Tax Sale Workshop

In Brad King's Article in Sunday's paper he is talking about Homesteading but with in his article he is having a Tax Sale Workshop Sept. 3, 6 - 7:30pm at the City Hall Auditorium. If you have been wanting to learn more about tax sales this might just be the place to be. I am interested so I have it on my schedule.

Debby

Income Taxes – How Real Estate Can Save You Money

People frequently purchase investment real estate with the belief that they will save some money on their income taxes as a result of their property ownership. And this could be true, but in many cases real estate provides an owner with virtually no tax savings at all. In this article we’ll talk about rental properties and how you can figure out, with your tax advisor, if your real estate ownership will assist you to reduce your annual tax bill.

1040 Form
All annual personal income tax reporting ends with an individual filling out their two page IRS 1040 main tax form. In order to reduce one’s taxes as much as is legally allowed, taxpayers use deductions and losses to reduce their starting 1040 Form “Gross Income” to the lowest “Taxable Income” possible near the bottom of the 1040 form. One of those deductions or “losses” that helps reduce or shield your taxable income is related to real estate rental property operations that are calculated on the schedule E form and flow to your 1040 Form line 17.
Schedule E Mechanics
A rental property owner will fill out their Schedule E with all the property’s income and expense items for the year. The top number is the rental income, then they subtract expenses like maintenance, property taxes, insurance, mortgage interest, and depreciation. If the net number is a loss – which is common for the first bunch of years after a property is acquired – that loss generally goes onto the 1040 Form line 17 and is a reduction of one’s personal income.  That reduction flows through their entire 1040 form to reduce their taxable income and hence reduces the amount of taxes one would pay Uncle Sam.
And that’s how real estate saves you money on taxes; by allowing you to take a rental property deduction to reduce your gross income by the amount of any losses you incur on your real estate ownership. If you have a ($10,000) loss, you can shield $10,000 worth of your income from taxation which could save you $2,500 to $4,500 that year!
Limitations
Hold on though, guess what, there are some restrictions that the IRS enacted years ago to limit wealthy people from taking too much of an advantage of these tax saving measures.
These restrictions are generally called passive activity loss (PAL) limitations and most investors’ rental property operations are “passive activities” under the IRS code. The first PAL limitation restricts the maximum allowed net PAL that an individual can use to ($25,000) per year. So if one has a loss of ($35,000), they can use ($25,000) but have to carry the extra ($10,000) forward, probably for years, until it can be used down the road within the annual ($25,000) limit. Additionally, the ability to use any losses at all phases out as an investor’s Adjusted Gross Income (AGI) goes from $100,000 to $150,000 – at which point they can’t use the losses at all in the current year and would need to carry them over, possibly for decades, until their income drops below those levels.
So if you have huge losses, and/or your AGI is over $150,000 you’re probably out of luck on using significant losses to shield your income from taxation – discuss with your tax professional.
One last quirk in this law is that if the property owner is a real estate professional, check the tax code for qualifications, the ($25,000) PAL limitation might not apply. Now you might think that real estate professionals would be savvy enough investors to buy properties that don’t have huge tax losses, but I see investors do the darnedest things all the time! For yourself, try to buy good cash flow positive properties first, and then you won’t come up upon those PAL limits because your losses should be relatively small.
To summarize, if you are going to buy rental properties, and you are counting on the tax benefits to help your investment returns, make sure to get with your tax advisor beforehand to look at your entire tax picture. This will hopefully ensure you will actually earn some tax savings due to your real estate ownership; because, as with everything in real estate, tax savings are not as simple as just buying and assuming everything will work out to your favor!
 Posted: 21 Aug 2013 10:57 AM PDT
Leonard Baron is America’s Real Estate Professor – his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate buyers how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com.

2013 Delaware County Tax Sale

I know that there are Members of our Association that like to buy properties at the Tax Sale. In yesterdays paper there was a list of 1,930 homes to be sold. This is just the beginning list. There will be homes that the taxes will be paid and they will be removed. If this is something you are interested in, we can get more information and maybe some of us can go to the sale. Have you ever been to a Tax Sale? Very interesting. I will put information on our Newsletter as I get it.
To Start with the date of the sale is October 1st, 2013. 

• If you are planning on bidding or just want to be prepared you either need to register on line, get your paperwork on line or be at the sale at least an hours early to make sure you are registered.
• The sale is at the Delaware County Fairgrounds in the Heartland Building. 1210 N. Wheeling. Muncie, IN 47303
• Sale starts at 10:00am.

Let me know if you have any questions I can help you with. I tried to find a list of the properties on line but could not. I will keep trying.

Debby - 765-760-0212 email - agent736@usa.net

Leasing Specifics

Leasing Specifics Property Managers and All Landlords Need to Know

Posted: 19 Aug 2013 09:55 AM PDT

Completing a leasing agreement with your tenants is the single most important task that you will undertake.  While completing a lease has likely become second nature to most property management professionals, you may want to take a little extra time and think about everything that needs to be in that lease; before it’s presented to your future tenants.  Here are a few things that property managers should make sure are included in any lease agreement:

• Detailed information about monthly rent. While this may seem fairly straightforward, you will want to spell out the specific rent terms such as payment due date, grace period, if any, late charge amounts due after a specific date, and payment form accepted.
• Legal entry to the unit or residence. It’s vital that a tenant lease spells out when unit entry is permissible. This includes how much of a notice is necessary (typically 24 hours), and under what circumstances. Obviously this clause can be overlooked during an emergency, but that exception should be noted as well. Bottom line is that it’s best to spell out exactly when you can enter the unit in order to avoid tenant complaints and potential litigation.
• Consequences of illegal activity. While we all hope that our tenant screening process will weed out the possibility of illegal activity among tenants, it’s in the property manager’s best interest to spell out prohibited activities and the consequences. Stating that you have the grounds to terminate a lease upon evidence of illegal activity such as drug dealing will notify tenants of the consequences of illegal activity and allow you to start eviction proceedings promptly.
• A detailed list of maintenance responsibilities. If your rentals are mainly single family homes, it’s vital that details on what tenants are responsible for are spelled out in the lease agreement. If your tenants are responsible for lawn maintenance and landscaping, it needs to be put in writing. If management prohibits major changes to property such as painting walls or installing a ceiling fan, it needs to be spelled out in detail.
• Detailed information about security, cleaning, and pet deposits. Are tenants allowed to use their security deposit for their last month of rent? If not, it better say that in the lease. Do you charge a separate pet deposit, and is it refundable? Again, spell out the terms in the lease. Cleaning deposits? Non-refundable? Better mention that in the lease.

Taking the time to present a comprehensive lease agreement will likely result in less confusion for tenants and reduce the possibility of litigation later.

This information is sent to me by Property Managers but I feel it is good information for us all.  Debby

I thought you might enjoy something humorous.

The test...

Today I swung my front door wide open and placed my Stevens 320

(a shotgun) right in the doorway. I gave it 5 shells and left it alone
and went about my business. While I was gone, the mailman
delivered my mail, the trash man picked up the trash, a girl walked
her dog down the street, and quite a few of my neighbors drove
past the house.

After about an hour, I checked on the gun. It was still sitting there,
right where I had left it. It hadn't killed anyone, even with the
numerous opportunities it had been presented with to do so. In fact,
it hadn't even loaded itself. . . . . ..

Well you can imagine my surprise, with all the media hype about how
dangerous guns are and how they kill people. Either the media is
wrong, and it is the misuse of guns by PEOPLE that kills people, or
I'm in possession of the laziest gun in the world.

All right, well I’m off to check on my spoons.

I hear they’re making people fat . . . .

Have You Ever Thought of Having an Open House?

 4509 Patton Terrace

Check her listing out on rentmuncie.com rentmuncie.com

Tracy is not only a new member of the Rental Property Association but she is a first time Investment Owner that has a lot going on. She has been to 2 of our meetings and the second one she was one of our speakers. She was so excited about buying her first investment that she has asked lots of questions and probably gotten several different answers. She also had an opportunity to talk to John and Jane Harman at her first meeting and they suggested to her that she go to the 3 day Mr. Landlord Seminar they were having, I think, in Tenn. She went. After listing to her when she came back I think she needed to take a few of us with her. Not only would it be a chance to learn but it sounded like we could have some fun. Maybe we can check in to that for a future date.
Since then she has purchased her firat property and after working on it she has it ready to rent. She decided to have an open house. I asked her how it went and she said there were several there and that se took applications. I have never personally done this but I got to thinking that as Realtors we do open houses for Buyers so why not for Tenants?  We could do progressive Open Houses. If there is something that has been on the web for a while and you are not sure what to do next, would an Open House Help? I would love to have some feed back about this. Leave a comment please.

Craig's List Postings

What is the best time of day to post to craigslist?

You've probably wondered if there is an optimum time to post.  

RentLinx recently completed a study of 25 million craigslist views of 100,000 craigslist posts - from properties all over the USA. 

The data revealed that renters display a clear preference for postings done early in the morning!

Next time try listing at 6am in the morning.

 

Due Diligence – What Is Important When Buying Real Estate?

Posted on 08. Aug, 2013 by Leonard Baron in Real Estate

When you make a big purchase, or an investment, buy a car, sign up for healthcare, etc. you do you “homework” to hopefully make a sensible decision that gives you good value for the money you are spending.
When you buy real estate, which is likely to be the most expensive, most complex, and riskiest purchase you will ever make, there is an extraordinary amount of due diligence that you should do to reduce your risk and make a smart decision. It’s a time consuming, laborious, and expensive process of which most buyers fail to understand and complete. Most don’t even know many of the steps, or they don’t understand the time and cost required to perform the tasks, steps, procedures, analysis, review, etc. To give you a feel for it, here are the main steps in buying income producing property.
Pencil out your deal. In order to determine whether or not you are buying a fair deal, you must pencil out, or pro-forma, your particular deal. This involves investing rents, expenses, vacancy, financing costs, current leases, capital reserves and replacements and inputting those figures into your pro-forma. And you need to do your own research and use good numbers because if you take the seller’s figures, you’re going to find out quickly their numbers were probably overly optimistic. You might need a C.P.A. or financial advisor to help you.
Financing your property. You must also take the time to get qualified and procure several bids to secure the best financing for their property. Understanding the costs and terms involved in a financing agreement, and how those clauses could impact your investment returns and future financing options on the property is a must. Just accepting the loan documents, without your and/or your attorney’s review, is not prudent practice.
Title Issues, Site and Title Insurance. Title issues, at least expensive ones, are rare. But that doesn’t mean you don’t have to do all the needed review, maybe with an attorney, on every single purchase – because you do. You will have a title insurance policy to review, plus an abstract of title that could list easements, restrictions on use, and a schedule of exclusions related to the title insurance. Reviewing all of these, probably with an attorney, is an absolute necessity. And you probably have to have a survey done to see if there are any encumbrances on the property. You don’t want to discover an issue after you’ve closed escrow.
Property Inspection and Rehabilitation. You will also need to have a professional building inspector review the property and do a report of all the issues. Then have several different contractors to come bid on the work that is needed to get it into the condition that makes sense for your ownership and rental operation. These need to be done within the tight timeframe of your inspection period so you can terminate the contract if you find issues and the costs of renovation are prohibitive.
Dwelling and liability insurance policy. During your inspection period you should also get some bids for properly insurance your real estate. Sometimes there are insurance issues, and you may not be able to obtain a policy or the premiums may be unaffordable. For standard properties in decent areas, like apartments, it should be relatively straightforward and easy. But if you add in fire prone, flood prone, hurricane or high property crime areas, you might find a little more trouble obtaining a reasonably priced policy. Make sure to get some premium estimates early in the due diligence process.
Partnership, LLC, tax and ownership issues. If you are buying with other partners, or raising capital for the purchase, there are a myriad of legal partnership, LLC, and tax issues that need to be reviewed with a professional before your purchase. You need to set up the entity structure and tax items before you close escrow so all investors and partners are satisfied with the agreement.
Those are the main due diligence issues for an already built and operating income producing property. There are many other tasks and procedures depending on the circumstances of your purchase. So talk to your real estate broker, lawyer, C.P.A., escrow agent, title officer and others involved in your purchase for other items that need to be considered. And make sure educate yourself well before the process begins and give yourself enough time to do a good job of completing all these tasks.
Leonard Baron is America’s Real Estate Professor – his unbiased, neutral and inexpensive “Real Estate Ownership, Investment and Due Diligence 101” textbook teaches real estate buyers how to make smart and safe purchase decisions. He is a San Diego State University Lecturer, blogs at Zillow.com, and loves kicking the tires of a good piece of dirt! More at ProfessorBaron.com.