Top tips on choosing the right real estate investment contractor

A new trend is emerging in the world of Real Estate investment. It’s a style that empowers the investor to truly control their investment. It’s called Wholesale Turnkey and is taking the industry by storm. Experienced investors understand that turnkey has a premium built in and is simply the delegation of taking a wholesale property and bringing it to a cash-flowing property.

If you are thinking of taking control of the process and managing the process, a vital key piece to preventing your independence from costing more than going turnkey is the focus on choosing the right contractor. Use these simple tips to help catapult you into this new investment style.

You Get What You Pay For - Don’t fall for the low bid money pit. Look for value, not pricing. Value not always obvious but performing your due diligence will help you determine if a contractor is going to “Change Order to Death” our scope of work or stay on task. Perhaps the best way to establish the ethics of a contractor is through references. Ask your bidding contractors for references on similar projects and scopes. This will really help you connect with a source that can give you valuable information (don’t forget to ask about the reference’s relationship to the contractor).

Details, Details, Details - Details are typically where 90% of the problems occur. It is in the details that clarity and expectations are defined. There are 2 places you need to focus on for details. The first is in the Scope of Work. Look for specifics on material quality and finish conditions. You’re contractor should provide you a highly detailed Scope of Work that states they are responsible for issues that may arise during the rehab due to them overlooking a repair with the exception of “unforeseen conditions” that could appear when drywall is removed for instance and rotten framing is found.

In residential rehab construction bids tend to be poorly documented with items overlooked, left out, or poorly defined. If you’re the bids you receive tend to be vague or incomplete, help them out if you like the contractor. Create or find a detailed scope of work you can use as a template. (You can contact the author for a list of forms free of charge)

The Vile Change Orders - Rehab construction has one giant element of the unknown, pre-existing conditions. These are conditions that can alter the initial construction plan that are not apparent or inherent upon bid. Even the best rehab contractors in the field encounter unforeseen circumstances. Change orders are a part of the business and when properly handled minimize impact to the overall project timeline and budget. Make sure the change order process is clearly defined and that you through developing a Scope of Work you clearly define what you feel an “unforeseen circumstance” is.

These tips do not cover some of the more detailed aspects of choosing a contractor but can help you in gaining your bearing. Remember that diving into running all the aspects of taking a property from acquisition to rented is complex and sometimes more cost effective to simply use a credible turnkey group. Another option to going it alone is to work with a consultant that will provide you with access to the right service providers for a nominal fee that is far more affordable than going straight turnkey.

The Tax Man Cometh... But Owning Rental Property May Help!

It's like some sort of horror movie... you don't realize that ever so slowly creeping up on you is an evil force. Well, at least thats how I think of tax season. Every year, it sneaks up on me and I then go into "Deduction Hunt" mode trying to find every little tax deduction.

One of the great things about owning investment property or rental property is the tax benefits. Not only are you investing in an appreciating assett (hopefully) and seing a fair return monthly (hopefully) but at the end of the year if just about any and all things you paid out for on ther rental / investment property are tax deductible.

One of the painful parts of owning rental property is the unexpected big ticket expense that could potentially wipe out your cash flow. Althogh this could still occur... having the ability to writie it off is incredible... particulary if you know you will be paying the Man in March.

Here are some great tips from NOLO.com - you can read the full article here: "Top Ten Tax Deductions For Landlords"

1. Interest

Interest is often a landlord's single biggest deductible expense. Common examples of interest that landlords can deduct include mortgage interest payments on loans used to acquire or improve rental property and interest on credit cards for goods or services used in a rental activity.

2. Depreciation

The actual cost of a house, apartment building, or other rental property is not fully deductible in the year in which you pay for it. Instead, landlords get back the cost of real estate through depreciation. This involves deducting a portion of the cost of the property over several years.

3. Repairs

The cost of repairs to rental property (provided the repairs are ordinary, necessary, and reasonable in amount) are fully deductible in the year in which they are incurred. Good examples of deductible repairs include repainting, fixing gutters or floors, fixing leaks, plastering, and replacing broken windows.

4. Local Travel

Landlords are entitled to a tax deduction whenever they drive anywhere for their rental activity. For example, when you drive to your rental building to deal with a tenant complaint or go to the hardware store to purchase a part for a repair, you can deduct your travel expenses.

5. Long Distance Travel

If you travel overnight for your rental activity, you can deduct your airfare, hotel bills, meals, and other expenses. If you plan your trip carefully, you can even mix landlord business with pleasure and still take a deduction.
However, IRS auditors closely scrutinize deductions for overnight travel -- and many taxpayers get caught claiming these deductions without proper records to back them up. To stay within the law (and avoid unwanted attention from the IRS), you need to properly document your long distance travel expenses.

6. Home Office

Provided they meet certain minimal requirements, landlords may deduct their home office expenses from their taxable income. This deduction applies not only to space devoted to office work, but also to a workshop or any other home workspace you use for your rental business. This is true whether you own your home or apartment or are a renter.
For the ins and outs on taking the home office deduction, see Home Business Tax Deductions or Every Landlord's Tax Deduction Guide, both by Stephen Fishman (Nolo).

7. Employees and Independent Contractors

Whenever you hire anyone to perform services for your rental activity, you can deduct their wages as a rental business expense. This is so whether the worker is an employee (for example, a resident manager) or an independent contractor (for example, a repair person).

8. Casualty and Theft Losses

If your rental property is damaged or destroyed from a sudden event like a fire or flood, you may be able to obtain a tax deduction for all or part of your loss. These types of losses are called casualty losses. You usually won't be able to deduct the entire cost of property damaged or destroyed by a casualty. How much you may deduct depends on how much of your property was destroyed and whether the loss was covered by insurance.

9. Insurance

You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers' compensation insurance.

10. Legal and Professional Services

Finally, you can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity

I AM NO MEANS A TAX EXPERT SO ASK YOUR TAX ADVISOR ABOUT THESE ITEMS!

Turnkey Real Estate Investment and the Art of Evaluation

It’s a New Year and time to jump back into the blogging saddle! I find that holiday’s are tough to come up with postings when I know that most are knee deep in eggnog and Christmas trees…

So to start things off fresh I decided that we should focus on a list of risk mitigation techniques when evaluating a deal. Previous postings have explained websites and calculators, but this is more of the soft-skill type techniques. This is not an all encompassing list and quite frankly should be a starting point for developing your own mitigation plan.

It’s a harsh world out there and the only way to protect yourself is through the power of knowledge and data:

Real References: Don’t take the word necessarily of the seller or his group of investors. Do google searches on the company. See if any complaints have been made with the Better Business Buearue for instance. Use sites like BiggerPockets and LoopNet to see if anyone has heard of the company. Ask competitors about them, of course there will be a biased but an intelligent investor will know the difference between contempt and honest opinion.

Proof of Success: Ask for a few real world examples of investor purchases and how they resulted over a year period. Ask to see vacancy rate, maintenance charges, management expenses and any other expenses outside those expected. Ask to see the actual profit and loss in a summary format to verfiy that they are selling properties that actually perform as expected… but secondly they actually have the information.

After-Sale Commitment: Turnkey has traditionally followed a pretty straight process; sell property to investor and from that point on the investor is the “problem” of the property manager. This design creates many issues, not including the ability to form a solid relationship with the turnkey provider if the property turned out acceptable. Ask the seller to explain the process of purchasing a property, see if they discuss post-sale processes. If they have a true account management program in place, you will know it. You won’t have to ask, they will simply demonstrate it in their explanation of what they do. Make sure that they are willing to act as your advocate and monitor your investment and warn you of issues they may see as a local advocate.

Knowledge to the Extreme on the Market: Experience operators in a market will have a mental library on their market. From demographics to future revitalization, a turnkey operator that understands their market can position you perfectly based on your unique goals. Don’t get too focused on flashy presentations and marketing materials, these are great and show a group is committed to exhibiting professionalism but if they can’t back it buy speaking directly with you on the phone then they are simply “copy & paste” experts.

Scope of Work: If the property is a turnkey with a tenant residing in the residence you will have a difficult time visiting the property or getting photos of the renovations that took place. Ask for a scope of work and the contractors that provided the work. Review the renovations to make sure that you are comfortable with the scope of work. Ask about service life left on HVAC, Roof , Electrical & Plumbing. These are the items that will cost you heavily when repairs are required.

Is this an all encompassing list of vetting tools? Nope. But that’s what future postings are for. Remember, find someone you can trust and stick with them. You may not always get that “killer” deal but “killer” deals can sometimes lead to significant blood loss in your bank account.

Give your computer a new "lease" on life!

Let's face it, many of us have computers that are either ancient or insanely bogged down. As an investor on the hunt for the latest property, nothing can be more irritating then having your computer take forever to open up that important document or website.

Have no fear! With these FREE and user friendly tools, you can have your computer back up to speed in no time.

Enjoy!

The following links when added to your computer will protect it, secure it, clean it.

1. AVG Antivirus - Greatest antivirus I have found. I've placed this on computers that 7 year olds use. Why is this a good judge of quality? Think whack 'o mole with popups... they can't help but click on anything that pops up.

2. Zone Alarm - Need a solid firewall? Have no idea what a firewall is? That's okay! Install this to keep the bad guys from hacking into your system. Lot's of popup questions about whether you want an application to connect to the internet at first.... Basic rule - If you open an application and the Zone Alarm window asks if you want to give the application permission then give it approval..... if it randomly pops up and ask if some weird application like PwnUrSystem can have access... then deny. After about a week, it will remember all your choices and you shouldn't see much of it.

3. Glary Utilities - Weird name but great tools. It slices, it dices, it defrags registries. This is a top application for cleaning up your system to increase performance. It has a pretty easy interface that allows you to click a button and let it do its thing. If you have a slow computer and have removed all the spyware and virus' then this is the next step.

4. Advanced System Care Free - Same as Glary, just another tool that some people like more. Won't kill your system to have both on there so try both out and decide which you like more!

5. Advanced Privacy Cleaner - For those that are currently designing top secret cheater apps for Words With Friends, this application can erase not only your web tracks but documents on your computer. With deletion algorithms used by the military, what you delete is pretty much gone. Remember friends, deleting to recycle bin and clearing it does not remove from your computer.... This tool will.

6. LogMeIn - When you download all of the above and get completely confused, just download logmein. It allows remote access to your computer in a way that you can control. Gone are the days of a tech having to come out to your house and work on a computer, now they can play WoW at midnight while fixing your issues. You wake up and your computer is nice and running like its supposed too! I use this on over 20 computers and have never had an issue with security.

Section 8 is great... even in the suburbs.

The previous posting dove a little deep and then shallowed out with a discussion on Section 8 in low income/urban core style areas.

To add to this topic you must look at the suburban environment and how Section 8 can be effectively used in these areas as well.

Granted, it is much easier to lease a property in an area known for moderate income but there are still challenges. In particular, when there are competitors all vying for the same tenant base.

Being a believer in going against the marketing grain, I try to find tenant pools in areas overlooked by competitors. For some reason, many in this market fail to seek out Section 8 tenants. The assumption being that they simply do not want to live in areas they are not accustomed to or can't due to logistical issues. But this can be a fallacy that loses you a guaranteed rent.

As said in the previous post, Section 8 did originally have a purpose (and still does albeit not as actively oriented to accomplishing). The purpose was to find a way to subsidize low income families in order to get them out of low income areas and into a better environment. This was to assimilate those with the "thinking" of low income into the "thinking" of those of middle to moderate income. The theory was that by surrounding such families with a sound environment, those families could focus on achieving success vs. merely surviving.

With this in mind, don't assume that a Section 8 tenant would not be interested in your home. On the contrary, expect them to run not walk toward any property that allows Section 8 vouchers... if they are serious about stepping out of poverty and into a better life. What makes this an excellent combination is the fact that they are working towards a better life... normally a person with a goal will protect the foundation that is supporting them. In this situation, its your property foundation and don't be surprised if they treat it better than someone in the open market simply settling for the next rental property on their list.

Why Section 8 is Great

As Section 8 comes out of the shadows and almost synonymous with rental properties, many blindly jump towards or away from tenants with vouchers without understanding the program.

Not going to get too deep here, understanding the history and premise of the HUD Section 8 program is a story of good intentions but somewhat poorly planned design... kind of like most welfare programs.

So what is important to know?

Section 8 tenants are low income tenants that receive, after sometimes years waiting, a portion or all of their rent from the Section 8 program funded by HUD. Last time I checked, they pay up to 30% of the rent. After assisting clients in leasing to literally hundreds of voucher recipients I have found that a mass majority pay 0% and the government 100%. Regardless of the tenant responsibility, each month the government sends you a check for their portion of the rent. It's like Uncle Sam co-leasing the property.

As I said earlier, voucher recipients can wait years for their voucher. Emergency situations triage to the top and everyone else remains in line. A contact at the Kansas City Section 8 department claimed over 10,000 on their list. A Birmingham resource told me it was pointless to count. Generally HUD provides the program with a budget and when the budget is gone, those waiting have to wait another year.

So someone finally gets a voucher and they are now free to look for a property that falls within the rent range they are allowed. Primarily, the more kids, the more rent. Once they receive a voucher, you can bet they are out looking for a home immediately. NOTE TO INVESTORS - If your property manager sits by and waits a day to return a call or schedule an appointment, the potential tenant has probably found a home and the voucher is resting comfortably in some other landlords hands... another reason to ask for updates constantly on vacancies (please no hate mail managers, I know this is an annoyance).

So where do they rent? Everywhere but for different reasons...

If your property is in an area known for poverty and you are having trouble renting your home on the open market, Section 8 can be a windfall. Many on vouchers lack transportation and may also depend on local family members for support. Being close to public transportation and relatives is incredibly important to those trying to make it. They will actively seek out properties that the open market may have no interest in. Although HUD follows Fair Market Rent tables to determine rent amounts, these are all over the board and usually grossly over valued...to your benefit.

A property with a Section 8 tenant can normally cash flow $50 to $100 more over an open market tenant. Another neat trick is that a 2 bedroom voucher holder can go up in house size... and some 2 bedroom vouchers are higher in value than what the open market would allow for a 3 bedroom in a particular area. I've seen many times a tenant "playing the game" and searching in lower income areas for 3 bedroom homes knowing that their 2 bedroom voucher will open the door.

So the rent is great but what about the quality of the tenant? Each voucher holder has a counselor and you reporting them for damages to a house can cause a cancellation of their voucher... after years of waiting. This is a pretty strong incentive to keep the tenants mindful of the recourse for acting improperly.
Yes, there are horror stories, but aren't there always?

So how do you find them? Use basic advertisement that they can get to easily. Craigslist, Thrifty Nickel and Ugly Yellow Signs are normally the trifecta. If your property is in an area known for vandalism and theft, you might refrain from giving an exact address and simply provide BR/BA, Rent, Section 8 OK, and a number to contact.

Tomorrow we will look at why suburban properties and Section 8 tenants can be equally well fitting.....

From Tenants to Buyers, Survey Shows Internet Is The Way To Go!

A recent survey by Realty Times providing an insight to home owner buying habits when it came to searching for their new home. It showed that the vast majority of buyers used online sources to locate their properties. This particular article is propose that the Realtor is still the primary source for buyers... but I believe this to be more of a necessity than an actual preference. When you find a property online, it generally comes with contact information and you have no real way to look at the property without a Realtor.

Regardless, there are two very important factors for those trying to rent properties or sell them. Post your information everywhere you can online! Use listing syndications such as postlets to push your property out to tens of sites. Use Craigslist and online classifieds to advertise your rental property. The more you post, advertise, etc. online, the higher your chances of someone stumbling upon your site.

Craigslist in particular for rental properties is HUGE. You can't imagine the number of properties rented by placing them on Craigslist.

Investment real estate buyers no longer stomp just their local areas, they actively search the internet for good deals. Having a professional looking website is no longer enough, you need your properties on all major listings sites, a blog, articles you have written and much more to really contend with the enormous load of information dumped onto peoples laps.

I think thats what makes local turnkey operations valuable. They do this tedious work all day long. Why not offer your property up through a trustworthy selling group instead of stomping the pavement yourself? So it cost a few grand... you'll end up spending as much in both money and time trying it yourself.

Same goes with a rental property. If your property is vacant, incentive a local property manager with a good commission to get it rented it quick. You have more to lose then rent payments on a vacant house, like the kitchen sink and plumbing.

Yea, it stinks to pay for services but I've never had as much luck as when I've simply dealt with a local expert for help.