Archive for January, 2008

Landlord Max Rental Property Software Eval

You may have read the Carnival of Real Estate where Trevor Mauch reviewed Quicken Rental Property software. Well, Trevor has done it again. Where the Quicken product is for users with smaller real estate investment, Landlord Max is designed for users with more than 20 investment property units.
The cost of this product is $60 more [...]

You may have read the Carnival of Real Estate where Trevor Mauch reviewed Quicken Rental Property software. Well, Trevor has done it again. Where the Quicken product is for users with smaller real estate investment, Landlord Max is designed for users with more than 20 investment property units.

The cost of this product is $60 more than the Quicken software, but Trevor believes “this software is a good hybrid between a commercial rental property management software“. See his full review at the REIBrain.com.

Do you wonder what it would be like to own 20 investment property units? Don’t Wait! Get Started now.

Minneapolis List of Boarded/Condemned Properties

Within the last several months, most customers that I am working with are looking to buy foreclosed houses, rehab them, and then rent them out for a nice cash flow. They are then waiting for the day when they can sell them for a nice profit (as they own them after rehab at 75% LTV). [...]

Within the last several months, most customers that I am working with are looking to buy foreclosed houses, rehab them, and then rent them out for a nice cash flow. They are then waiting for the day when they can sell them for a nice profit (as they own them after rehab at 75% LTV). I wrote about flipping houses in the $30-50k price range in Minneapolis several months ago, but there continues to be outstanding deals to be found in this niche.

When we find a house that we may want to make an offer, we check the City of Minneapolis Chapter 249 List. This list is updated about every 30 days and has condemned and boarded houses on it. If a house is on this list, it has most likely lost any grandfather status and will be required to be brought up to current building codes (which can add thousands of dollars to the rehab). If a house stays on this list for too long, it can be scheduled for demolition. I suggest you stay away from those!

Lastly, I always write a clause into any purchase agreement for bank-owned properties that reads as follows:

Buyer and seller agree that if property is condemned, loses its zoning, has new code compliance orders issued, or otherwise changes status with any governmental jurisdiction prior to closing, the buyer may cancel this purchase agreement by written notice to the seller’s agent and all earnest money will be returned to the buyers.

These couple steps are just a little extra protection when buying bank-owed real estate.

Have you always wanted to buy rehabs and fix them up, but never knew where to start? Don’t Wait! Get Started now.

Let’s Talk Taxes

When I meet a new investor, I always discuss how it is critical to building a team of advisers to support your Real Estate Investment career. One of my advisers is my CPA, John Caylor. As we head into tax season, I decided he should be our first guest writer of 2008 to [...]

When I meet a new investor, I always discuss how it is critical to building a team of advisers to support your Real Estate Investment career. One of my advisers is my CPA, John Caylor. As we head into tax season, I decided he should be our first guest writer of 2008 to discuss the tax implications of owning Investment Property:

Let’s Talk Taxes

by John Caylor, CPA

So, you are thinking of buying some rental properties? Or maybe adding a few more to your portfolio? There are many reasons to own real estate beyond the joy of maintaining properties and tenant relations.

A well analyzed real estate purchase can be a great part of your retirement portfolio, and can be very similar to a tax deferred retirement plan, such as a 401(k). The difference is with a 401 (k), the IRS tells you when you can retire and start drawing the income while a rental property

retirement portfolio can be accessed any time penalty free (in other words, you can pick your own retirement date).

An example is a property that is purchased for $100,000. If the property grows at an average rate of 5% per year, you are getting tax deferred asset growth, or investment income. You are not taxed on an increase in property value until a sale occurs. Even then a Like Kind Exchange can defer the taxes even further. If you put that same $100,000 in a mutual fund, you would be taxed annually on the investment income (growth) of the account, and in a 401(k), the income is tax deferred but locked up until IRS defined retirement.

Also, in many cases the tenants are paying for the property for you via rent, so there may be no money out of your pocket to fund your retirement. In a 401(k) setting, almost all of the money to fund the account is directly from your pocket.

In addition to the tax free asset growth, there is current tax benefit to owning real estate. In a rental property situation, you can deduct all operating costs associated with owning the property as well as depreciation of the property. Depreciation is a deduction of the cost of the property over time, normally 27.5 years. Example; a $100,000 property would generate $3,636 ($100,000 / 27.5 years) tax deduction each year.

These tax deductions can be deducted directly against rental income, or other taxable income. Keep in mind there are some limitations to be considered. Please consult with your tax advisor for more details.

Note: If the property is an investment property, rather than a rental, you do not get to deduct current expenses. These costs are generally accumulated over time and upon sale of the property, they reduce the gain on sale, very similar to a stock buy and sell. You also cannot deduct depreciation on an investment property.

Another benefit to real estate is most gains on sale of property are taxed at the favorable capital gains rates, rather than ordinary income. This can make a major difference in total taxes paid and when adding the lower capital gains rates to the operating expense deductions and depreciation, you can see the long term tax benefits to real estate.

In summary, there are many reasons to own real estate, and the tax benefits rank as one of the most significant.

Please contact my office with any questions you may have.

Sincerely,

JOHN D CAYLOR, CPA
JOHN [at] CAYLORLTD [dot] COM
952-767-9070

Check Your Investment Property

First Story: I realized last week that I had not been inside one of my rental properties in about 14 months. This is despite the fact that I drive by it every week or so as it is near my parent’s new house. The building was built in 2006, these are the first tenants to [...]

First Story: I realized last week that I had not been inside one of my rental properties in about 14 months. This is despite the fact that I drive by it every week or so as it is near my parent’s new house. The building was built in 2006, these are the first tenants to live there, they have never called about anything, and their rent is always on time. Regardless, I did get a little anxious thinking about what condition this property could be in as they have an active 25 pound dog and 2 cats.

I called the tenant 24 hours in advance and told them I needed to do a walk through to check out the place and review the mechanicals. The next day I arrived and found the townhouse in perfect condition. I dare say that it looks as good now as the day they moved in 18 months ago. Thank you!

Second Story: I received a letter from the City of Minneapolis Rental Property Department, about 2 weeks ago, informing me of a rental inspection at one of my duplexes this Friday. Both units were renovated about 18 months ago and should be in good condition. Additionally, I speak to these tenants at least monthly and they rarely have any maintenance issues. I decided to schedule an inspection several days in advance to check things such as smoke detectors, fire extinguishers, and other safety items that I know the Minneapolis inspectors love to catch.

After changing batteries in the smoke detectors in unit #1, I headed up to the other unit to find that all the smoke detectors had been put in a drawer. After replacing all those units, the tenant mentioned a window on the porch that had a problem. The window was 100 years old and the sash had finally separated from the rest of the window. Consequently, it was pouring cold air into the unit. I pulled it out, brought it to the shop and re-glued and re-glazed everything. Good as new and I have a happy tenant to boot.

My advice: Now that the holidays are a distant memory, now is a good time to get back into your properties and check them out. Call it a mechanical inspection or what ever, but get in and see how the property looks. This will also give you a chance find those items that the tenants have not called about (or don’t want to call about). It is important for the health and safety of your tenants as well as the longevity of your property.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.

The Carnival of Real Estate #74

Welcome to the Carnival of Real Estate at the Minnesota Investment Property blog. I spent the last couple cold days over the warm glow of my laptop reading all the fantastic submissions. Considering it is currently 11 below zero outside as I write this, I thought it might be fitting to showcase the [...]

Welcome to the Carnival of Real Estate at the Minnesota Investment Property blog. I spent the last couple cold days over the warm glow of my laptop reading all the fantastic submissions. Considering it is currently 11 below zero outside as I write this, I thought it might be fitting to showcase the top 11 entries (in no particular order):

The Contrarian Goldfish has no concerns about swimming the opposite direction by himself! He argues against the conventional wisdom is his post about Why Buying a Luxury Car is Smarter than Buying a Luxury Home.

Trevor Mauch answers the question of many small investment property owners: “Which Rental Property Software should I use”. Trevor posted a 20 minute video and an in-depth review of Quicken Rental Property Manager, at the Real Estate Investing Brain.

Have you ever wondered why the appraisers and real estate agents set such different values on the same property? Hojin Chang, at Hojin’s Southwest Orlando Real Estate Scoop, explains The Disparity Between the Opinion of Value from Appraisers and Realtors.

Cindy Lin, at Staged4more, found this horror story about a stager that started a fire at her customer’s house and refused to admit it. With that in mind, Cindy goes on to tell us the #1 Question You Need to Ask Your New Stager.

As real estate bloggers, we all have the competing goals of wanting to be ranked well in the search engines and to be building relationships with our readers. At The Real Estate Tomato, Jim Cronin outlines the Dichotomy of the Real Estate Blog – Do You Please the Readers or Search Engines?

Dan Melson, from Searchlight Crusade, exposes the secret that some homeowners in California are building additions or making alterations on their properties without permits, in order to sneak under the radar of the tax assessor. The complications come up when Buying and Selling Properties with Unpermitted Additions.

Watching the economy and trying to predict what will happen next is a daunting task. Nigel Swaby, at Salt Lake Real Estate Blog, presents an interesting twist on why The Economy is Getting Really Ugly.

Because of the previous halcyon years in the Mortgage business, ARMs have ultimately become the scapegoat for most everything that when wrong. DeeinAustin tells us Why Adjustable Rate Mortgages (ARMs) Don’t Scare Me, at the Texas Realty Blog.

Evaluating our current time, Cyrus Khadivi argues that 2008 is The Year of the Appropriate Mortgage. He encourages us to start investing in the “bank of ME/YOU”, and stop spending so much of our money on our mortgages.

As we examine our mortgage history and our options, Peter Thompson, at Illinois Mortgage Rates and News, explains our refinancing options. Peter describes When Does it Make Sense, and How Much Does It Cost to Refinance Your Mortgage?

Lastly, if I had to pick a winner for this Carnival, I would select the entry by a brand new real estate blogger who submitted his 5th blog post, Tony John, at Real Estate Investing with Tony John. His post Fast Equity? Think Commercial, did get me thinking. Tony makes a compelling argument with good examples of why he believes real estate investors should “stop looking at residential real estate, and turn your eyes to commercial real estate”.

Thank you everyone for the great posts. I definitely found some new blogs that I have subscribed to.

To submit your blog article to the next edition, on January 28, of the Carnival of Real Estate (at the Zillow Blog) use the carnival submission form. Past posts and future hosts can be found on the blog carnival index page. You can also read the FAQs on how to host and how to post on the FAQ page.

Getting a Good Night’s Sleep as a Real Estate Investor

Jeff at BawldGuy Talking has done a great job of reminding us how important it is to keep our feet on the ground and prepare for “Uncle Murphy” as he puts it. He is absolutely right that as real estate investors we must have cash reserves available at all times in this business. I have [...]

Jeff at BawldGuy Talking has done a great job of reminding us how important it is to keep our feet on the ground and prepare for “Uncle Murphy” as he puts it. He is absolutely right that as real estate investors we must have cash reserves available at all times in this business. I have met more than a few investment property owners that are in financial trouble or foreclosures because they have no reserves available to deal with the occasional vacancy, water heater replacement, or other unexpected (and sometimes expensive) repair or issue. Read his article about Real Estate Investing through Purposeful Planning.

Have you always wanted to buy investment property, but never knew where to start? Don’t Wait! Get Started now.