Real Estate

Maybe I should rent my house if it doesn’t Sell.

Continuation from my last blog….My House isn’t Selling in a Seller’s Market.

So what happens if you are one of the 439 homes that were removed from the market in the under $200,000 price range in the last 30 days. Perhaps you have decided to wait until the market improves (inflation catches up with your desired price) or you have decided to wait until you have paid more down on the house so you have more equity. 

But what if you really need to move and so you decide that it might be better to rent the house than sell at the current market value. I understand. I did that one time when we were young.  We bought a house in April of 1992 and got orders to move to Oklahoma in December of the same year.  We had no equity and no money to bring to closing, so we chose to rent the house for about 4 years.  At that time we were able to sell the property and walk away without bringing money to the table.  And while I currently own rental property, I never want to be a long distance landlord again.  Just too much stress.

First, you need to understand tax law.  If you own a house that you have lived in 2 out of the last 5 years and sell for less than $250,000 as a single person or $500,000 if you are filing married, you do not pay taxes on the money from the sale of your primary property. You do not have to reinvest this money. It is yours to keep.  If you turn this house into a rental, you will want to discuss the capital gains tax and the recapture tax of any depreciation you take from the house with you CPA. You could incur more in taxes than you pay to walk away, so please discuss this matter with a professional accountant.

Second, there will be maintenance. Things break in houses and tenants want those things repaired in a reasonable time frame. And some repairs like heating are mandated by law that you repair in a certain time frame. The tenant is not going to want to wait until you can save up for the new roof, air conditioner, plumbing repair. So make sure you have some savings to make those repairs.

Third, tenants don’t always take care of other’s people’s property the way you would. Not all of them are going to change the air filters regularly, clean up after themselves or take care of the yard the way you would.  When they move out of the house, you will most likely need to paint, clean or replace flooring, trim bushes, and other minor maintenance items.

Forth, it may take you some time to find a good tenant. I would advise you that it is better to wait to get a good tenant than to just take the first one with cash in their pocket who you may need to evict. So you will want to have some money saved to pay the mortgage while you wait to get that tenant. And hopefully they pay every month and on time.

Finally, If you are out of state you might consider hiring a property manager to look after your property.  Make sure the rent is sufficient to pay the management fees, mortgage and any repairs. Also make sure you get a good recommendation for the property manager, since some of them are better than others. Ask questions as to whether they have an in house maintenance person or other contractors.

After reviewing all the costs decide if you really want to become a landlord. I do believe there is money to be made in rental property if you that is what you want to do. It is a job. If that is not what you want to do as a job, I would suggest you cut your losses and sell the property at fair market value in this great market.

If you are looking for a great realtor with experience who can get your house sold, call me today. 405-213-2992 or visit my website at equityhomesteam.com.

Real Estate

Maybe I should just rent it

In my last post I talked about pricing a home right to sell even if it means bringing money to the table. While there is nothing illegal or immoral about a seller bringing money to the table to clear the note and sell a property, it just seems wrong to many people. This is an investment and as an investment, it ought to make you money or at least cause you to break even.
So sometimes people think that the alternative is to rent the property. The renter can pay down the mortgage and then they can sell the property without bringing money to the table. That is understandable. However there are some things you will need to consider if you chose this path.
1. Either study the landlord tenant act and know it or hire a property manager. You need to know the law and follow it.
2. Make sure you have a separate bank account for the rental property and the escrow.
3. Have some savings for repairs. While you may be ok living with a broken a/c or garage door opener until you have the funds to fix it, your tenants will not.
4. Have some savings for times of vacancies or when your tenant is late paying or doesn’t pay at all. You still need to make the mortgage payment.
5. If you are going to manage your property yourself make sure you know how to properly screen a tenant. Just because they have the deposit and first month’s rent doesn’t mean they will have the next month’s rent.
6. Drive by your property and check on the inside occasionally. Your lease should give you authority to inspect with notice.
7. If you are moving out of town or state, hire a property manager. It will cost but it will be worth it.
8. Plan on painting and making some repairs when the tenant moves out. The security deposit may not cover all of it.
These are the basics considerations when considering whether you should rent out your property rather than selling it. There is also emotions that will come into play. This may have been your first home or one your fixed up. It is heartbreaking to see others not taking care of your house the same way you might. So decide if you are willing to do all these things or if it might be better to just sell it and move on. I personally have rental property. My very first rental property was one that my husband and I bought in Omaha, NE and then learned a year later we were getting transferred to Oklahoma City. We didn’t have the money to sell the house and decided to rent it. And of course we did it ourselves out of state. So I have been there. It was a learning experience. The education cost me some money. I will never personally have a rental that is not within a 20 mile radius of me. But that is me.
If you are thinking of selling and would like an experienced Realtor to help you with the transaction, please contact me at 405-213-2992 or visit my website at http://www.sandiwalker.com

Real Estate

So you want to be a landlord

Rental property can be a great investment. As an investor you provide a much needed commodity for a person or family while they pay the mortgage on the house and provide you with a little extra money each month. Over the years I have helped several people start and/or add to their rental portfolio. Most of my clients tend to manage their own properties, while others find a property manager to screen tenants, and hire maintenance people.
Banking rules regarding investment property have changed greatly over the past several years, so it is advisable that you speak with a banker prior to starting your search. You should also obtain a copy of the landlord/tenant act and read it, study it, and read it again. It is important that you understand what the law says regarding your rights and responsibilities.
As you begin your search for your first rental, you will need to decide where you would like to buy. You might consider looking close to you where you work or live so you can check on it, especially if you are planning on managing it yourself.
Once you have found the property and purchased it you will want to get it rented as soon as possible. Investors don’t like their properties to be vacant. It costs money to have a vacant rental and there is always the risk of vandalism. However, I think it is worse to put an unqualified person into the unit who tears up the property and doesn’t pay you.
The most important and complex part of renting is screening the tenant. Have an application that you have everyone interested in renting fill out. You can use one from the office supply store or make one up yourself. Some landlords charge a nominal fee to run an application. This often deters people who know they don’t qualify from applying. I personally do not charge a fee. You will need to verify the information on the application to make sure it is true. I suggest verifying the address on the applicants driver’s license to the application. Check to see who actually owns the property where they live, verify that is the same name that is listed on the application. If not, it could be a property manager. The law in Oklahoma says that a property manager who is not the owner of the property managed must possess a Oklahoma real estate license. Verify all phone numbers to see who they actually belong to before calling them. They could be the applicants friends. I had an applicant that listed a cell number for his employer and said that was the only number he had. So I asked to see pay stubs. He had none and said he got paid in cash. I can’t verify that and didn’t rent to him.
Determine what your criteria you are going to use to qualify a tenant. My qualifications are 3x the rent in income (meaning if rent is $1000 a month, tenant must earn $3000 a month or more), no evictions, or felony convictions. You need to use these same requirements for each and every tenant. You will want to decide if you are willing to rent to people who smoke or not (although I think this is crazy to monitor) and also if you are willing to accept pets. If you do accept pets, I would suggest a pet deposit. A pet deposit is very common.
Once you have approved a tenant, have everyone sign a lease. The lease should be comprehensive. In real estate everything needs to be in writing so put it in writing so everyone has the same expectations.
This is just the beginning. This is not meant to be inclusive and if you have legal questions, please contact a lawyer. I will blog some more later about what should be in a lease as well as other landlord issues.
If you are looking for a Realtor who understands rental properties and are interested in buying or selling investment properties, please feel free to call me at 450-213-2992 or visit my website at http://www.sandiwalker.com

Real Estate

Don’t lose all your investment profits to taxes

Investment property is a great way to build wealth. The investor can write of off many expenses and depreciate the value of the property on their taxes over the years. While making a profit from the rental income, they also are able to obtain a tax benefit from the investment. Over time an investor may decide to exchange a property with a high equity position perhaps a free and clear property to a larger property or to multiple properties that provide additional cash flow. The investor may want to diversify into other geographical areas of the country.
When an investor sells their property they are liable to pay several taxes. These include capital gain taxes to both federal and state, recapture tax on the depreciation, as well as the ACA tax of 3.8% if the investors taxable income in over the designated amount. ($200,000 for a single person and $250,000 for a married person at the time of this writing). This can add up fast and take up to approximately 50% of the profit to pay these taxes. For this reason, people sometimes think twice about trading properties. But there is a way to trade properties without paying the taxes.
Since 1921, savvy investors and real estate professionals have been taking advantage of a powerful tax strategy created by IRC section 1031-the deferred exchange. IRC Section 1031 (a)(1) states:
“No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-king which is to be held for productive use in a trade or business or for investment.”
By using a 1031 exchange an investor can defer the tax burden. This allows them to keep more money to invest in other like-kind exchanges. While this does not eliminate the tax burden, it does defer it. And it can be deferred into a passive trust or a vacation rental when the investor decides not to be as involved in managing investment properties.
The investor will need to work with a “Qualified Intermediary” to facilitate the transaction. And it will need to be stated in the contract that the sale is subject to a 1031 exchange. This is just a simple introduction to 1031 exchanges. If you have additional questions, regarding time lines and other benefits please ask. As always it is recommended that the investor discuss a 1031 tax deferred exchange with tax and legal advisors.
If you or someone you know is looking to buy, sell, or invest in real estate please have them call me at 405-213-2992 or visit my website at http://www.sandiwalker.com

Real Estate

Want some money—Quick

I have been told you can make some fast money in real estate. Buy a house cheap. Throw a coat of paint on it and some new carpet and you are on your way to instant wealth.
I get calls from people wanting to be investors all the time. People who want to flip property mostly, because they don’t want to deal with tenants. I can understand that I have had some tenants I would rather not have had to deal with either. But as the old saying goes: If it were easy everyone would be doing it. Now I don’t want to discourage you, if you are thinking about buying investment property, but you should know it is work.
There are some basic questions you should ask yourself before you begin.

What will the property sell for when it is remodeled?
Will the property I purchase resell fast/
Is the floor plan functional or does it contain some dysfunction?
What will it cost to repair the property?
Can I do any of the work myself?
Do I have a list of contractors or can I get a list of contractors?
Do I have enough cash reserves for the remodel?

Create a budget and stick to it. This is sometimes easier said than done. Do not over updates for the area. The appraiser is not going to over value the property just because you did, and neither is a buyer.

I have personally rehabbed several properties, rented properties and flipped properties. The knowledge I have obtained over the years does not come from seminars and books but rather life and the school of hard knocks. I have worked hard and been fortunate to find some really good deals. You can make money investing in real estate but don’t think it is like you see on late night t.v.
If you have questions about investing in real estate, please feel free to contact me at 405-213-2992 or visit my website http://www.sandiwalker.net