investment property

Inexpensive Fixes For Your Investment Property

Making your investment property more valuable

How desirable is your rental property? Have you recently taken an outsider’s honest look at it, the way a prospective new tenant does? It’s imperative you take periodic assessments of each investment property you own to see if you continue to offer a quality product to your potential “buyers” – your tenants. The key here is “honest.” Sometimes it’s best to look at other similar rental buildings in your neighborhood and see how they stack up against yours. Especially the ones that you find truly appealing from the curb. With a thorough overview of the rental housing stock in your neighborhood, you’ll be better able to evaluate your own rental investments more honestly.

The honest assessment

As you look at your competitors’ properties and compare them with yours, ask yourself what they have that your buildings do not. Are their walkways in excellent shape? Or are there many chips and cracks, making it unsafe for tenants? Is their landscaping up to snuff? Are there lots of neat plantings surrounding the building, making the entire property appear like a great place to live? Would you feel comfortable living there? Are there ripped awnings or rotted wood soffits or fascia boards that make the building look unattractive? (And more importantly, convey the feeling that there is plenty wrong on the inside as well!) These are the types of questions an honest assessment will yield about your own properties.

Upgrade, and the best tenants will find you…

Armed with this knowledge and honest assessment results, you should now begin to apply basic, inexpensive fixes to your properties to make them more attractive to tenants. This in turn will make your buildings more valuable, since you’ll be able to charge market rents for your units once you’ve made your upgrades. Consider making some of these relatively inexpensive fixes to upgrade and maintain your property. Once completed, they will allow you to find the best tenants for your properties. This will help keep turnover and vacancy rates low, as well as help you to obtain the highest possible market rents for your units.

Fix maintenance items

Get a handyman to make simple maintenance repairs on your building on a regular basis. Broken hinges, or doors that stick, glass windows that need replacing due to cracks, burned out exterior bulbs – these are all simple fixes a handyman can take care of, amongst many other items. Don’t forget torn screens and ripped awnings among the myriad of small items that should be on the regular inspection checklist. Develop this regular inspection checklist if you haven’t already, then have at it! Your current tenants will appreciate your attention to the small details of daily living. And happy tenants will mean good-paying tenants.

Landscaping

Be sure to address the overall curb appeal of your properties. Each one should have its own unique identity. Paying for the services of a landscaper with vision (who should also be part of your overall team of property advisors/workers) is very important. Let their professional eyes determine a unified look for the front of your property. Give them a budget to work within – and let them work their magic. They know best what shrubs will work for your area, for every season. Their eyes know proper color combinations – and when certain plants will flower at different times of year. Use their expertise. Most property investors I know certainly lack this type of knowledge, unless they just happen to be garden experts themselves – a rarity. Your landscaper will know where to get the best discounted prices on shrubs, trees and plantings. Use them to take advantage of these prices.

Walkways and driveways

Next to landscaping, having an appealing walkway up to your building (as well as around it in many instances) is imperative. It not only will look good , but it will make it more difficult for your tenants to have little accidents – that can turn into big headache lawsuits for you. Slip and fall lawsuits against landlords is a major type of tenant-landlord issue…make sure you head them off at the pass by maintaining your walkways – especially if you’re in a cold weather climate. Every Spring, do that maintenance checklist assessment for cracks and chips in your walkways. Also consider resurfacing warn or uneven driveways as well at that time. Too many property investors have very litigious tenants, and those slip and fall lawsuits are too easy when walkways and driveways remain unattended – and dangerous.

Painting

Most property investors are used to having a painter come in and repaint the interior of a unit after a tenant finishes their lease. This is especially true with tenants who have done a lot of “wear and tear” on their individual unit. But it is also important to periodically review the look of the exterior paint job on your investment property as well. Having an experienced pro painter as part of your crew for fix-up work on all your buildings is essential. They will offer you the best prices, especially with a large exterior job. Make sure they offer you a warranty on their work for a period of time (from peeling), and you should be able to have a good paint job last for many years.

Why these inexpensive fixes are crucial

Follow these simple fixes and maintenance items, and your investment properties should do more than retain their value. They will optimize their current market valuations by appealing to the large segment of good tenants available in your area. With the addition of good tenants over bad ones, you’ll find less turnover, a much greater rate of rent paid on time, as well as a decrease in your vacancy rate. In addition, you’ll stay away from deadbeats that could place you in the court system when it’s time to try to have them evicted. It all starts with maintaining each one of your properties. In this way you will increase your overall cash flow per building, as well as maximize each one’s inherent value.

photos courtesy of houstonmortgagetexas.com, hdoundationrepair.com, lawofficewalterjennings.com, tenantscreeningblog.com, ortak.com, zillow.com

How To Flip Houses: Choosing Your Agent

The selection process for a great agent

Choosing a real estate agent to help you in your search for investment properties when house flipping is usually a smart move. A good one will be able to narrow your focus, and run pointed searches for potential investment properties you may not be aware are currently on the market. They also can be invaluable in helping to negotiate your transaction once you locate a potential cash cow of a property. In addition, they can point you to the right local lenders that offer flipping money.

However, how do you go about selecting one, and not get stuck with an idiot? Besides the old tried and true method of having family or friends refer a Realtor they’ve worked with and like, then using that agent to represent you, try utilizing these three methods to select a good real estate agent to help you in your locating process when flipping houses…

Acid test #1

Call them. If your reach them, are they engaging, or do they simply not have time to speak with you, and blow you off? If you leave a message, will they return your call (either with a text or a call) within 10 minutes? If not, you’re using the wrong Realtor to aid you in your search for flip houses! Even if a Realtor is showing homes, they can easily text you back a template “I’m with clients right now” just to let you know they got your message. The way they treat you will be an easy indicator of how well they will work for you…

Acid test #2

Ask them to run a search for you. Be as specific as possible about what you’re looking for….include your price range, areas you’re most interested in purchasing in, as well as type and style of properties you’re looking for. They should be able to spit out search results to you within an hour. If not, move on to someone else – fast. Like acid test #1, you’re trying to locate an agent that works hard for your business – and speedy service is a great way to ascertain how willing they are to go the extra mile for you. In addition, speed is a necessary ingredient when locating houses to flip.

Acid test #3

When you locate a great potential acquisition for house flipping, ask them to run a Comparative Market Analysis (CMA) for you. CMAs take a good Realtor a couple hours worth of work to prepare properly. If they are simply using the software program built into their local Multiple Listing Service (MLS) to get their CMA prepared, do not use them! A good agent will take the time to go through and analyze – using their own head – each of many different comparable items (like lot size, building size, date sold, amenities, etc.). Then they will apply an amount to deduct or add to each comparable property relative to the property you’re considering buying (the subject property). It’s this attention to detail that should gain your business – and trust.

photos courtesy of tmgnorthwest.blogspot.com, orlando-mortgage.org, prw.net.au, money.cnn.com

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

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

The Importance Of Finding A Good Landscaper

The most underrated member of your team

When looking to renovate or simply upgrade the overall look of your investment property, either to flip or hold onto and rent, I believe the most underrated of all the members of your crew is the landscaper. It is the professional landscaper whose services tend to be the most overlooked, yet can provide the biggest bang for your investment property dollar, for every project. In many ways local landscaping companies provide the metaphorical icing to your extravagant birthday cake. What do landscapers do? Easy: they provide the instant attraction your potential buyer or tenants will have the very second they pull up to your investment property. And it is that attraction that will translate into increased dollars for you – either in a higher sales price, or being able to find the best tenants paying top market rents for units in your building.

Stick with local landscaping

Finding a good landscaper is all about judging talent. Once I found my landscaper and used him for my first project, I was hooked at the magic he could perform. I simply told him my budget for the project, and he offered suggestions as to how best to stretch that budget without running over. Good local landscaping companies are connected – big time. They work with several local nurseries and know where to pick up seasonal shrubs, trees and assorted plantings that will offer the biggest bang for your buck.

Developing a plan for all seasons

In addition, a good landscaper will know how to plan out the look of your plantings for all seasons. This includes, for example, planting evergreen shrubs or trees in the summer, knowing that they will draw the eye’s attention come the dead of winter, as well as create a wind break to your building to help reduce energy costs. Also, your landscaper will offer ideas for a “layered” effect of staggered blooms around the front of your investment property come Spring. For example, he may plant forsythias for early Spring, with rhododendrons to come in and bloom red, white or pink a month later after the forsythias yellow flowers have fallen off. I am no landscaper by any stretch – not even on a purely homeowner amateur level.

I have learned a great deal from years of hiring and observing a master landscaper at work. First, they always come up with a landscaping plan. Besides plantings, grass seeding, etc., they also will make suggestions to help improve your walkways and entry areas. Then comes the implementation of that plan to keep your budget in check. A good landscaper is above all creative, efficient, timely, works well within a budget, and makes suggestions to you without being asked – all to help you get a higher return on your investment property, either from rent or sale.

Finding a good landscaper

Now that you know what to look for, you’ll be able to winnow down the list of possible local landscaping companies to choose from. First, check out their previous and current work to see what they’ve done locally. (Naturally, you’ll be asking for their list of local homes they’ve worked on.) In addition, ask for recommendations from the homeowners of the houses you then visit. Remember to ask the previous clientele of the prospective landscaper if they came in on budget and on time for their project. You can also ask your real estate agent for referral as well. But always be sure to visit several local homes where their work is on display. In effect, you are responsible for recruiting the right talent for your project.

Testing the landscaping waters

After you make the decision to go with one landscaping company, consider the first project you give them as their “test.” How they perform on this test will determine if you’ll continue to use them over and over again. What you’d ideally love to have happen, is for you to forge a relationship with your landscaper much like the one you’d forge with your carpenter of general contractor. This will be another integral part of your investment property team. Make sure you get along with that person very well. You should ultimately feel you can call on your landscaper to help you ideate and show off your investment property in its best light and for the least cost.

How much does a landscaper cost?

And speaking of the expense, you might ask how much does a landscaper cost? Well, landscaping is very labor intensive. So expect the labor component to be high. Also, different plantings will obviously have different costs. But some evergreen shrubs cost far less than others …and to the untrained eye, like mine, a less expensive shrub may substitute well for a more expensive one. Again, I suggest laying down a set budget for your landscaping part of your project (whether it’s a thousand dollars or ten thousand) – then let the landscaper come up with his ideas for how best to meet that budget.

Bid out when starting

If it’s your first project with him, you might want to “bid out” the same budget to multiple local landscape companies in order to find a landscaper. And see what each comes up with that offer the biggest splash with your money. After you’re pleased with using a landscaper once, keep going back to him again and again. You’ll also find that his local nursery connections may afford you more discounts, yielding more plantings for your investment property at the same budgeted price, compared with some other local landscaper.

photos courtesy of diynetwork.com, usnews.com, eliteconstructionva.com, danzafamily.com, easyinsure.ca

Rental Property Investment Strategies : You, Crime and Vicarious Liability

Avoiding the criminal element

When investing in real estate, it is imperative that you jump in, eyes wide open. Among the many hazards that may await you as a landlord of rental property, some of the more hidden ones can be lumped into the category of: you, crime and your responsibility for vicarious liability. I have written in a prior article here about overzealous district attorneys who go head-hunting for investment property owners…Landlords who did nothing except install the wrong tenant in their building. And yet the landlord was held responsible for the criminal actions of his tenant. And they were prosecuted for those tenant misdoings. Crazy? You bet!

Low vacancy shouldn’t mean cutting corners

It would be easy to say, “make sure you choose the right tenant” when real estate investing. In reality, any landlord facing a vacancy wants to find a tenant fast. They don’t want investment opportunities to be squandered by not renting at as close to full capacity as possible, all the time. And in so doing, investment property owners may not be as discriminant as they should be. And yes, you can discriminate for a prospective tenant’s prior criminal record. It’s strictly business – you want to install tenants that are honest, trustworthy and pay on time every month. You want, scratch that – you need – tenants that don’t cause trouble – or can even cause the perception of trouble. So it is your right to discriminate based on an economic issue. And a criminal background can be counted as a potential economic liability. Naturally, you’ll want to select tenants by doing your proper due diligence. Make sure you run a background check on them. Now this doesn’t mean a criminal conviction automatically rules them out. You need to use common sense and weigh their past behavior with who they are now. That’s only fair. Make sure you talk to their employer, and certainly past landlords…especially their last one or two. Also, run a credit check on them as well. When you have all your tenant information in front of you, you can calmly decide if they will make for a good tenant for you.

Stay away from confrontation

So what if you did all this, signed them up with a lease, and yet you subsequently suspect criminal activity is occurring in your building? Clearly, it would be incredibly stupid to confront the bad tenants. If you have suspicions, make a log of the suspicious activities you can see. Also, make sure your tenant leases include the ability for you (or your property manager) to make regular visits to look inside their unit…weekly if possible…but definitely once a month at the least. Make notes after each visit. If you suspect drug activity, for example (or worse, the making of methamphetamine a la “Breaking Bad,”) then you need to report your suspicions, along with your written log, to your local police. Let them take care of the problem. At the very least, never singlehandedly confront a tenant. It’s much, much safer to let the police do this. In addition, keep in mind that by your simply reporting suspicious activity to the police, you remove yourself from potential vicarious liability of the criminal actions of your tenant(s). A district attorney would see you were proactive, and he could never make a case that you were somehow liable for any criminal activity that your tenant may be doing.

photos courtesy of clickpropertymanagement.co.nz, tenantscreeningblog.com, homesathomes.co.uk

Financing 2015 – A Credit Crunch Update

Credit will continue to remain tight

Since the financial crisis of 2008 and its aftermath, numerous banking laws were enacted to protect consumers. In so doing, the overall effect was to create an extremely tight credit market – especially for property investors. While federal banking rules have helped stabilize a U.S. economy that was in freefall at the time, property investors, most notably novice rental property investors, as well as younger ones investing in real estate without the credit experience and background, have fallen prey to the huge tightening of credit mortgage markets. Basically, they have been excluded from the leverage abilities for investment opportunities that older and more experienced property investors with track records can take advantage of, and secure from lenders. Well, you can now add to the excluded group those investors in more rural areas of the country. This is because banking regulations remain in place, even for the smallest of community banks across the country.

The rural area disadvantage

According to a recent report from HousingWire.com ( “Half Of All Rural Banks Don’t Qualify For QM’s “Rural” Exception,” HousingWire.co, January 27,2015, by Trey Garrison), local small lenders in rural areas around the U.S. , despite their tiny size relative to their big-city counterparts, have the same regulations placed on them. The net result? They simply have gotten out of the residential mortgage lending business, en masse. According to the article, “three-quarters of community bankers surveyed say that new mortgage regulations are keeping them from making more residential mortgage loans in their communities, according to the Independent Community Bankers of America.” Mr. Garrison goes on to say ““ICBA’s 2014 Community Bank Lending Survey validates what community banks have long predicted—that new restrictions on mortgage lending are reducing much-needed access to mortgage credit for many Americans,” ICBA President and CEO Camden Fine said.” “The survey also shows the avalanche of new regulations coming down on community banks from Washington is having a negative impact on their lending.”

And the survey says…

Highlights of the above-referenced survey include: “73% of community bank respondents said regulatory burdens are preventing them from making more residential mortgage loans; significant percentages of community banks are no longer active in the residential mortgage market, are considering an exit from this line of lending or are exiting the market; 44% said they originated fewer first-lien residential mortgage loans in 2014 compared with the year before; half of all rural banks said they do not qualify for the QM rule’s “rural” exception, which demonstrates that exemptions from the standard are too narrow, limiting access to credit for consumers who need it.”

The bottom line

And what do you suppose the effect has been on rural property investors because of this? You guessed it! Less mortgage lenders means less competition by area banks. And when you have less competition, interest rates can naturally creep up…but only in these rural areas. It’s like a double whammy: first, there are less opportunities for rural investors in a tight credit market to turn to for applying for their rental property mortgage loans. (And this can apply to conventional or FHA loans.) And large lenders, like Chase mortgage, for example, may not be lending in extreme rural areas that they don’t geographically cover. And secondly, for those rural banks that are making mortgage loans to investors, less competition means less incentive to keep interest rates down. If they know there are half as many mortgage lender options in a particular community, interest rates are certainly going to creep up amongst the smaller pool of existing mortgage lenders. And that means that rural property investors will be paying more, on average, for their debt retirement than their city and suburban investor counterparts. As a rental property investment strategy, keep this potential increase in mortgage expense in mind when crunching numbers, as you search for new property acquisitions.

photos courtesy of trustdeedinvestment.org, psdgraphics.com, flickr.com, todaysfacilitymanager.com

The Sheer Fun Of Tax Grievance

Grieving your taxes is so simple!

When searching for investment property, it’s always important for you to review the asking price relative to the current assessed valuation on the property. If the assessment is close to the asking price (within ten percent), then you’ll have a quick reading of the appropriateness of the seller’s asking price: namely, it will be in line, and your negotiating will not deviate too far afield. (This doesn’t mean you shouldn’t make a lowball offer – by all means, be my guest if that’s one of your acquisition strategy techniques. Just know there will be a low probability of “stealing” the property.

However, if the assessment is significantly lower than the asking price, you should be wary about what could possibly be wrong with the property. It’s a question to be asked of the seller and his real estate agent, if he has one. Maybe the property had a major winter pipe burst and subsequent flooding at some earlier date, and the municipality adjusted the value of the property downwards to reflect the damage (assuming it was never repaired). Regardless, always make a point of asking what the reason for the differential could be before you make an offer.

When the assessment is higher…

The third possibility when reviewing asking price compared with assessment is that the assessment is significantly higher than the asking price. In this scenario, watch out! Besides asking the seller why such a large deviation exists, also ask why the seller never grieved his real estate tax (asked for a reduction in the current assessed value that the town assessor placed on the property). I have seen many occasions where sellers just don’t bother to ask for a tax reduction by grieving their taxes – usually out of sheer laziness and stupidity. This is unfortunate, since it cuts into their bottom line significantly year in and year out, with their continually paying a higher amount of taxes than they need to pay. Make sure it doesn’t cut into yours if you acquire the property.

Tax grievance 101

When you make an offer and close on a property with a final sales price much lower than the assessed value, you in effect must take on the duty of grieving the taxes. Interestingly, “grieving the taxes” on a property is a misnomer. What you’re really doing is grieving the assessment. The taxes on any particular property in a municipality are solely based on the assessed valuation of the property. And while each property in a town may be assessed at completely different values, the tax rate will always be uniformly the same for every property owner.

The time consuming process

Grieving your taxes is not difficult, but it can be time consuming. And it always takes a fair amount of time to realize the benefits of “winning” a real estate tax appeal that provides you with a property tax reduction. If you purchase an investment property and know you’ll need to grieve taxes on it, don’t wait. The day after you close on the property, you should go right to your local town assessor’s office, and show them proof of the sales price from the closing documents. On some occasions, assessors may agree with you that the difference in assessment and sales price is so overwhelming, they may be inclined to lower your assessment without the need for a formal grievance procedure (which is a court function).

In this instance, they may throw out a new assessment valuation to you for your approval. Be careful – they are negotiating with you! And you may not even be aware of this. The number they throw out will probably be somewhere between the sales price and the current assessment. It will be up to you to decide whether to accept it, throw out another “negotiable” number to the assessor, or move forward with the paperwork for a formal tax grievance. My advice: shoot for a figure within ten percent of the actual sales price. If you get it, be done with it, and be happy with what this will mean for your ultimate property tax reduction.

Time for paperwork

If you and the assessor can’t agree on a number, or if the assessor is a stickler, you’ll need to fill out the paperwork the assessor will supply you with for the formal tax grievance. The assessor will tell you when their local municipality “tax grievance day” is, and you’ll need to have filed all your paperwork before that date. (So if you buy a property in December and the tax grievance day is in June, that’s tough luck for you. You’ll have to wait, since, like Christmas, the day only comes but once a year.)

Besides standard data to be filled out on grievance forms, sometimes the sales price isn’t enough. If you make improvements to the property, you’ll need to do your ”homework” and look to supply other, independent professional opinions as to the most current value of your property. Examples of independent professional opinions that would be appropriate as tax reduction services, would be an outside appraisal (which you would have to pay for) or a local real estate broker’s opinion of value or Comparative Market Analysis (CMA). (They will create a CMA for free in order to ingratiate themselves to you for a hoped-for future representation – either as a property manager, exclusive agent for finding tenants, and/or agent when it comes time to sell the property).

Filing your tax grievance

Armed with his independent professional opinion on the current value of your investment property, you’ll be able to confidently file your grievance paperwork – which is your real estate tax appeal. At some point (usually within a month or two) after tax grievance day, you’ll receive notification of your tax grievance court date. On the appointed day, you will go in and represent your valuation to the court grievance judge (don’t worry – they will usually be an independent attorney – not a criminal case judge). And the town assessor will represent the town’s opinion of the value of the property. It will then be up to the judge to ultimately decide the fair market assessed valuation on the property. This will take several more months, and you will be notified of his decision by mail.

Using the time factor against assessors

It should be noted here that many assessors don’t have the time or wherewithal to attend grievance court hearings for every tax grievance in their municipality. So what do they do? Negotiate ahead of time with you. Many times you’ll get a call from the assessor, probably within a few days or a week ahead of the appointed court grievance date. And they will begin that negotiation I mentioned earlier in this article. Interestingly, at this late a date, you have the upper hand in the negotiation. You know they don’t want to go to court. And times running out. In this scenario, you can probably negotiate a number for valuation of the property within five percent of the sales price. Or in the case of your having made subsequent improvements to the property, within five percent of the professional opinion of valuation you already provided in your filing papers.

The long wait…

Whether you negotiate the new assessment, or go through the process all the way and have a judge decide the valuation, it may take yet another full year before the new assessment “hits the rolls,” or is recorded and actually comes onto the assessment rolls of your town. Only after this new assessment is actually recorded by the town and appears on your tax rolls, can you begin to realize the tax savings of a reduced tax grievance assessment. However, the savings will show up every year from there on – tax reductions that give a great boost to your expense savings, yielding you a higher net income on your investment property, like a gift that just keeps on giving.

photos courtesy of kiplinger.com, mdpropertytaxspecialists.com, propertytaxreduction.blogspot.com, blogfinger.net, toh.li, ladylitigator.wordpress.com, kapitall.com

Best Rental Property Investment Strategies: Landlording Now!

Investment opportunities abound

Indications are that this year is a great time to begin your real estate investing activities. Investment opportunities in rental property continue to abound. In addition, current home ownership levels as a percentage of overall U.S. population continue to dip. Even with the advent of the current economic rebound across the country, renting is still preferred over home ownership…even when home ownership affordability has continued to get better. According to recently released statistics from the National Association of Realtors, with home prices increasing slightly the last two years in a row nationwide, coupled with relatively historic lows in mortgage interest rates, it is now an excellent time to become a home owner.

Renter insecurity as a market force

As a percentage of average per capita gross income, monthly costs of home ownership (with mortgage debt) are running about 16 percent of gross income, compared with 21 percent a year ago. Clearly, most new home buyers want to stay on the sidelines, preferring to rent instead. This is most probably due to their feeling insecure about their job situation, or the stagnation in their gross incomes over the last few years. Regardless, investment property becomes much more attractive when renters continue to rent – and rents keep rising in the process.

Now is the time – calling all landlords

According to an article posted on MainStreet.com, now is a great time to become a rental property owner. In the article (“For Passive Income, It’s a Good Time to Become a Landlord,” MainStreet, by Brian O’Connell, 2/3/15), Mr. O’Connell points out that “this is a good time to change your life and buy a rental property…a key part of wealth creation is creating passive income — money you earn while not actively working for it, and that’s where being a landlord can help. The idea is simple: Buy a property, rent it to reliable tenants and let them pay down the mortgage for you until the home is paid for. At that point, the entire value of the home is yours, along with any rent you earn after the mortgage is paid off.”

Do you have the right stuff?

Mr. O’Connell goes on to sum up what is primarily necessary to get into the real estate investing business: “It really does take the right stuff to be a great landlord. An entrepreneurial spirit, a hands-on, can-do approach and some good old-fashioned business savvy (along with time) are the ingredients in mastering the rental property game. And right now, it’s a game that’s paying off handsomely for the right players.” I think special attention needs to be heeded to his choice of words when he says “the right players.” This requires a fair amount of personal self-reflection in order to succeed.

And the right temperament?

In essence, this writer’s point is that it takes the right temperament and personality to be successful when real estate investing in rental property. Will you be the property manager for your investment property? if so, be prepared for those late-night emergency calls and some difficult tenant situations, not to mention the chore of screening tenants. Or, you can pay a property management company to do these activities for you. Just be prepared to spend between ten and fifteen percent of your gross monthly income (whether your installed tenants pay or not). It’s your choice – but be sure you run the numbers as to the feasibility of choosing the property management company route. Either way, you’ll want to maximize your investment opportunities now while, as Mr. O’Connell points out so very succinctly, “this is a good time to become a landlord.”

photos courtesy of houstonmortgagetexas.com, zillow.com, lawofficewalterjennings.com, tenantscreeningblog.com, anchorloans.com