Archive for July, 2012

There hasn’t been a better time to buy a long-term cash flow property in decades. Interest rates have hit all time lows and there are some great deals out there. Now is the time to take advantage of rates as low as 3.75% and leverage your money before they go back up again. Here are some of the top benefits to owning a cash flow property:

Cash Flow

All of the buying opportunities that Heaton Dainard present produce a positive monthly cash flow right from the start. This is extra income for doing very little. Rents rose in King County last year over 4% and continue to rise!

Principal Reduction

As payments are made to the loan, a small amount is applied each month to the principal, paying down the loan, building equity and creating positive net worth!

Tax Savings

Not only can you write off expenses of managing and maintaining the rental properties, residential income properties can be depreciated over 27.5 years. So, if you buy a property for $100,000, you can claim a depreciation deduction of just over $3,600 per year. This will offset other income and ultimately lower your income taxes. See your tax advisor for tax advice.

Asset Appreciation

As investment guru Warren Buffet advises, 2012 is an excellent time to buy a single family home due to deals available on the market. The team at Heaton Dainard works hard to find investors cash flow properties priced .40 to .60 cents on the dollar. Holding a property can reap great rewards as the market picks up in the next few years. With only a 5% appreciation rate, your property will double in value in about 14 years.

Options

Income properties can provide options you might not have otherwise. In the case of an emergency, you can borrow against the equity in your property.

Renter Pays Your Loan

This is the best benefit of all and probably the most overlooked. When you borrow money to buy a rental property, you never ever have to pay it back. You read that right. You never have to pay back the loan! Your tenant pays it back for you. Imagine that, you borrow $100,000 to buy a rental property and your tenant pays back the loan for you. That’s an unbelievable benefit. What other investment allows you to borrow money and have someone else pay it back? Cash flow properties are a great investment.

Tax Deductions

Did you know that real estate provides more tax benefits than almost any other investment? Every year, millions of landlords pay more taxes on their rental income than necessary because they fail to take advantage of all the tax deductions available for owners of rental property.

These tax benefits can make the difference between losing money and making an awesome profit on a rental property. Let’s take a look at the top 10 tax deductions for residential rental properties:

1. Interest

Interest is often a landlord’s single biggest deductible expense. Some examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.

2. Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairs to rental property (provided the repairs are ordinary, necessary and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

If you drive a car or truck for your rental property, you have two options for deducting your vehicle expenses. You can: deduct your actual expenses (gasoline, upkeep, repairs), or use the standard mileage rate (55.5 cents per mile for 2012).

To qualify for the standard mileage rate, you must use the standard mileage method the first year you use a car for your business activity. Moreover, you can’t use the standard mileage rate if you have claimed accelerated depreciation deductions in prior years, or have taken a Section 179 deduction for the vehicle.

5. Long Distance Travel

If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals and other expenses.
Be aware that IRS auditors closely scrutinize deductions for overnight travel—and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter. Make sure you discuss with you account the correct amount to deduct. This is another deduction that IRS auditors closely scrutinize.

7. Employees & Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is true whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty & Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won’t be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance.

10. Legal & Professional Services

Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.

You always want to consult your accountant on your tax options for your rental property. Remember, the team at Heaton Dainard is here to discuss any questions and interest you have in obtaining a rental property. Give James Dainard a call at: 425-246-2187 to set up a one on one appointment and take a look at our current inventory!
Visit the experts online at: www.heatondainard.com for more information.

About the author…
James Dainard is one of the founding partners of Invest Now, LLC, the largest wholesale property company in Washington. He has been buying and selling real estate in King, Snohomish and Pierce county for many years. He graduated from the University of Washington Business School with a focus in Finance and Marketing. Over the past few years James has been actively working directly with investors purchasing real estate, providing them with multiple exit strategies and supplying them with the various different lending sources.

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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What’s up with color this year you ask? “What color should I paint my front door, home exterior, deck, exterior trim, interior trim …” are all questions I’m often asked. So this month I thought I would talk a little about the color hues that are hot, what’s not and a few simple tips for making color decisions.

Pantone is THE trend setter for color. Last year they chose Honeysuckle, a vibrant hot pink that they said would encourage us to face every day troubles with vim and vigor. And while it wasn’t a color I would paint my bedroom, or any room for that matter, it was a color that I loved for bedding plants and annuals to add pop to planters by the front door. This year they have gone with Tangerine Tango, which they describe as a “spirited reddish orange that combines the adrenaline rush and vivaciousness of bright red with the warmth of yellow to form a magnetic hue that emanates heat and energy.”

Again, I’m not painting my bedroom tangerine tango. However, it’s a great color to add pop to a beige color scheme, and one of my favorites for art to compliment beige or gray walls. Okay, so much for the fashionistas.

When choosing exterior colors, keep in mind that colors are very emotional. There are some colors that people either love or hate, and when selling a home, these are the colors you really want to stay away from, like Tangerine Tango or Honeysuckle, even for accent walls. In fact, accent walls are not as popular as they once were and I don’t normally recommend them when creating a design for selling. The other two colors that I tend to avoid are Gray, especially dark grays, and surprisingly greens. Gray is fabulous for furniture as it can go with just about any color, but in our dreary Pacific Northwest extended rainy season, it’s just too depressing for walls. There are, however, some beiges with gray tones such as Benjamin Moore Ashley Gray, that I love and in a large bright room look very rich especially against bright white trim.

I personally like soft sages and find them soothing when used for bedrooms or even dining rooms. However, for selling I steer clear of greens because of the strong reactions that I have had from clients. People either love it or hate it, maybe because of the 80’s when Forest Green was the rage or even the 70’s when olive green carpets paired with bright orange counter tops were the top choices for new homes. Whatever reason, I find that when creating a design to sell, greens should be kept to silk plants in corners, or as accents in artwork or bedding.

Beiges and light creamy yellows are still my favorite color choices for interiors, and I’m choosing bolder deeper colors for exteriors this year.

When using deeper colors for the body of the home, I’m using creamier whites for trim rather than the bright whites that I have recommended in years past. The general rule is to stay with no more than three colors for exteriors, but there are always exceptions to every rule.

I have worked with a few challenging colors and while I recommended paint, in some cases it was just not gonna happen. In those cases, with the right staging, rooms that were the reason a home didn’t sell became the room that the buyer fell in love with! Of course I would be happy to meet with you to create two or three color palettes that you can use for just about any home or neighborhood.

If you have a specific question, call me or post it on my Facebook page, and I will feature your question with an answer on my bi-weekly radio show on the Chat with Women Network. Listen in the first and third Wednesday of the month on KKNW 1150 AM radio from 8:00am to 9:00am!

About the author…
Pam Christensen is an Accredited Staging Professional Master who specializes in working with investors to help them maximize their return on investment by providing high quality staging that get results! Pam’s Staged homes consistently are under contract in 10 days or less, and over 90% are sold within the first 30 days! Ready to make more money on your home sales? Contact Pam today! You can reach Pam by email at: [email protected]

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

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The purchase of real property at a foreclosure sale poses additional risks for the purchaser/investor and for the title company that insures that purchaser/investor. By its nature, the foreclosure sale is an adversarial process: the lender forcibly taking title away from the owner and eliminating any junior interests. Most (95%) of the foreclosures occurring today in the State of Washington are done non-judicially or outside the state court system. The non-judicial foreclosure is a process that is specifically provided for in state statutes under RCW 61.24. And while it does provide a quick process for getting the real property back into the “stream of commerce,” it also allows for potentially more defects as well.

Defects are the key. They are the main concern of title companies issuing title insurance to the purchaser/investor. Generally speaking, because of the risk of defects surrounding a foreclosure sale, title companies prefer to issue standard coverage owner’s policies to the purchaser at a foreclosure sale. This is important because a standard owner’s policy only covers those matters that are “of record” or that have otherwise been recorded with county auditor or filed in the court system. Matters, problems, claims and defects not “of record” are not covered by the standard coverage policy, and so their potential effect on the real property should be of concern to the purchaser/investor. Of course, for a price, extended coverage can be obtained in certain circumstances to cover “off record” matters, but that is a path littered with affidavits, indemnities and ALTA/ACSM survey requirements.

In addition to the standard coverage issue, title companies are for the most part currently including in their commitments and policies to purchasers at foreclosure sales the following exception in some form in Schedule B:

“Right of any party interested to sue or petition to have set aside, modified or contest a judicial or non-judicial foreclosure or forfeiture, or any deed pursuant hereto, through which title to the Land is derived; and any liens, encumbrances and/or ownership interests which may exist as a result of any acts or omissions of the foreclosing parties, or as a result of such suit or petition.”

Yes, you are reading the exception correctly. It basically is excepting from coverage of the policy any claim based on any defect in the foreclosure sale. I know at first blush it seems unreasonable to include the above exception, but it is based on the risk of potential defects in the foreclosure process and the claims history in the title industry over the last 5 or 6 years. Because of the adversarial nature of the foreclosure process, any relatively small defect can be used to pry the lid of validity off the title to real property that is the subject of that foreclosure.

The good news with the general foreclosure defects exception paragraph is that while title companies will include it in policies issued to direct purchasers at foreclosure sales, most title companies will remove the exception in a policy issued to a subsequent bona fide purchaser for value. The reason, of course, is the risk of defense of any claim of defects in the foreclosure sale is far less once the subject property is sold to a bona fide purchaser for value.

The market in foreclosed properties, the foreclosure law and the title companies’ position on insuring those foreclosed properties have been a roller coaster over the past few years and they are still in constant motion. If you are swayed by the siren song of purchasing foreclosed real property, hold on tight to your title policies and caveat emptor (let the buyer beware)!

*Written by Curt Johnson, Vice President & Underwriting Counsel, FNTG. Contributed by Elizabeth Peterson, Senior Account Manager, Chicago Title of Washington.

About the author…
If you are looking for a title and escrow partner you can count on, Elizabeth is here to help you provide your clients with the added measure of service so essential in today’s competitive market. Elizabeth is a senior account manager at Chicago Title of Washington. She can be reached by phone at 206-618-6786 or send an email to [email protected]

“REAPS is the oldest – and largest – Professional Association for the real estate investor this side of the Mississippi. We provide education and networking resources for real estate investors, those who want to be investors and anyone who provides value to our members. Our goals are to motivate and support our members and guests through education, discussion, legislative action and networking. We host over 40 live events a year around Puget Sound and they are all open to the public. If you’ve never attended one of our meetings, just email our office at [email protected] and be our guest for free!”

 

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