Author Archive: kgontarski

Tax Advantages to Renting Your Property

Rental real estate offers tremendous tax advantages and opportunity for tax planning. Taxpayers can depreciate property, deduct interest on borrowed capital, exchange rather than sell properties to defer tax on gains, use installment sales to defer tax on sales, and profit from preferential rates on long-term capital gains. Most importantly, you can generate or monthly income, with depreciation deductions that effectively turn the actual income into tax losses.

Deductions Are Not Unlimited
Real estate income and loss is generally considered passive income and loss for tax purposes. Taxpayers generally cannot use passive activity losses (PALs) to offset ordinary income from employment, self-employment, interest and dividends, or pensions and annuities. The rental real estate loss allowance and real estate professional status are two important exceptions to this rule.

As one exception to the PAL rules, taxpayers with adjusted gross incomes of $150,000 or less can claim a rental real estate loss allowance of up to $25,000 for property they actively manage. Active management does not require regular, continuous, or substantial involvement. However, it does require that the taxpayer own at least 10% of the property. Also, to qualify for the exception, married taxpayers must file jointly.

The second exception allows real estate professionals not to treat their rental activity as a passive activity – losses are not limited to passive income. This exception requires material participation by the taxpayer which is demonstrated by meeting one of seven tests. These tests are complex and include the number of hours of participation and the facts and circumstances of the participation in the activity.

Vacation homes, however, are taxed depending on how long the homeowner rents the property. If you rent your vacation home for fewer than 15 days during the year, no rental income is includible in gross income. If you rent the property for 15 or more days during the tax year and it is used by you for the greater of (a) more than 14 days or (b) more than 10% of the number of days during the year for which the home is rented, the rental deductions are limited. Under this limitation, the amount of the rental activity deductions may not exceed the amount by which the gross income derived from such activity exceeds the deductions otherwise allowable for the property, such as interest and taxes.

Are you putting funds aside for property repairs?

This is something that is commonly overlooked and underestimated.  As a landlord, you have an obligation to keep your rental property in good condition for the tenant; not to mention, you want to keep your “investment” in the best condition possible to maximize your return both through rental income and once you decide to sell.  I am talking about improvements but I am also referring to the large repairs that must be completed on a home from time-to-time.  These repairs include roof, windows, siding, exterior/interior full paint, decking, flooring, lead based paint repairs, and so on and so on.  It is imperative to make sure that you put aside funds to cover these repairs.  According to www.costhelper.com, here are some estimates on major house repairs:

Roof

Do-it-yourself materials to install an asphalt shingle roof on an average one-story ranch-style home (with a gently sloping roof of 1,700-2,100 square feet) can run $680 -$3.700, depending on the quality of the materials. Having the old roofing materials removed and new asphalt shingles professionally installed is about $1,700 -$8,400 on a typical ranch-style home, depending on materials and location.

Gutters

Expect to pay around $3 -$5 a lineal foot to have someone install vinyl (PVC) gutters, or about $360 -$600 for 120 feet and $750 -$1,250 for 250 feet.  Having aluminum gutters installed averages about $4 -$9 a foot plus downspouts at $5 -$8 each, or $500 -$1,200 for 120 feet and $1,050 -$2,400 for 250 feet.

Exterior/Interior Paint

When hiring a painting contractor, paint and supplies make up about 15-25 percent of the cost, while 75-85 percent goes for labor. For exterior painting costs typically average $1,500-$3,000 for an average single-story, three-bedroom home, but easily run $3,000-$5,500 or more for a multi-story or multi-level larger house.    For interior painting, expect to pay $200-$400 to have a 12×12-foot room painted by a licensed contractor with brand-name paints; a 15×20-foot room or larger runs $300-$700 or more; and a 1,200-1,500 square foot home is $1,100-$2,000 or more. Having the ceiling painted bumps the cost to the high end of the scale.

HVAC

Adding central air conditioning to an existing forced-air heating system or installing a new HVAC system in a 2,000-square-foot house averages $3,500 -$4,000, and can be done by two technicians in 2-3 days, with little or no change to the existing ducting.

Keep in mind that with the new EPA laws governing renovation and work completed on a house built prior to 1978 there is a lot more cost involved in making repairs.  This cost will be most likely passed on by the contractor to the homeowner.  The cash reserve required for your rental property will vary with the style and size of the home.  A good rule of thumb is to keep at least 4x the monthly rent in a cash reserve.

Blog Post by John Durham, Marketing/Communications Director, Excalibur Home Management is an Atlanta Property Management Company

Why Rental Property is a Good Investment Now

The U.S. is on the cusp of a fundamental change in our housing dynamics.  Changing demographics and new economic realities are driving more people away from the typical suburban house and causing a surge in rental demand.  Tomorrow’s households want something different. They want more choice.  They are more interested in urban living and less interested in owning.  They want smaller spaces and more amenities.  And increasingly, they want to rent, not own.  Unfortunately, our housing policy has yet to adjust to these new realities.

Booming Rental Demand

  • One-third of Americans rent their housing, and nearly 14 percent—17 million households—call an apartment their home.
  • Changing demographics mean changing housing preferences.
    • Married couples with children are now less than 22% of households and that number is falling.  By 2030, nearly three-quarters of our households will be childless.
    • 78 million Echo Boomers are beginning to enter the housing market, primarily as renters.
    • 78 million Baby Boomers are beginning to downsize, and data shows seniors are more likely to rent after moving.
  • Between 2008 and 2015, nearly two-thirds of new households formed will be renters.  That’s 6 million new renter households.
  • Because of these changes, University of Utah Professor Arthur C. Nelson predicts that half of all new homes built between 2005 and 2030 will have to be rental units.

A Pending Supply Shortage

  • New multifamily construction set an all-time post-1963 low in 2009 at 97,000 new starts.  2010’s construction levels are predicted to be even lower.
  • We need to be building an estimated 300,000 units a year to meet expected demand.   Yet most forecasts suggest we will start fewer than half that in 2011.  That’s not even enough to replace the units lost every year to old age.
  • While there is a glut of single-family housing, on the apartment side we are heading toward a shortage as early as 2012.  The shortage of affordable rental units is particularly acute.  The Harvard Joint Center for Housing Studies estimates a 3 million unit shortage nationwide.

Rental Applications and Tenant Screening

Aggressive tenant screening is an investment that pays for itself many times over, by preventing most tenant defaults, tenant damage, and tenant lawsuits. But how exactly should you screen these rental applications? How do you measure tenants’ relative worth?First, let’s spend a moment discussing the rental application itself, and what data you need to make sure you collect.

Make sure each applicant fills in their current landlord’s name and phone number on the rental application, as you’ll want to call them for a reference on what kind of tenant the applicant is. Granted, tenants can lie and fill in a friend’s name and number on the rental application, or sometimes their existing landlord will be so desperate to be rid of them that they will lie, but this isn’t often the case, and when it is, you can usually tell that something is wrong.

Be sure the applicant fills in their employment and income data on the rental application as well, including a supervisor’s name and phone number, so you can verify the information. When you call the supervisor to verify the applicant’s employment and income, also verify what kind of employee they are, and the chances of their continued employment.

Find out the rental applicants’ pet and child status: do they have children or pets? How many? What ages? What breeds? We’ll talk more in a moment about discrimination, but it’s worth noting here that you cannot, under any circumstances, deny a rental application because of their familial status, including anything to do with their children. Don’t ever list children as a reason why you denied someone’s rental application, it’s illegal.

Be sure to collect information about their assets, such as vehicles, bank accounts, or any other kind of property. This may seem unnecessary, but in a year from now when your tenants default on their rent and leave your rental property in a state of shambles, you’ll know how to collect the money from them after winning a judgment in court.

Finally, make sure your rental application includes a section for them to state whether they’ve ever been evicted, been sued, been convicted of a felony, and other such disclosures. If they go bad as a tenant, and you discover they’ve lied about one of these issues, you’ll have a signed statement of perjury you can show in rent court.

Other than verifying their rental history, employment, and income, you’ll also want to pull some background reports about the rental applicants from third parties. To be able to do this legally, you’ll need a release clause in the rental application, authorizing you to perform any background checks necessary to evaluate them as prospective tenants. First, check their credit history, and look for late payments, look for bankruptcies, and look for their amount of debt (any of these are very bad indicators). Second, check their criminal history, for obvious reasons. Third, check their eviction history, and, if available, their checking history to make sure they aren’t in the habit of writing bad checks. Say what you will about the entitlement to second chances, most people are either committed to paying their bills or they’re not; tenants who have been evicted once are astronomically more likely to default on their rental payments again.

Finally, a word on discrimination. The federal Fair Housing Act outlaws denying any rental application based on the applicants’ race, color, national heritage, religion, gender, disability, and familial status. If someone takes you to court over this issue, you’ll have to prove that you chose a different tenant over the suing applicant for a reason other than any of those seven reasons, which is yet another reason why you MUST collect detailed rental applications, perform detailed background checks, and keep records of all of them for at least six months. If a rejected rental applicant asks you why you rejected their rental application, tell them you’ll have to look up their application to check, and then mail them a letter specifying their credit, income, employment, or housing history.

As a last note on the matter, it is easy to unknowingly break this law, by stating in your advertisement for the property that you’d prefer a specific type of person (such as “looking for a young couple…”). Be extremely careful to avoid these mistakes, and because some states have different laws adding to the federal law, be sure to check your state’s laws as well. All of this trouble just to sign a rental agreement may sound like a lot of work, but when you find a good tenant, who will pay rent on time, keep your investment property clean, and not sue you, you’ll be glad you spent a little extra effort on tenant screening.
Author Resource:- Brian is a landlord who did his own tenant screening and property management for many years before reaching too many properties to continue managing them himself. He contributes regular real estate investing content to a variety of online resources for landlords.

Reporting Non-payment of Rent to Credit Bureaus

As a property owner or manager, there is little more frustrating than a tenant who does not pay their rent. The situation is costly, time consuming and aggravating.

There are a few ways for a landlord or property manager to get a tenant’s poor payment behavior to show up on the tenant’s credit report and alert future would-be landlords.

One effective way is to turn the tenant’s debt over to a collection agency. Although chances are small you will recover the owed rent payment(s), the collection account will show up on the tenant’s credit report and have a significant negative effect on the tenant’s credit score. When selecting a collection agency, make  sure that they report to the credit repositories (Trans Union, Equifax and Experian).

The other option, which can be done with the first option, is to file an eviction with your county court house. The eviction will often then show up on the tenant’s credit report under Public Records as a judgment which has a very negative effect on the credit score.

It’s important to review the tenant laws for your state though before proceeding with an eviction. Look for your state laws on our helpful page.

http://www.starpointtenantscreening.com/landlord-and-tenant-laws-by-state.html

The other option, which can be frustrating and costly but effective, is to sue the tenant for non-payment, getting a judgment , which becomes public record and may eventually be picked up by credit bureaus. This will then show up on the tenant’s credit report under Public Records as a judgment or a lien which has a very negative effect on the credit score.

No-Smoking Lease

Allowing tenants to smoke inside a property can increase maintenance costs by discoloring walls and leaving a lingering smell. Many landlords choose to make their properties nonsmoking and implement a nonsmoking lease to impose liability on tenants who choose to violate the terms. Adding a nonsmoking clause or addendum to a lease can protect property managers from damages caused by smoking.

Instructions

How to Write a No-Smoking Lease

1.

State the unit or property is nonsmoking directly below the title of the lease or next to the name of the unit. Place the words “Nonsmoking Unit” in parentheses below the words “Lease Agreement” at the beginning of the document or add the words “Nonsmoking Unit” after a comma following the name or address of the unit or property.

2.

Create a section of your lease entitled “Nonsmoking Policy.” This section fits well below the “Maintenance and Condition” section or “Pets” section.

3.

State the purpose of the nonsmoking policy. In most cases, this will consist of negative health effects, comfort of adjacent property owners, additional maintenance of the property and increased risk of fire.

4.

Define smoking. Failure to describe the types of smoking prohibited could lead to legal loopholes. For example, if you mention cigarette smoke and your tenant smokes cigars, they might have grounds to argue against any claims filed by you for damages. State that carrying lighted cigars, cigarettes or other lighted products through the property also is prohibited.

5.

Outline the terms of the nonsmoking agreement. State the tenant and landlord agree the property is designated as nonsmoking and the tenant agrees not to smoke in the property, on the grounds or in public areas connected to the property. Include a statement the tenant will prohibit guests and visitors from smoking on the property and in the unit as well.

6.

Add a disclaimer. If your rental property is multiunit, your tenants still might be subject to secondhand smoke by other tenants in violation of the no-smoking policy. State you are not guaranteeing a totally smoke-free environment or making any claims the air quality in the unit is safer than that of any other rental property.

7.

Describe the consequences for violating the nonsmoking policy. The tenant might forfeit all or a portion of his security deposit or be subject to eviction for violating the policy. Be specific about what steps will be taken if the tenant is found to have violated this policy.

Tips & Warnings

  • A nonsmoking policy also might be attached to a lease in the form of an addendum. To accomplish this, create another document entitled “Addendum to Lease” that includes the name of the property and names and addresses of the tenant and landlord. The information to be included is the same as that outlined above. Signatures of both parties should be required on all separate documents attached to a residential lease.

Starpoint Partners With Property Management Software

StarPoint Tenant Screening, an information services company that delivers tenant credit reports and tenant background screening reports to property managers and landlords nationwide is now a technology partner with Rentec Direct, an online property management software solution provider.

Rentec Direct, based in Grants Pass Oregon, provides a robust online property management software application that includes all the tools necessary for both professional property management firms and individual landlords to manage and track unlimited properties and tenants. Rentec Direct provides full banking, property, tenant and owner accounting management, online rent payment, online vacancy marketing and tenant background screening. The partnership with StarPoint Tenant Screening now empowers Rentec Direct to add tenant credit reporting to its background screening offering for its subscribers.

“The Rentec Direct partnership is a great fit for StarPoint Tenant Screening’s business model. Integrating with a partner who adds additional value and services to our target market is ideal,” said Kelly Gontarski, president of StarPoint Tenant Screening. “We get to exclusively showcase our tenant credit reporting product in a top notch online store where our prospects regularly visit. We are thrilled to be included.”

StarPoint Tenant Screening already offers its full menu of online instant tenant screening services including credit and background reports to property managers and individual landlords nationwide. Integrating with a property management software solution of Rentec’s size and integrity allows Starpoint to reach thousands of additional quality prospects daily while adding value to Rentec’s subscriber offering.

“We are thrilled to empower our existing base of property managers and landlords with this new data from StarPoint.  It will no question make their daily lives easier and more productive.” says Nathan Miller, President of Rentec Direct.  “StarPoint Screening has proven to be an exemplary partner and together we will be providing an excellent opportunity to landlords to improve their screening process.”

For more information, contact Kelly Gontarski, at 877.330.2444 ext.150 or via e-mail at kgontarski@starpointscreening.com

About StarPoint Tenant Screening

Founded in 2009, StarPoint Tenant Screening and its sister company, StarPoint Employment Screening, are wholly owned subsidiaries of The L.I.G Group, LLC. The companies provide tenant and employment credit reports and background screening services nationwide through their online proprietary software platform. For more information, contact Kelly Gontarski at 877.330.2444 x150, or via e-mail kgontarski@starpointscreening.com or visit www.starpointtenantscreening.com or www.starpointemploymentscreening.com.

About Rentec Direct
Rentec Direct provides property management software, tenant ach payment solutions, and tenant screening tools to landlords and small to mid-size property management companies thereby empowering property managers to run their business effectively and efficiently without the costs or overhead of the typical massive software platform and training regimen.  Rentec Direct is available via any connected device including PC, Mac, iPhone, iPad, and Android devices.  For more information, contact Nathan Miller at 541-690-8447, or via email at nmiller@rentecdirect.com, or visit www.rentecdirect.com

EPA Delays Lead Certification Requirement

The Environmental Protection Agency (EPA) announced that it will provide additional time for contractors to become trained and certified under the new Lead Renovation, Repair and Painting (RRP) Rule. They have moved the deadline back to October 1st and will make exceptions regarding enforcement for workers who have applied to enroll or are enrolled in courses as of September 30th. Although it has delayed the certification deadline, the EPA will continue to enforce the work practice requirements set forth in the rule.

This announcement is a result of trade groups and elected officials voicing concern that contractors did not have proper access to the necessary certification courses. Contractors working on the pre-1978 target housing were originally required to be certified by April 22nd of this year.

For more information please visit the NARPM® webpage dedicated to the new lead based paint rules. There you will find helpful links to websites and important documents. Local and state governments have also started working on additional laws regarding lead-based paint. Please be sure you are monitoring updates to ensure compliance with all necessary laws regarding lead-based paint and residential property management.

How Do You Read a Credit Report?

During my 10 plus years in the credit reporting industry, the two most frequently asked questions you hear are 1) What Do Credit Scores Mean?  and 2) How do you Read a Credit Report?

We’ve answered the first question, “What Do Credit Scores Mean” in a previous blog.  But here, we’ll give you an easy guide to reading your tenant’s credit report.

Simply click on our illustrated How to Read a Trans Union Credit Report Guide which will walk you through a credit report provided by StarPoint Tenant Screening.

Questions or comments? E-mail me at kgontarski@starpointscreening.com

The 2010 Census: What Apartment Owners Need to Know

Most households, including those in apartment buildings, should receive Census questionnaires in the mail in March 2010. Responses are due by April 1, 2010. If households do not return their completed forms by the end of April, apartment operators can expect Census enumerators to visit their communities in an effort to get residents who have not responded to complete the form. These visits will take place from approximately May through August 2010.

Participation in the Census is required by law, so property managers are advised to provide Census enumerators with reasonable access to requested individual apartments. This includes allowing enumerators to knock on apartment doors, or, where present, buzz apartment call boxes. Enumerators may have to return to the property several times to secure interviews, and these repeat visits should be accommodated.

If enumerators are unable to contact apartment residents, they may ask a property manager for occupant information. Property staff should cooperate to the extent they can, and enumerators are required to allow for a reasonable amount of time for compilation of information.

In all cases, property managers should ask for official identification before cooperating with any Census Bureau employees, which in most cases will be limited to a Census badge and bag. (If property managers are uncertain about a Census enumerator’s identity, they can contact the Regional Census Centers to confirm their employment by the Census Bureau as official enumerators. The Centers are listed at http://www.census.gov/2010census/

Census employees may also visit apartment properties outside of the 2010 Census as part of several other surveys sponsored by the Census Bureau, including the American Community Survey (ACS). The ACS is considered part of the Census and thus participation is also mandatory. Property managers should provide the same level of access and cooperation to ACS field representatives as to Census 2010 enumerators.

In contrast, other Census Bureau surveys, such as the American Housing Survey and the Current Population Surveys, are voluntary. While the multifamily industry benefits from the data collected from households during these surveys, property managers are not required to allow the same level of access or provide the same level of cooperation as with the Census or American Community Survey.

All information collected during federal censuses and surveys is kept confidential (per Title 13) and only used for compiling aggregate statistics.