all your improvement costs you paid out of pocket yourself with cash. By keeping your materials costs for any rehab project down, you’ll obviously be keeping your overall cash infusion by yourself down. Once computed, this ROI is also sometimes referred to as your “cash on cash” return on the investment property. It will enable you to compare buying this particular asset with other types – whether they be another property you’re interested in, or other investment choices like REITs, stocks, bonds, etc. Of course, this simple analysis does not take into account the other benefits of property ownership, like market appreciation, tax benefits that include the ability to depreciate your asset, and the overall barrier against inflation that property usually confers on investors.

 

Photos courtesy of profitindetroithomes.wordpress.com, ortak.com, propertymanagerpsg.com, consumerinformation.ca, indigo-construction.net, bandspainting.com, aspectestateagents.com.au

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Filed Under: Featured, Fixing Tagged With: best renovations for property investments, best roi for renovations, investing in investment properties, investment property renovations, renovating a rental unit, roi for renovations, roi of investment property

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