SHOULD YOU HIRE A REAL ESTATE CONTRACTOR? IMPORTANT TIPS FOR HOUSE FLIPPERS
With housing demand still running high throughout most of the U.S., there are many opportunities for current and aspiring investors. Buying an old house that needs some updating can be very profitable if you know what to look for. And Buying a House for the Price of a Car, doubly so! When flipping a house, there are many important decisions to make. One of the most important is whether to hire a contractor or do it yourself. While on the face of it, it seems cheaper to do it yourself, there are a number of trade-offs and considerations to keep in mind. At MY SMART COUSIN, we help you build wealth and Buy a House for the Price of a Car by being your Real Estate Investment Coach. In this blog post, we’ll go over some tips for hiring a Real Estate Contractor. So, whether you’re just starting or have been flipping houses for years, read on! WHAT IS A RESIDENTIAL REAL ESTATE CONTRACTOR AND WHAT DO THEY DO? When you’re looking for a contractor to repair or rehab your investment property, you will most likely need to hire a residential real estate contractor. Residential contractors also called Home Improvement Contractors in some states, will manage and perform the overall renovation work for a residential property. The licensing, certification, and insurance requirements for residential contractors vary from state to state, so you will want to check with your state’s department of labor and industry for a list of registered contractors. A real estate contractor is responsible for making recommendations, identifying the need for additional specialized contractors (for instance, plumbers or electricians), and obtaining any required permits for the renovation and construction work. A real estate contractor can also be a great resource for identifying financing options, providing input on what’s hot in housing design, and discussing housing market trends in the city or neighborhood of your investment property. beylikdüzü escort bayan, gaziantep escort, ataköy escort, esenyurt escort, seks hikayesi, kayseri escort, şişli escort, beylikdüzü escort, beylikdüzü escort If you are unsure of where to find a capable contractor or how to evaluate them, a Real Estate Investment Coach such as My Smart Cousin can pay dividends in conducting detailed due diligence, providing a written assessment, and helping you to negotiate a strong contract. HOW TO FIND THE RIGHT REAL ESTATE CONTRACTOR FOR YOUR FIX & FLIP PROJECT? Flipping houses is not an easy task and requires patience to complete. Finding the right contractor can make all the difference between a house that is renovated quickly and with quality workmanship versus one that is always ‘almost done’ according to your contractor and yet looks nowhere near so. As such, it pays to invest time and do your research at the front end to help ensure a smooth renovation process. The list of challenges may seem long and daunting when hiring a new contractor. Before committing to a neighbor’s handyman or throwing your hands in the air and choosing the first person who calls you back, remember these tips: · When hiring a contractor, you must ask for references from people who know the contractor well and can give an honest assessment of their workmanship. Call at least three of the references, don’t satisfy yourself with just one. Also, conducting a little bit of detective work in terms of searching for online reviews regarding your potential contractor can shed light on any issues. If a contractor is unwilling or unable to provide you with references, you should think long and hard about hiring them. · Punctuality, both in terms of showing up to the job site on time and putting in a full day’s work, and completing the job on or ahead of schedule, are critical determinants when evaluating contractors. For Flips, it’s especially crucial because you need assurance that your house will be ready during key market windows such as the all-important spring and summer months when families are looking to move. The best way to make sure that your contractor values your time and deadlines is to make payments, including incentives and penalties, that are based on firm dates and specific milestones. · When you’re ready to hire a contractor, don’t let price be your pone and only guide. Yes, price is important, but the old saying of being penny-wise and pound-foolish is particularly so when it comes to hiring a contractor. It pays to hire a contractor who is licensed and insured rather than the cheapest vendor who might be unlicensed and/or uninsured as licensing and insurance-speak to the credibility and additional investment that the contractor is making in their business. · When negotiating the terms of the contract, ensure that you make payments for completed work rather than for mobilization and other forms of advance payments. Proof of completion can take place through a video, but an on-site walkthrough by you is best. If possible, seek to pay for the materials, based on receipts, to ensure that profit is not calculated on these. Also, when the job is completed, if you have paid for the materials, then any leftover materials belong to you and as such, you should store them so they may be used for future repairs or renovations. · Contractors are in very high demand. To ensure that your contractor completes your project rather than leaving you high and dry when another one comes along, have your final payment for the completed project be at least one-third and preferably half of the total project cost. Final payment of only ten percent or fifteen percent of the project cost might cause your contractor to continuously delay completion. HOW TO WORK WITH YOUR CONTRACTOR DURING THE RENOVATION PROCESS? The working relationship between an investor and their contractor can be amicable, but it takes time and determination on the part of both parties. Your goal in creating a constructive working relationship with your contractor is a relationship that is friendly but business-like, with expectations regarding the product, services, laborers/crew, timetable, price, deposits, materials, and liabilities clearly spelled out in writing. Communication, and really, over-communication, goes a long way in heading off
WHAT IS A TAX LIEN: DEFINITION AND FAQS
Investors are always on the lookout for new opportunities. Whether it’s about buying a house for the price of a car, investing in foreclosures, or purchasing property in tax lien auctions, there are strategies and on-ramps for virtually every investor. Paying property taxes, often assessed at the city and/or county level is one of the most important responsibilities of a property owner. Failure to pay can lead tax authorities to place a lien on the property, seize it and auction it if not paid in full. And if your investment property pays for city-owned and operated utilities such as drinking water, stormwater, or sewer services, those entities have the same attention-getting right! So let’s dive into what exactly is a ‘Tax Lien’ so that you can avoid it when it comes to your property and consider it as an avenue for investment properties. WHAT IS A TAX LIEN? A tax lien is a legal claim, usually filed by a federal government agency such as the Internal Revenue Service (IRS), or a county or municipal agency such as a local taxing authority, against the property of a delinquent taxpayer. While on the face of it, it may seem like the purpose of the lien is to take your home sweet home, its actual purpose is to obtain payment of the taxes owed, in much the same way that a mortgage lender will exercise their lien against a property if mortgage payments aren’t made. If you have a tax lien against your property, it’s important to take action to clear it up as soon as possible. Ignoring the problem will only make things worse. Here’s what you need to know about tax liens and how to deal with them. WHAT DOES A TAX LIEN MEAN FOR YOU AS A TAXPAYER OR INVESTOR? If there is an outstanding debt such as property taxes or utility payments owed to a government entity, the entity has the right to place a lien against the property to satisfy the debt. However, just as mortgage lenders are not able to immediately sell a property upon the first missed statement, likewise government entities must see several missed payments, typically three years in the case of residential properties and five years in the case of commercial properties, before filing a security interest against the property. HOW DO YOU GO ABOUT FINDING OUT IF THERE IS A TAX LIEN FILED AGAINST A PROPERTY? To find out if there is a tax lien filed against a property, perhaps one that you are interested in as an investment, or your own property that you are concerned about, you can call or visit the County Clerk’s office and check the tax records. Online images of these documents are also available as well as printed copies at the Clerk’s office, for a fee. In the case of a federal tax lien, you can contact the IRS’s Centralized Lien Unit or visit their website for information. beylikdüzü escort bayan, gaziantep escort, ataköy escort, esenyurt escort, seks hikayesi, kayseri escort, şişli escort, beylikdüzü escort, beylikdüzü escort WHAT ARE THE CONSEQUENCES OF HAVING A TAX LIEN FILED AGAINST YOU? If a tax lien is filed against your property, one of the biggest impacts will be on your ability to sell or refinance the property. As another entity essentially has a stake in the property, you are unable to sell it, obtain additional lines of credit against it or change the current financing terms on the property without the approval of the lien holder. HOW DO YOU GO ABOUT REMOVING OR DISPUTING A FILED TAX LIEN? One of your first steps if you find yourself with a lien placed against your property is to contact an attorney specializing in tax liens. The IRS or other government entity that has issued the lien will send you a notice of the amount you owe and make a demand for payment; the role of the tax attorney will be to evaluate your records with you to determine if there are any errors in the amount or in the process that was followed by the government authority, and dispute the demand if so. And should the amount and demand request be accurate, the attorney can help you negotiate a settlement, which could include payment of a much lower amount through the waiver or reduction of penalties, interest, and back taxes. FAQs ON TAX LIEN – READER’S MOST COMMONLY ASKED QUESTIONS ANSWERED WHAT ARE TAX LIEN CERTIFICATES? Municipal governments often prefer not to take on the role of selling properties that are behind on their taxes. To avoid being the seller while still obtaining payment on the amount, the municipality will create a tax lien certificate equal to the amount that is owed. The tax lien certificate will serve as a tool or instrument offered for sale, via an auction, by the local municipal government, to collect payment. Proceeds from the auction enable the municipality to recover unpaid property taxes, in this case, not from the owner, but from the auction participants. The winning auction bidders then become the owners of the security interest in the properties, and with it, take on the responsibility and the cost of foreclosing on the property after three or more years of unpaid taxes or utility bills by the property owner. Tax lien certificates also entitle the certificate owner to the interest payments on the unpaid debt, thus functioning in much the same way as a bond. WHAT IS THE DURATION OF A TAX LIEN? Ten years is the basic limitation set by the IRS. If the defaulter pays the lien in full or as stated in a negotiated settlement agreement, then the IRS will remove the lien and its right to seize the property. The IRS is required to remove the lien within thirty days of the taxes in question being paid. WHAT IS A TAX SALE? The sale of property that has unpaid taxes on it will often occur through a tax lien auction, where the
Secured vs. Unsecured Credit Card
Key Takeaways A secured credit card requires the cardholder to make a security deposit, whereas an unsecured credit card doesn’t require a deposit. A good credit score is not required to be approved for a secured card, but a good credit score will determine your interest rate and other factors for a secured credit card. Both credit cards can be a great tool for building a positive credit history and improving your credit score; each has its advantages and disadvantages. According to the Consumer Financial Protection Bureau, the government agency responsible for protecting consumers’ financial credit interests, more than 175 million Americans have a credit card. Although there is a common basis of what a credit card is, there are as many flavors of credit cards as there are credit cardholders. For example, some cards give points toward hotel stays or airline miles with every purchase. Other cards reward spending with cryptocurrency or contributions to a stock market account. However, one of the biggest differences between credit cards is whether the card is secured or unsecured. What is a Secured Credit Card Secured credit cards were created to enable those with less-than-stellar, limited, or no credit history to obtain a credit card. Although secured cards account for less than one percent of the credit card market, they play a vital role in helping build a positive credit repayment record. Therefore, they serve as an onramp to obtaining an unsecured card. Recommended Read: How Secured Loans Work The security behind a secured card is cold, hard cash. Your cash, that is. A secured card requires a security deposit, typically in the minimum amount of $200, to the bank that issues you the credit card. The cash deposit will then set the lower bounds of your credit limit. So how does it work? First, you must apply and be approved by a credit card issuer. Then, after approval, you deposit a set amount of money for the security deposit to back up the card. So, if your deposit was $200, the issuer will provide you with a credit limit of at least $200. Depending on your credit score and history, the limit could possibly be higher. Benefits of a Secured Credit Card In addition to a secured card giving you access to the flexibility of plastic in an ever-growing cashless economy, it provides these two other important benefits: a lower cost of credit and an easier approval process.Lower Fees Credit rating agencies classify FICO scores of 580 to 669 as ‘fair’ or ‘average.’ Approximately one-third of all Americans have FICO scores that fall within that range. Recommended Read: Tips on How To Improve Your Credit Score At the ‘average’ score level, unsecured credit cards can come with numerous fees, including a one-time fee to open the account, an annual fee for the open account, and a monthly fee to service the account. These fees can leave you paying $150 or more to open the account in year one and an ongoing $100 or more in years two and beyond to continue the account. And, of course, these costs are before you consider any late payment fees, which also tend to be higher. Secured cards, however, typically have no annual fee, or a relatively low one ($35-$50), and no or a minimal monthly maintenance fee. Doesn’t Require a Good Credit Score One of the top advantages of a secured credit card is that your FICO score tends not to significantly influence the credit decision. Why? If you miss a monthly payment towards your balance, the card issuer will apply a portion of your security deposit to cover the payment amount due. While it is possible to obtain an unsecured card with less than perfect credit, fewer options exist for those with FICO scores of less than 580. A must if you have a secured credit card is to make sure you never miss a monthly payment. Therefore, once you have built a record of consistently paying your credit card bill on time, you can ask your card issuer if they offer the opportunity for you to “graduate” with an unsecured card. If you are able to “graduate,” a typical benefit is refunding your deposit and increasing your credit limit. Cons of a Secured Credit Card A secured credit card may be a good option for someone with no or poor credit history. Since your credit score is not a dominant deciding factor for approval of a secured card, a security deposit is required. However, the security deposit can pose a challenge for some who are already struggling to save funds. Additionally, if you default on your credit card, the credit card issuer can take the security deposit that you’ve posted against the card. What is an Unsecured Credit Card Unsecured credit cards are held by 99% of all credit card holders and are generally referred to simply as “credit cards.” Unlike secured cards, an unsecured card does not require a security deposit to back it up. Therefore, the credit card issuer looks closely at your FICO score and other credit history indicators, and repayment ability when deciding on approval or denial of your credit card application. Pros of an Unsecured Credit Card The most significant benefit of an unsecured credit card is access to a 30-day revolving line of credit with no collateral requirements. The line of credit can be valuable for many reasons, such as quickly paying in the case of an emergency or unexpected expense arises. Additionally, unsecured credit cards offer numerous incentives and rewards, such as: sign-up bonuses travel points spending discounts cashback on your card; sometimes as much as five percent 0% percent interest rates during an introductory period; different cards have different time periods, but the introductory period is usually 15 or 18 months 0% percent interest rates offered on balance transfers the ability to borrow cash from the credit card in the form of a cash withdrawal Cons of an Unsecured Credit Card Although there are many benefits, there
Four Ways to Invest in Real Estate for Under $1,000
If you’re looking for a way to invest in real estate but don’t have much money to get started, don’t despair! With a little ingenuity and some careful planning, there are many strategies you can use to launch a profitable portfolio, even on a tight budget. We’ll explore four paths to making smart real estate investments with limited start-up capital. And, by building up your portfolio over time, you’ll be able to gain valuable experience as well as the cash flow needed to realize greater returns down the road. Let’s get started. Short term Rentals Perhaps the easiest way to get started with real estate investment is by becoming a host in your own home and renting out a portion of it, for instance, a spare room or couch. The three biggest benefits of renting out a portion of the roof over your head are: It’s a lot easier than having a full-time roommate, as you control how long someone stays and do not have to worry about rental agreements and eviction procedures You’ll earn more money from a short-term rental than you will from a full-time roommate. As an example, if your rent or mortgage is $1,200 a month for a two-bedroom home, that means that a roommate would pay $600 a month, assuming a 50/50 split. Six hundred dollars a month works out to $20 a day. As there are very few markets indeed where a one-bedroom room can be rented for $20 a day, you will surely earn more renting it out through a temporary stay site, particularly during high-season spikes such as conventions or concerts in your area. You’ll have a lot less wear and tear on your home, as someone staying for a short time— a couple of days or even a couple of weeks— will only have suitcases versus furniture and other trappings of a permanent resident. But that said, there are also trade-offs of getting in the hosting game. Chief among them is that a stranger is living with you, in your own house. Using your bathroom. Lounging on your couch. If visions of this make your heart race or blood pressure rise, then hosting with this level of intimacy might not be for you. A less intrusive form of hosting might be renting out your home when you’re not there. For instance, if you have to be out of town for work, or will be away at a family gathering, that can be a great time to allow someone else to pay a portion of your rent and mortgage. Done right, hosting can be a great method to begin getting hands-on experience as a landlord as well as learn about the real estate markets located elsewhere from your visiting guests. Real Estate Investment Trusts (REITs) A real estate investment trust is similar to a mutual fund. Mutual funds usually invest in just one type of asset— for instance, stocks, bonds, commodities, etc. REITs also invest in one type of asset, in this case, real estate. REITs can be a relatively low-risk vehicle to gain experience with real estate projects because the REIT portfolios themselves are usually diversified— made up of a large volume of properties, across property types (residential, commercial, mixed-use) and geographies. Two big advantages of REITs are returns and liquidity. Returns REITs offer the potential for good returns, in part, because one of the regulatory requirements of a REIT is to pay out 90% or more of its taxable income to shareholders. Liquidity REITs also offer good liquidity because, unlike owning a property, where it could take months to find a buyer and close on the sale, REITs that have a large market of buyers and sellers offer the ability to quickly increase or sell down your investment. As far as disadvantages, the largest one is market risk. Because REITs are investments in the real estate market itself, if real estate prices or rents experience a downturn, the portfolio of the REIT can be likewise affected and see a decrease in returns. Real Estate Crowdfunding Another onramp for accessing real estate investments, particularly very large deals such as the development of a large apartment building or commercial complex, is through real estate crowdfunding. Crowdfunding is a pooled source of money in which multiple individual investors (hundreds or even thousands) buy equity in a commercial real estate project or provide the project with a loan (debt capital in the form of a short-term construction bond, for instance). Opening an account with a real estate crowdfunding platform can be done with as little as ten dollars. Crowdfunding can also give you a peek behind the curtain of commercial real estate development, as a micro hard money lender— something that’s often difficult to see up close without donning a hard hat as a general contractor or developer. Perhaps one of the biggest advantages of participating in crowdfunding is that you can pick and choose the types of projects you invest in. Say for instance, that you’re interested in building up your knowledge about hotel development as you’d like to grow from small Airbnb operator to hotel owner and operator someday. Crowdfunding allows you to pick which investments suit your fancy, rather than requiring that you invest in whatever it is that the portfolio manager selects (the way real estate investment trusts and mutual funds work). For every cup half-full, however, there is always a cup half empty. A disadvantage of real estate crowdfunding is that you are investing in the development of the project from the ground up. If there are construction delays, increased costs or the project is never completed at all, those become your risks to bear, and with it, the potentially adverse impact on your returns. A second disadvantage is that the fees on crowdfunding platforms can be hefty, so research is a must before jumping in with both feet. Vacant Lots and Land Offer Opportunity: Vacant lots and land are often viewed as investments of last resort by
A DUE DILIGENCE GUIDE FOR REAL ESTATE INVESTORS
As with most businesses, starting your real estate investment empire begins with developing a strategy and researching those investments that most closely align. While you might end up finding the deal first and basing your strategy around that transaction’s success (for instance, purchasing buy-and-hold rental properties in high rental demand markets that can be bought for the price of a car), in the best-case scenario, you’ll want to outline your strategy first, and then select properties based on that strategy (with refinements along the way, of course). The research that you conduct, both on the strategy and property ends, is known as due diligence. Due diligence is the process of performing a systematic and detailed analysis of a given opportunity. Due diligence is particularly important when you’re buying a house for the price of a car, as the return on the investment during the early years rests entirely on your ability to renovate the house quickly and efficiently and make it move-in-ready. In addition to due diligence being an activity— that is, the process of analyzing, digging in, and discovering the pros and cons of a property— it is a period of time. The time is not absolute, it is subjective and defined by the investor and seller. For instance, the investor and seller may determine that the seller can take up to two weeks to complete a property inspection and submit a firm offer. That two-week period is called the due diligence period. During this time, the investor will also request all disclosures on the property. If the investor finds any issues with the house, either because it turned up in the property inspection or it was revealed in the disclosures, the investor can back out of the deal and be refunded their earnest money, with no further obligation. THE PROCESS OF DUE DILIGENCE Due diligence is beneficial for you as the buyer in minimizing the role of emotion in your decisions and reducing decisions down to numbers and facts. But should you find yourself as the seller, for instance, of a property that you are flipping, you will want to undertake these same steps in determining a sales price? The due diligence checklist comprises the following components: Evaluate the neighborhood Assess the physical condition of the property Estimate the renovation costs Determine your potential returns on the investment Review the contract The Neighborhood Location, location, location is the guiding star for real estate agents, as they know the true value of a home lies in its neighborhood. All things being equal, real estate agents will tell you that you’ll get more bang for your buck buying the worst house on the best block than you will buying the best house on the worst block. This holds true with real estate investments as well, though with a bit more gray. In the case of a buy and hold, value accrues both from the appreciation of the property, usually realized over the long-term, and the rent from the property, realized as soon as the home is renovated and occupied. While there will be some indications of whether a neighborhood’s fortunes are on the way up (check the minutes of Planning Board meetings and the master plan for your city or town of interest), the steady-eddy indicators will be crime rates, school performance and employment opportunities. The Physical Condition of the Property Conducting due diligence on the physical condition of the property is best-accomplished through a property inspection. The purpose of a property inspection is to highlight the good, the bad and the ugly of a house. The Smart Cousin Definitive Checklist on Property Inspection offers a checklist of items specific to real estate investment properties. Key areas to evaluate include: House infrastructure: the foundation, roof and basement Major systems: HVAC, plumbing, well, septic and electrical system Exterior areas: drainage system, driveway, and sidewalk. Renovation Expenses One of the largest maintenance expenses that should be considered when evaluating a property investment is the cost of materials. Materials include everything from lumber and drywall to paint and flooring. Another significant expense is the cost of labor. This can include both skilled and unskilled labor, such as electricians, plumbers, carpenters, and painters. Depending on the work that the electrician, plumber and/or HVAC technician will have to do, permits will need to be pulled, so factor permit costs into your renovation estimate as well. The Financials Once you have your arms around whether the location of the property can attract buyers (for the buy and flip crowd) or renters (buy and hold investors), and can be renovated quickly (aim for no more than two months) and cost-effectively, next it’s time to get out your calculator to begin determining what your return is on the property. Your return means how much money you earn on your investment. Returns are usually framed as percentages. Thus, if you purchased an investment property and collect $10,000 a year in rental income, then your return is $10,000 / $100,000, or 10%. The saying, ‘it’s not what you earn, but what you keep’, holds doubly so when considering your return on real estate investments. So when calculating your return, base it on your net rental income, meaning the rental income that’s left over after financing expenses, property taxes, property insurance, property management expenses and property maintenance expenses are backed out. While there are additional expenses that your accountant or tax preparer will take into consideration (for instance, amortization and depreciation), the above expenses capture those items that stand between what you start with and what you finish with each month. LEGAL DOCUMENTS If you hire an attorney to draft or review documents related to the purchase or sale of an investment property, you may well feel that you don’t need to read these documents as this is what you pay your lawyer for. Nothing could be further from the truth. Yes, your lawyer is paid to make sure that the agreement is legally enforceable and won’t be thrown
A GUIDE TO 1099 AND OTHER CRITICAL TAX FORMS FOR REAL ESTATE INVESTORS
Real estate investment is one of the most common ways to build wealth. And one of its main draws is that it is a passive activity, meaning that once you’ve made your investment (say, a rental property), the investment makes money for you— while you sleep, while you vacation, and even once you pass it on to loved ones— forever. While the glitz and glam is in finding, buying and collecting income from investment properties (either through flips or through rental income), as many an entertainer and regular-Joe alike will tell you, troubles aplenty can flow from getting the tax-side wrong. Which leads me to the following: My Smart Cousin is NOT a certified public accountant (CPA), tax specialist or tax preparer, and NOTHING in this blog should be considered tax advice or accounting advice. That said, there are some high-level do’s and don’ts we can offer when it comes to the three most commons forms that you will encounter as a real estate investor: form 1099, Schedule E and Schedule C WHAT IS FORM 1099? A 1099 is not one IRS form but rather a collection of forms that report various kinds of payments. The three most common 1099s that you will encounter as a property investor are a 1099-C, a 1099-K and a 1099-NEC. 1099-C If you are buying your first house for the price of a car, and are planning on renovating it and renting it out to someone who receives a housing choice voucher, then the Housing Authority will report the voucher payments, also called Section 8 payments, that were made to you on a 1099-C form. The Housing Authority will send a copy of the 1099-C to you as well as to the IRS, in the same way that your employer sends a W-2 wage both to you and to the IRS. Your tenants will not report the rental payments that they make to you via a 1099-C or on any other tax form. But of course, that makes it no less real— you must self report this income, along with your 1099-C income, as rental income. 1099-K To facilitate the above reporting, effective January 2022, Venmo, Zelle, CashApp and other electronic payment processors, will begin issuing a 1099-K to anyone who receives payments of $600 or more in a calendar year. Thus, if your rental payments are made by your tenants through one of these payment channels, you will need to maintain good records to pinpoint those payments listed on the 1099-K that are rent-related versus those that are not. Payments that your tenants made to you via money or or personal check will not be reported via a 1099-K, though certainly stay-tuned as rules may change in the future. beylikdüzü escort bayan, gaziantep escort, ataköy escort, esenyurt escort, seks hikayesi, kayseri escort, şişli escort, beylikdüzü escort, beylikdüzü escort 1099-NEC As a real estate investor, you undoubtedly will make payments to a property manager, handyman, electrician, plumber, HVAC technician or other service professional that you hire to manage, renovate or repair your property. If these professionals are independent contractors, then you may want to issue them a 1099-NEC form, which will state the amount of money that you paid them, and help ensure that you are able to claim these expenses on your income taxes. Likewise, if you provide property management, general contractor or other professional services to clients, perhaps as a component of your real estate investment business for instance, then you will be issued a 1099-NEC documenting the payments that were made to you. The Schedule E For real estate investors who are also landlords, the most common tax schedule that you will use is the Schedule E. Schedule E is the IRS’s form to report passive income, or income that is not derived from business operations. Schedule E income is generated from activities such as rental properties, royalties (say, from a song, movie or book) or interest in a trust. The Schedule E reports financial information from your rental properties that is part balance sheet and part income statement. On it you will report the properties you own and how much you paid for them (balance sheet type items) and your rental income and maintenance expenses for the property (income statement type items). If you own a property that wasn’t rented out at all (for instance, because it was vacant and in-between tenants, or because it was being renovated), you will still report it on your Schedule E. Likewise, if the property is a multifamily property but only one of the units was rented out during the calendar year, you will report rental income for the one unit. Your accountant or tax preparer can walk you through the ins and outs of what expenses you can deduct and the deductibility limits, but generally, if you’re at least a 10% owner in the rental properties and you call the shots on any big decisions with the property, then you can deduct up to $25,000 of the losses from the rental income. Importantly, Schedule E losses (say, large maintenance expenses from prettying up a new property investment) generally cannot be deducted against 1040 income (say, income from your job or a Schedule C business). Schedule C and Form 1120-S If you establish an ancillary business to your real estate investment business— for instance, property management, lawn care, roof repair, general contractor or other venture— should you choose, you can form a company separate from your real estate investment company. If that separate company is a limited liability company (LLC), you will report the income and expenses for that company on a Schedule C return. If instead the company is formed as a sub chapter S firm, then you will report the income and expenses on form 1120-S. THE BOTTOM LINE Numerous tax forms can potentially apply to real estate investor. Hiring a CPA or tax professional should be job number one to help ensure that you properly report all items, avoid any
THE DEFINITIVE HOME INSPECTION CHECKLIST FOR REAL ESTATE INVESTORS
As any seasoned property investor knows, real estate is a tough business where all that glitters definitely is not gold. This is why the details really matter when taking a look at your first property. Case in point: the property inspection. Aspiring homeowners need little convincing regarding the value of a home inspection, what with the twin requirements of their lender demanding one and their better-judgement knowing they can’t afford to risk their nest egg without one. Investors, however, often stand at the threshold of a property with a false sense of confidence, guided by their ‘instincts’ or ‘gut feeling’ on the potential upside of the deal, which can cloud their ability to spot issues during a walkthrough. There’s no denying that today’s market is red-hot, which, together with an appreciating neighborhood, can cover-up a multitude of sins for a poorly-selected property. Most properties, however, won’t be so lucky to have an upside material enough, especially in the first five to seven years of ownership, to conjure large returns out of thin air on their investment. As such, the condition of the property is crucial, especially during the first 12 to 24 months into ownership when cashflow is thin and expectations are high. Imagine for a minute buying a new home, only to have the roof leak the next day, literally raining on your parade. Or having your tenant point out large ruptures in the wall that you hastily wrote off as ‘settlement cracks’, which now seem to threaten the very foundation. These are the issues that a thorough home inspection can uncover, providing you with a clearer path to returns on your investment. To this end, My Smart Cousin has developed a Definitive Home Inspection Checklist to arm you with your own toolkit for your first or twenty-first home inspections. Before diving into this, let’s understand what a home inspection is, and those areas it should cover. WHAT IS A HOME INSPECTION The word “inspection” may sound invasive and even induce some knee-knocking, but it’s not as frightening as it may seem. A home or property inspection is a physical exam or check-up to gauge the infrastructural soundness of the house. Home inspections work in favor of the property owner to-be, that is, lil’ol’ you, and are particularly important to use when considering houses that are vacant and have sat unoccupied for many years. The home inspection profession is regulated in nearly all states, and licensed in a few. Your first step in selecting a home inspector is to ensure that he or she is licensed and insured. You are able to accomplish this by requesting a copy of the inspector’s license and liability insurance policy for the current year. WHAT INVESTORS SHOULD LOOK FOR IN A HOME INSPECTION Investors should use a home inspection checklist when looking to purchase an investment property, even if the only one doing the inspection is them. With an inspection, you can identify potential problems hiding beneath the surface. Some problems might be minor, say holes in the drywall or doors, while others could require significant repairs and remediation, for instance, extensive mold, flaking lead paint, or exposed asbestos insulation. Grouping issues into major and minor categories can help determine whether there are any issues that are significant enough to walk away from the deal. As mentioned earlier, home inspections serve buyers’ interests and can be a great bargaining tool for investors. If a long list of items doesn’t pass inspection, the prospective buyer can use one, some or all of the items on the list as leverage to negotiate a lower price. This is particularly the case if the investor is working with a motivated seller— a bank or a house that has been listed for months on end. And if the seller doesn’t bite and offer concessions, well, no harm no foul, you can proceed on with the deal if you’re satisfied with it as is. WHAT TO DO WHEN THE INSPECTOR FINDS AN ISSUE Once the inspector completes their inspection, they will provide an inspection report. The inspection report is a crucial part of the home buying process that will likely uncover at least one problem. Minor problems won’t affect your offer much and should be placed in the category of ‘fix-it-yourself’ once you purchase the property. But heavy-hitters affecting the structural integrity of the property will require a conversation or two with the seller. If the seller agrees to accept a reduction to the price or some other trade-off, ensure that the concession is binding by having it enshrined in an agreement that your lawyer prepares. And, of course, if the issue is too extensive or costly to repair, even with a discount, then walking away might prove the better option. Pro Tip: If you are a new investor, your real estate agent and home inspector can be great resources in understanding how bad, or not so bad, things really are. After your home inspection, you’ll receive a comprehensive report numbering some 20 to 40 pages that includes detailed descriptions and images of each item in the house that was inspected. Think of your home inspector as your teacher or mentor when you receive this report— ask the inspector to go through the report with you. Once you sign the report, you’ve essentially agreed that it’s complete and you accept it as-is. As such, now is not the time for bashfulness. Put aside any qualms you have about not wanting to be a bother, and get all of your questions out of the way regarding the report. CONDUCTING AN INSPECTION ON YOUR OWN Self-inspections are the best way to go if you want an affordable home inspection, and the property appears to be in good shape. Properties that are currently occupied with a renter can be good candidates for self-inspection because the house is habitable at some level. A do-it-yourself DIY inspection can also be used if time or money is in short supply. If so, then
WHEN SHOULD I CONSIDER HIRING A PROPERTY MANAGEMENT COMPANY?
Whether you are an investor to-be cozying up to the idea of taking the plunge and buying your first house for the price of a car, or you’re a seasoned investor with many owned and flipped properties under your belt, property management is a key element that can’t be overlooked. In short, property management has the capacity to make or break the value of your investment portfolio as well as your success as a landlord. Taking time to dig into the ins and outs of effective property management can save you headaches, not to mention money, down the road. Which raises the question: what exactly does a property manager do, and when should you consider hiring one? Let’s dive in to learn more. WHAT IS A PROPERTY MANAGEMENT COMPANY? A property management firm is a company, a partnership, or sometimes just a single individual, who shoulders the responsibility, via a contract that you, the owner, signs with them, to ensure proper maintenance of your investment home. In the initial flush and excitement of buying a property, it’s easy to minimize the time and flat out inconvenience of maintenance. Until, that is, you get your first middle-of-the-night call or have to drop everything to find a plumber (have both of these scenarios happened to me?— yes and yes). A third party maintenance company serves as the chief point of contact and middleman between you and your tenant on such issues, as well as the the first-responder in addressing your maintenance issues. A second role that the property manager plays is finding tenants, collecting rent, and when required, taking a tenant to court who has not paid rent, for instance, or damaged the unit. Because property managers are often directly or indirectly affiliated with real estate companies, they have significant experience interpreting and applying estate regulations and conducting tenant screening. PROPERTY MANAGEMENT COST In exchange for performing the above roles, property managers are normally paid at least two fees: TASKS PERFORMED BY A PROPERTY MANAGEMENT COMPANY As illustrated above, two of the biggest values that a property management company provides is 1) peace of mind that your investment is managed professionally, and 2) distance between you and your tenant on day-to-day maintenance matters and court disputes. Skilled property managers can save you valuable time and increase your returns by providing the following services: WHEN SHOULD YOU HIRE A PROPERTY MANAGEMENT COMPANY? Hiring a property manager comes with benefit of someone else standing in the shoes of the landlord and the cost of having to pay them to do so. The following scenarios, in particular, are tailor-made for securing property management services post haste: Follow us @mysmartcousinsin
ONE STEP CLOSER TO LEVELING THE PLAYING FIELD FOR RENTERS: ADVOCATES CELEBRATE HOUSE COMMITTEE PASSAGE OF SB 101
WILMINGTON, DE—This afternoon, the House Housing and Community Affairs Committee voted to advance Senate Substitute 1 for Senate Bill 101 (SS1 for SB 101) out of committee and onto the floor for a vote by the full House. SS1 for SB 101 provides the most vulnerable low-income renters a fair shot during eviction proceedings by guaranteeing a right to representation in court for renters who fall below 200% of federal poverty guidelines. “Eviction proceedings, where landlords are usually represented and renters are not, reveal a massive imbalance of power,” said Dan Atkins, executive director of Community Legal Aid Society, Inc. (CLASI). “That imbalance frustrates the very purpose of our court system — the pursuit of justice. The practical implications are profound — too many evictions, families displaced, and communities destabilized.” Since the bill’s introduction in 2021 — sponsored by Senators Townsend and Pinkney and Representatives Minor-Brown, Lambert, and Johnson — advocates have listened to concerns from landlords and lawmakers. Changes to the bill reflect a desire to build consensus, while still keeping a strong bill for renters who will significantly benefit from it. In its current form, SS1 for SB 101: Creates a right to legal representation for renters facing eviction whose household income is lower than 200% of federal poverty guidelines; Places coordination of the program within the Delaware Attorney General’s Office, who will contract with appropriate legal service organizations to provide representation in proceedings covered by the bill; Requires landlords to provide notice of the right to representation at certain designated intervals of a tenancy and in eviction proceedings; and, Creates an Eviction Diversion Program designed to help resolve payment or other issues once a landlord files for eviction. In addition to those benefits, SS1 for SB 101 introduces a post-filing mediation program and mandatory referrals to the Delaware Housing Assistance Program (DEHAP), which creates more opportunities for amicable, quick, and satisfactory resolutions of disputes in ways that keep families housed and landlords paid. Public comment in support of SS1 for SB 101 came from a wide range of stakeholders, including a Delaware landlord. Pam Hill, who owns properties in New Castle County, submitted testimony that read: “To me, passing a bill that secures the right to representation for renters facing eviction is common-sense. It’s not an attack on my rights as a landlord; it’s about ensuring that the rights of my renters are also taken into consideration.” Now that the bill has advanced out of committee, it will go to a full vote on the House Floor, then will need to advance through the Senate one more time before it can go to the Governor’s desk. Advocates hope to see this vote happen soon. “Representatives in the House Housing Committee took an important step toward leveling the playing field between renters and landlords today,” said Javonne Rich, policy and advocacy director at the ACLU of Delaware (ACLU-DE). “We applaud the vote in support of right to representation today, and ask all members of the House to stand up for renters by voting ‘yes’ on SS1 for SB 101 when it comes up for a full floor vote.” The Delaware Right to Representation for Eviction Defense campaign is a partnership between ACLU, ACLU of Delaware, Community Legal Aid Society, Inc., Delaware Coalition Against Domestic Violence, Delaware Volunteer Legal Services, Inc., H.O.M.E.S. Campaign, and Housing Alliance Delaware. More information about the Delaware Right to Representation for Eviction Defense campaign can be found online here: http://aclu-de.org/rtr. Read our Other Blog : A GUIDE TO SHORT-TERM RENTAL OPTIONS FOR YOUR INVESTMENT PROPERTY How to Score an Affordable Investment Property in 2022 Reference : Click Here Follow Us at @MySmartCousin
A GUIDE TO SHORT-TERM RENTAL OPTIONS FOR YOUR INVESTMENT PROPERTY
If you have one or several investment properties that you’ve bought for the price of a car and want added income without building a bathroom, bedroom or finished basement, read on for insights on growing your cashflow in the short-term rental market. WHAT IS A SHORT-TERM RENTAL PROPERTY? A short-term rental property is a property that is rented out for an evening or a couple of days to a few weeks or months. In short, anything rented out for less than a year under an annual lease is viewed as short-term. The types of properties that can be rented out short term come in many flavors including: your home sweet home a tiny house or cottage that you place, either temporarily or permanently, in your backyard or a side lot next to your home a single family investment property a small multifamily investment property of 2-4 units an entire apartment building bought solely for the purpose of short-term rentals ADVANTAGES OF A SHORT TERM RENTAL INVESTMENT PROPERTY Short term rentals can provide you with increased cashflow on the revenue, expense and personal budget fronts, giving your pockets a wonderful case of the mumps. Your Own Vacation Getaway: If your investment property is located in a city that you frequent for vacations, family reunions or get-togethers, then a short-term rental can save you money by avoiding hotel costs, and generate income when you’re not using it. Also, having a vacation rental that you own makes it easier to block off vacation timeframes that work for you. Fewer maintenance headaches: Short term rentals are subject to less wear and tear than year-round rentals because: 1) they’re occupied in only short bursts of time (for instance, an evening or weekend), 2) the unit is furnished so there’s no wear and tear from furniture or other large belonging being moved to and from, and 3) the damage deposit for a short-term rental of a couple of hundred dollars usually invites a greater level of precaution from visitors than a long-term rental might. Additionally, because of the gaps between guests visits, repairs and minor cosmetic work can be done quickly before any issues turn into a more expensive problem. Higher overall monthly rental income: The daily rate for a short term rental is higher than the equivalent daily rate for a monthly rental. As an example, the average monthly rent for a 3-bedroom, 1-bathroom house in New Jersey is $1,800, which translates into an equivalent daily rent rate of $60 over a 30-day period. The average short-term rental rate for a 3-bedroom, 1-bath house in New Jersey is more than twice this amount, or $130-$150 a day. Although your investment property will certainly have some level of vacancy, over the long-term, your short-term rental will out-earn its long-term peers. Real-time Price Adjustments: A long-term rental under an annual lease offers the ability to adjust prices only once per year. Additionally, depending on the state and tenant population, the annual increase amount might be capped. In contrast, short-term rental investors can adjust their prices after each and every occupant, based on market conditions and opportunities. Thus, if a concert or sporting event is coming to your area on a particular weekend, you can raise the price for your rental unit based on the increased demand. DISADVANTAGES OF SHORT TERM RENTAL INVESTMENT PROPERTY Of course, as with most investments, there are always downsides that should be discussed. Short-term rentals will require more day-to-day involvement than annual rentals in terms of marketing and communicating with the revolving door of guests you will have. As such, before diving headfirst into short-term rentals the moment your annual leases expire, consider the challenges that come with this territory: Edging out Competition: In order to minimize vacancies and negative reviews, short-term rental landlords will need to consider as competition both short-term rental properties as well as commercial properties like inns, long-term stay hotels and conventional hotels. Investing both money and time on well-appointed furnishings will pay dividends in the short-term market more so than for long-term, unfurnished annual leases. Likewise, promotional discounts and other marketing sizzle will be required to keep your property top-of-mind with potential guests. Maintenance and Repairs: While renting out your property or a room in your house to a new guest each week may result in less overall wear and tear versus an annual rental, the frequent in and outs mean lots of mini and ongoing housekeeping on your end. If you are serving as the head handyman and housekeeper for your short-term rental business, this translates into a never-ending list of chores, honey-do’s and home repair purchases. Off-Peak Vacancies: Just as you factor in a vacancy rate for a traditional real estate investment property, you will need to price in the cost of vacancies for a short-term rental property. Do your homework to find out when vacation travel is down in your area and adjust your pricing and offerings accordingly. Alternatively, schedule large maintenance and capital improvement projects during off-season. Property Management: In many ways a short-term rental is like a traditional rental property that is located out of state. Both will require the use of a capable property manager to screen and choose tenants, address repairs and collect rent. Because of the added work, however, a short-term rental will attract property management fees that are significantly higher, from a low of 10% of the rent to a high of 50%, vs. a long-term rental where property management fees range from a low of 5% to a high of 15%. This added cost will need to be priced into the value of the short-term rental opportunity. HOW TO MAXIMIZE YOUR PROFITS WITH SHORT-TERM RENTAL PROPERTIES Short-term rental properties will provide returns throughout the year, but as discussed above, a more active engagement strategy is required. LOCATION AND CONDITION OF THE PROPERTY – The largest driver of profitability, more so than with long-term rentals, will be the location of the property because of it serving as a vacation residence for guests. Inspecting your property from the vantage point of guest will help ensure that