More Renters Express Doubt About Owning

DOUBT-300x198Renters are taking a dimmer view of home ownership as concerns over housing affordability and student debt have a larger influence on their attitudes, according to the National Association of REALTORS®.

NAR’s latest Housing Opportunities and Market Experience (HOME) survey found a growing disconnect in the morale among home owners versus renters about home ownership. The share of renters who think now is a good time to buy a home dropped to 62 percent in the second quarter of this year — down from 68 percent in December 2015 — with those under the age of 35 expressing the least amount of confidence in buying. Eighty percent of home owners, on the other hand, believe now is a great time to purchase a home.

“Existing-home prices surpassed their all-time peak this spring and have climbed, on average, over 5 percent nationally through the first five months of the year — and even faster in areas with severe supply shortages,” says NAR Chief Economist Lawrence Yun. “Most home owners appear to realize that if they’re ready to sell, they’ll likely find a buyer rather quickly and be able to use the sizeable equity they’ve accumulated in recent years towards their next home purchase. Meanwhile, renters interested in buying continue to face minimal choices, strong competition, and home prices growing faster than their incomes. … Given these affordability pressures, it’s no surprise respondents earning over $100,000 and those living in the Midwest — the most affordable region of the country — are the most optimistic about buying right now.”

Student debt is making many people uneasy about taking on additional debt to purchase a home. Two-thirds of non-home owners and half of those under 35 with student debt say they aren’t comfortable adding a mortgage on to their debt load, according to the HOME survey. They also were less likely to believe they’d even qualify for a mortgage.

“It’s becoming very evident from this survey and our research released last month that the financial and emotional impact of repaying student debt is contributing to a delay in purchasing a home for many would-be buyers,” Yun says. “At a time of quickly rising rents, mortgage rates at all-time lows, and increasing housing wealth, a lot of young adults in their prime buying years are struggling to enter the market and are ultimately missing out on the stability and wealth accumulation that owning a home can provide.”

Economists are predicting that strong home-price appreciation will continue in the coming months throughout most of the country. As such, a growing number of current home owners — 61 percent — say they believe it’s a good time to sell compared to 56 percent who said so in the first quarter of this year. Survey respondents who live in the West were most likely to say now is a good time to sell but were also least likely to say now is a good time to buy, according to the survey.

“More home owners acknowledging this pent-up demand may perhaps mean we begin to see more supply come online in the near future,” Yun says.

Source: realtormag.realtor.org

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How to Rent Out Your House and Make Bank

easy-landlord-forms-300x200There are many reasons you might be one of the many homeowners wondering how to rent out your house: Maybe you’ve tried to sell your home but the market’s too sluggish, or you’re moving to a new area but want to hold on to your old property and rake in some income on the side.

Whatever the reason, it’s a good time to be considering this, because the rental market is hot: A recent study from the Joint Center for Housing Studies of Harvard University found that the rental market has been growing for the past 10 years straight, and the share of Americans renting is at a 20-year high of 35%.

But renting out your digs for the long term is a very different animal than the occasional stint on Airbnb. Here are some basic steps to take to get you started down rental road.

Determine how much to charge in rent

At the least, most newbie landlords want their rental income to cover their monthly mortgage, as well as taxes and insurance. Times may have changed since you bought, so you want to be clear on what the market will bear. Check rental properties on realtor.com® for the going rate in your area.

“Look for comparable properties in similar areas, with corresponding bedroom and bathroom counts,” says Realtor® Ed Laine, partner/broker of Miller Laine Properties in the Seattle area. “That will give you a per-square-foot rental figure that you can then apply to your own property.”

Screen tenants carefully

“Picking the right tenant can make all the difference and is one of the top ways to make your experience as a landlord a good one,” Laine says. You’ll want to check their employment history, credit history, and income (via pay stubs or tax returns), as well as references from past landlords if possible.

To add an extra layer of security, you can do statewide and federal background checks at places like the National Tenant Network, which has been screening tenants since 1980, to make sure potential renters don’t have a checkered history elsewhere.

Decide whether to manage your property yourself or hire help

It may be tempting to manage your property yourself when you consider that property managers typically charge 4% to 12% of the monthly rental. But that might be a small price to pay for avoiding headaches with your rental. According to a survey from property management firm Buildium, 62% of respondents mentioned maintenance and 5% cited tenant management as the two main reasons that rental property owners choose to hire property managers.

“I often suggest that my clients manage the first one themselves, which gives them a great education on their property and on being a landlord,” Laine says. “It also proves to them that management fees are nothing compared to a 3 a.m. call about a tree limb coming through a window.”

Pick the right property manager

Picking a property manager isn’t just about finding one with the lowest fees. Fees are important, but don’t let that be the sole deciding factor. For instance, what are the property manager’s hours? If they’re available only during weekday business hours and a pipe bursts on the weekend, you may get stuck with coming to the aid of your tenant yourself. What happens if rent isn’t paid on time—will they pursue the matter? If not, you may get stuck chasing down your money, which rather defeats the purpose of having a property manager at all.

Also make sure that the property manager—and you yourself—are committed to keeping up on local laws. Laine cites a recent case when the local municipality enacted laws that hold landlords liable for bedbugs.

“We updated our leases immediately,” he says. “The liabilities are too great to take a risk just to save a few bucks.”

Because at the end of the day, hired help or no, the buck stops with the landlord, literally.

Source: realtor.com

Replace the carpet?

ask-the-attorneyThe Landlord Protection Agency®presents John Reno, Esq.,a highly experienced Landlord – Tenant attorney based on Long Island, NY.

Q:  Dear Mr. Reno:

If the carpet in my rental home is 10 yrs old but in good condition, do I have the right to demand our tenants to pay for the replacement of the carpet if they allowed their dog for 2 1/2 yrs to urinate all over it throughout the entire house so much that it went through the padding into the sub flooring? Professional carpet cleaning services said it would be impossible to clean it.

Dean Loftis, Mississippi

A: Yes, you can, but why change it if they’re still there?

Legal Disclaimer
The Landlord Protection Agency’s “Ask the Attorney” column is for informational purposes only. The questions answered by Mr. Reno on this site do not constitute an attorney – client relationship and are not to be considered legal advice. Not all questions will be answered and some may appear in the LPA Q&A Forum.
The Landlord Protection Agency recommends that you seek legal advice before using any of the material offered on this web site, and makes no guarantee on the effectiveness, compliance with local laws or success of any of the material offered on this web site. The Landlord Protection Agency is not engaged in rendering legal advice.

The Benefits of Hiring a Competent Property Management Company

community-manager-formation1-1024x742Managing a property requires a lot of dedication and time. For this reason, most property owners prefer using the services of competent property managers who alleviate the stress owners otherwise feel when required to perform duties as landlords. Here are the benefits of hiring a property management company to run the day-to-day operations of your property.

1. Property Assessment and Advertisement

After signing an agreement for a company to manage your property, immediate marketing measures are taken to ensure the property is occupied without further delay. Owners with minimal knowledge of pricing trends in the rental and leasing industry rely on qualified managers to independently assess their properties and give correct valuations. Because prospective tenants prefer to view different properties before making choices, private landlords are often unable to find suitable tenants within a short time. Hence, the need for property managers.

Since tenants regularly contact managers for information concerning properties for lease, management companies may have lists of potential customers interested in renting specific properties, saving time for both owner and tenant.

2. Tenant Screening

Expert property managers are aware that profit is generated only when paying tenants occupy a property. Tenants should also care for the property, so it is always in rentable condition. This aspect makes owning and running a property an expensive and time-consuming experience. To ensure a property is rented to responsible tenants, a management company usually runs a background check to establish the tenant’s credit references, criminal records, and eviction history, helping the landlord screen tenants with poor rental history or criminal backgrounds.

3. Avoid Legal Issues

Current legislation requires that the tenant signs a tenancy agreement before occupying an apartment or building. A management company will, therefore, prepare a lease agreement on behalf of the property owner and amend it whenever necessary. A lawfully drafted agreement should plainly state the duties of the tenant and the property owner. Because staying up to date on tenancy laws can be a lot of work for private landlords, hiring a competent company to manage your property in accordance with the law is advisable. If any complications arise, including when a tenant wants to terminate a tenancy agreement, the company will also facilitate the process to properly terminate the contract.

4. Attract and Retain Good Tenants

As soon as an owner has found the best tenants, retaining them is important. Usually, tenants vacate properties that lack quality service. Employing a property manager allows a landlord to rest assured that tenants’ needs will be swiftly handled, in turn, reducing vacancy rates. In case of an eviction, the management company will also make sure the building is reoccupied within the shortest time possible. An experienced, capable manager will communicate with tenants on a regular basis to establish a friendly environment and detect and solve problems. This also leads to higher retention rates.

5. Increased Property Value

Preserving the property value is a constant deliberation for all investors. For this reason, management companies conduct routine property checkups to ensure that the property is well maintained. They will take immediate action if repair or renovation is needed. The precautionary inspections and repairs also protect the assets, so the property stays competitive in the market.

Although owners give up a small percentage of profits to cover the expenses of hiring such a company, employing the services of a management company lets landlords enjoy the benefits of property ownership as well as personal freedom. Owners who have various property investments, lack management knowledge, and/or just don’t have time to manage their property should consider hiring property managers.

Source: homesgofast.com

If at first you don’t succeed, we will rent it for you!

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If at first you don’t succeed, we will rent it for you.

What landlords can write off on their taxes

for-rent-summer-300x200I have clients who love to regale me with stories about their fun experiences with tenants. Like the one who literally took everything that was not bolted down when he moved out: Carpeting, curtain rods, towel bars, you name it. In fact, he even took one thing that was bolted down — a toilet, believe it or not.

Putting up with tenants can be a real pain, but that negative consideration is offset by surging real-estate markets and rental rates in many areas — and favorable tax rules. In fact, favorable tax rules are a big reason why so many fortunes have been made in real estate. This column is the first of three on the most important tax issues that landlords, and potential landlords, need to understand.

What you can write off

You can deduct mortgage interest and real estate taxes on rental properties. However, if you pay mortgage points, you must amortize them over the term of the loan.

You can also write off all the standard operating expenses that go along with owning a rental property: utilities, insurance, repairs and maintenance, yard care, association fees and so forth.

The kicker is that you can also depreciate the cost of residential buildings over 27.5 years, even while they are (you hope) increasing in value. Say your rental property — not including the land — costs $250,000. The annual depreciation deduction is $9,091, which means you can have that much in positive cash flow without owing any income taxes. That’s a nice benefit, especially if you own several properties. Commercial buildings must be depreciated over a much-longer 39-year period, but the depreciation write-offs will still shelter some cash flow from taxes.

Beware of the dreaded passive loss rules

If your rental property throws off a tax loss — and most do at least during the early years — things get complicated. The so-called passive activity loss (PAL) rules will usually apply. In general, the PAL rules only allow you to deduct passive losses to the extent you have passive income from other sources — like positive income from other rental properties or gains from selling them. Passive losses in excess of passive income are suspended until you either have more passive income or you sell the property or properties that produced the losses. Bottom line: The PAL rules can postpone rental property loss deductions, sometimes for many years. Fortunately, there are several exceptions that can allow you to deduct losses sooner rather than later. I’ll cover those exceptions in a future column.

What if I have income?

Eventually your rental properties should start throwing off positive taxable income instead of losses, because escalating rents will surpass your deductible expenses. Of course, you must pay income taxes on those profits. But if you piled up suspended passive losses in earlier years, you now get to use them to offset your passive profits.

Another nice thing: Positive taxable income from rental real estate is not hit with the dreaded self-employment (SE) tax, which applies to most other unincorporated profit-making ventures. The SE tax rate can be up to 15.3%, so it’s a wonderful thing when you don’t have to pay it.

One bad thing: Positive passive income from rental real estate can get socked with the 3.8% Medicare surtax on net investment income, and gains from selling properties can also get hit. However, this tax only hits upper-income folks. Consult your tax adviser for details.

Taxpayer-friendly rules when you sell

When you sell a property you’ve owned for more than one year, the profit (the difference between the net sales proceeds and the tax basis of the property after subtracting depreciation deductions) is generally treated as a long-term capital gain. As such, it will be taxed at a federal rate of no more than 20%, or 23.8% if you owe the 3.8% Medicare surtax. However, part of the gain — an amount equal to the cumulative depreciation deductions claimed for the property — is subject to a 25% maximum federal rate (or 28.8% if you owe the 3.8% Medicare surtax). The rest of your gain will be taxed at a maximum federal rate of no more than 20% (or 23.8%). Don’t forget that you may also owe state income tax on real estate gains (and NYC tax for properties in the Big Apple).

On the other hand, it’s important to remember that property appreciation is not taxed until you actually sell. Good properties can generate the kind of compound tax-deferred growth that investors dream about. You can even pocket part of your appreciation in advance by taking out a second mortgage against your property or refinancing it with a bigger first mortgage. Such cash-out deals are tax-free.

You also have the option of selling appreciated real estate on the installment plan by taking back a note for part of the sale price. Then your taxable gain can be spread over several years. You can charge the buyer interest on the deferred payments, but you generally don’t have to pay interest to the government on your deferred gain.

Remember those suspended passive losses we talked about earlier? You can use them to shelter gains from selling appreciated properties.

Finally, the tax law allows real estate owners to unload appreciated properties while deferring the federal income hit indefinitely. Here we are talking about so-called “like-kind exchanges,” which are also known as “Section 1031 exchanges” (named after the applicable Internal Revenue Code Section). With a like-kind exchange, you swap the property you want to unload for another property (the so-called replacement property). You’re allowed to put off paying taxes until you sell the replacement property. Or when you’re ready to unload the replacement property, you can arrange yet another like-kind exchange and continue deferring taxes. While you cannot cash in your real-estate investments by making like-kind exchanges, you can trade holdings in one area for properties in more-promising locations. In fact, the like-kind exchange rules give you tons of flexibility when selecting replacement properties. For example, you could swap several single-family rental houses for an apartment building, a shopping center, raw land, or even a golf course or marina.

The bottom line

As I said at the beginning, the tax rules for landlords are pretty favorable, all things considered. I have a couple more articles in mind for all you landlords and landlord wannabes out there, so please stay tuned.

Source: marketwatch.com

Why I Never Do Move-out Walk-throughs with Departing Tenants

151222-landlordrenter-stockI recently had a tenant express frustration over the fact that I wouldn’t come meet him to conduct a final move-out walk-through at the rental property. I’ve been moving tenants in and out of Austin rental homes since 1990, and I’ve learned a few lessons in doing so. One is that there is no upside for a landlord in conducting a final walk-through with a tenant. Only bad outcomes can occur.

Namely, the tenant is going to want you to affirm or state that everything looks “ok” and that they’ll get all of their deposit back. Nowhere in Texas Property Code is this sort of “instant accounting” required. You’d be a fool to agree to say something like that, because a lot of possible damage is not discernible on a cursory walk-through.

Just a few examples off the top of my head are fleas that haven’t hatched yet, carpet stains that were scrubbed invisible that morning but will re-appear tomorrow, the dirty A/C filter your HVAC guy could find sucked up into air intake cavity (as I encountered last month), pet odors that are masked at walk-through but which return in a couple of days, the cat hair blanketing the refrigerator coil, and a long list of other possibilities.

Therefore, even if I wanted to, even if the place appeared to be in great condition with no visible problems, there is nothing I could or would say to a tenant with regard to whether the home “passes” inspection or not. The reason the tenant wants the walk-through – to receive assurances – simply can’t and won’t be provided.

And then, as I learned in the old days when I thought it made sense to do a move-out walk through, an argument ensues. So I just don’t go there anymore.

To better and more fully see my position, there are a few things one must understand.

First, as a Property Manager and Agent, I work for and represent property owners, not tenants. I therefore have a fiduciary duty to protect the interests of my owners by not committing errors in judgment that increase the owner’s legal exposure and potential liability.

Second, Landlords, as a business class, are sued more than any other type of defendant in small claims courts in America. Most of these lawsuits are about deposits and deductions that were made after move-out. Knowing that, a prudent landlord will always operate from a careful defensive position, remaining fair to the tenant, but not accommodating risky requests such as personal move-out walk-throughs.

The best defense against lawsuits is a well documented  accounting of what the specific deductions were and why the deductions were fair and justifiable.

The best way to end up with that type of documented paper trail, which can easily be handed to a JP Court Judge as evidence, is to employ a consistent and static turnover process that removes as many variables as possible. Of the many different variables a landlord might have to contend with in defending legitimate deposit deductions for damages and/or cleaning, the very worst and most problematic ones are the “He said, She said” type, where the landlord is placed in a position of having to refute things that in fact were never said, or that are being mischaracterized by the tenant.

And, finally, the best way to avoid “He said, She said” debates, is to simply not say anything in the first place. Instead, reduce all communications to documented written steps and stages so that when (not if) you do end up in court someday with a tenant, you have a nice packet of printed and easy to understand paper trail evidence that represents all communication that took place.

The very dumbest, worst thing a landlord can do is spend 30 minutes or so walking around a house with a departing tenant, trying to respond to comments/questions from the tenant such as “does everything look ok”? “So, we’ll be getting all of our deposit back”? “When will we be getting the deposit”? And my favorite, “it’s cleaner than when we moved in, so we expect all of our deposit back”.

You have lost control of the entire process as soon as you allow that to happen, and you have to assume that every utterance you make can and will be misconstrued and mischaracterized later if you end up in court. So just don’t go there.

I’ve accounted back the deposit for thousands of tenants in over 20 25 years of owning and managing rental homes in Austin. I’ve been to court a total of three four five times and have prevailed 100% each time. No tenant has ever convinced a judge that I’ve ever done anything wrong. My process works for me and it protects my owners.

A Well Documented Turnover Process
The turnover process begins at the moment written notice to vacate is received from or provided to a tenant. Instantly, upon receiving a move-out notice, I mail to our tenants a two page set of instructions documenting everything they need to know and do in order to have a successful departure and deposit refund.
Move-out Acknowledgment and Instructions

This sets expectations and clarifies for the tenant what was agreed to in the lease agreement and the process that will be followed.

After the tenant’s departure, I walk through the vacant property and check it out. Then I have a 150+ point preventative maintenance checklist that will be conducted and which will reveal problems or issues not readily apparent during a cursory walk-through. Only after this full and thorough evaluation of the property can a final assessment be made as to whether or not tenant damages exist that will be charged to the tenant deposit.

Conclusion: You control the process, not the tenant. Don’t have casual conversations about the deposit or condition of the property. Don’t attend a final walk-through. The tenant is free to take hundreds of digital photos, videotape, etc. if they want to document the final condition. You don’t need to be there. Keep everything in writing, stick to the process and don’t subject yourself to exposure or risk that Texas Property Code does not require of you.

Finally, be fair with the deposit, don’t be greedy or heavy handed. Be firm but fair. Remember you might end up in court defending yourself, and judges do give the benefit of doubt to tenants. Don’t be an idiot and get dragged into court over something that could have been avoided had you not been petty or greedy. For me, personally, I’ve adopted the policy of grading move-outs on a A, B, C, D, F scale. If a tenant does almost a perfect job on move-out, equivilent to a “93% Good”, I call that an “A” (using the 90-100 = A scale). Tenants who earn an “A”, through an honest effort, get 100% of their deposit back. I’m not going to pick a fight over a $65 worth of nit picking stuff. That’s stupid. Be a smart landlord or Property Manager, be fair.

Source: CrosslandTeam.com