Perform annual maintenance on your air conditioning units now, before the real heat hits and A/C contractors become busy!

There are a few things that most homeowners can do themselves to help maintain their air conditioner:

• Ensure the filter is clean or replaced regularly. Disposable filters are inexpensive and should be replaced once per month during high use periods.
• Trim back plants so there is at least one foot of clearance from the A/C unit – this allows proper air flow, reducing motor strain.
• Sand and other debris can get sucked into the condenser coils. To clean the coils, first disconnect the power to the A/C and then use a garden hose to spray the coils clean.

The best advice is to have an annual maintenance service performed by a professional air conditioning technician. Always ensure the following items are included in the maintenance service:

• Condenser – check pressure, oil motor bearings, and current electrical draw; tighten all hardware and visually inspect wiring and condenser coils.
• Air Handler/Evaporator – Visually inspect wiring and oil motor bearings; clean or replace filter, tighten all hardware, inspect condensation drain, pan, pump, and auxiliary pan; clean drain system, and check that evaporator coils are clean and free of damage.

With proper maintenance, the air conditioner should run smoothly for years. However, should the unit break down due to normal wear and use, your client’s home warranty company will repair or replace the covered parts and components – saving their hard-earned money and keeping their home cool during the heat of summer!

Adapted from Old Republic Home Protection Newsletter

The list for things you should do to your home is endless—change furnace filter, clean gutters, leave a faucet running when it’s freezing out—but there are likewise many things you shouldn’t do. Of course, “set it on fire”, “paint it all black”, and “take off the roof” are gimmes, but we’ve come up with the top 8 items to be avoided that many people already do. Our apologies if you’ve already done one of these (or several).

1. Don’t do your own plumbing. If you already know how to do it, then this is just a list of the top 7 things you shouldn’t do. But even if you are an ambitious and skilled DIYer, just leave this one to the pros. It’s not so much that homeowners can’t do this or can’t learn, but most homeowners are not familiar with the safety requirements laid out in the Uniform Building Code (UBC). Plus, if you mess something up, water gets everywhere and might ruin a great many things. The risk versus reward of this does not play to your favor.

2. Don’t park in the yard. Now we know what you’re saying, anyone who cares enough about their home to read an article about things you shouldn’t do to them already knows not to do this. But you’d be surprised. Plus we just wanted to let you know that we didn’t miss this one.

3. Don’t remove walls between rooms without knowing if it is a load-bearing wall. Certainly, if you are working with a quality contractor, this professional will know which walls can come down and which can’t. However, if you are doing it yourself, you need to ask an engineer or a solid contractor.

4. Don’t do bump-outs. Bump-outs are when you move a wall out a few feet just for a little extra space (like a bay window, but to a greater degree). The reason not to do this is simple: the cost per square foot of this improvement is so high that you might as well opt for a more sizable addition at a much lower cost per square foot. Of course, if you like the texture of pocketed space, more power to you, but also more cost to you.

5. Don’t do your own electrical. Same as with #1, except that you have the added danger of getting electrocuted. Not a good idea.

6. Don’t remodel too much. Now you might have so much money that you just need to get rid of it, and if so, might we recommend a few charities that do some good work. However, you need to keep your remodeling within the general costs of your neighborhood. You’ve got to keep the money you put into your home realistic compared to the average price of houses that are similarly sized in your immediate area; otherwise it is extremely difficult to get the return on your investment.

7. Don’t be the person who doesn’t take care of your yard. Every street or every neighborhood has one, but don’t be that guy! You’ll get the whole neighborhood quietly hating you, making passive aggressive comments, and then one morning you wake up to find the whole block cleaning up your yard, as you stand on the porch in your robe with bed head. Bad yards make the neighborhood look bad and bring property values down, plus they’re an eyesore. If you’re really that busy, hire a lawn service or a kid from the block.

8. Never fool yourself into thinking your pets don’t stink. Because they do. This goes for you, too, small dog people. You might be used to the smell and the shedded hair, but it’s new to your guests. Pets, while lovable, get their smell on everything. If you have pets, you need to clean your carpets and furniture more often than usual (like every 6 months), make sure that you open the windows as often as the weather permits, and vacuum as often as time allows. If you are looking to sell, you might need to repaint inside to help with the odor.

Matt Myers is a freelance writer for the home maintenance and remodeling industry. Formerly a contractor specializing in deck building and casework, Matt has written over 500 articles for both homeowners and contractors.

from ServiceMagic Newsletter

Rising gas prices have caused many vacation property owners to reevaluate their “get away” options. They still want a cottage on a lake, but the lake needs to be closer to home. With proper planning, a tax-deferred exchange may help them realize that goal.

How much personal use is allowed?

To qualify for tax-deferred treatment under §1031, both the relinquished and replacement properties must be held for investment purposes or for use in the taxpayer’s trade or business. Property held for personal use does not qualify.

So what about vacation homes? Personal use is usually why they were acquired, but how much personal use is too much? Hopefully the properties will appreciate in value. Is that sufficient to demonstrate the necessary investment intent? Or does the property have to be rented out to be considered an investment?

Appreciation ≠ Investment

The Taxpayers in one case faced this exact dilemma.¹ They had lake property that was used 2 or 3 weekends in the summer, with maintenance visits in the off season. They exchanged for property closer to home and used it even more often. The Court disallowed the exchange, finding that the property was held primarily for personal use, not for investment.

The mere hope or expectation of appreciation was not sufficient to establish investment intent. The Taxpayers never attempted to rent either property, never claimed deductions for maintenance or depreciation and deducted the interest as home mortgage interest. Also, their failure to properly maintain the relinquished property was inconsistent with an investment intent.

The IRS Safe Harbor: Revenue Procedure 2008-16

In 2007 the Treasury Inspector General for Tax Administration issued a report recommending additional oversight of like-kind exchanges, specifically stating that: “…the IRS regulations for like-kind exchanges of second and vacation homes are complex and may be unclear to taxpayers…and little exists with respect to a published position by the IRS on like-kind exchanges involving such properties.”²

In response the IRS issued Revenue Procedure 2008-16, which provides a safe harbor. If the procedures are followed, the IRS will not challenge whether a property qualifies as being held for productive use in a trade or business or for investment. An exchange may fall outside the safe harbor and still qualify, but expect more scrutiny from the IRS.

Qualifying Properties

Both the Relinquished and Replacement Properties must have been owned by the Taxpayer for at least 24 months immediately before and after the exchange. In each of the two 12-month periods immediately before and after the exchange the Properties must be rented at a fair market value for 14 days or more. The Taxpayer’s personal use cannot exceed the greater of 14 days or 10% of the days during each 12-month period that the property was rented at a fair market value.

Personal Use

“Personal Use” is not limited just to use by the Taxpayer. It also includes use by:

• the Taxpayer’s family members;
• any other person with an interest in the unit, or their families;
• anyone using the unit under an arrangement which enables the Taxpayer to use some other dwelling unit (even if no rent is charged); or
• anyone, if the property is rented for less than fair market value rent.

Meeting the Safe Harbor

First, you must meet the ownership requirements mentioned above. You should also limit personal use of the property to the greater of 14 days per year or 10% of the rental period. If you use the property any additional days for repairs and maintenance, be ready to show proof of the actual work done

The property should be rented to an unrelated party for at least 14 days per year. However, there is no need to rent the property for more than 14 days. You may also rent the property to a related party if they use it as their principal residence and pay fair market value rent.

It is also important to treat the property as an investment. Make sure that the property is properly maintained. Deduct expenses for maintenance, utilities, insurance and depreciation. If you have a mortgage on the property make sure that it is structured as an investment loan, not as a loan for a primary residence.

Vacation Homes Outside the United States

What if you own a vacation property located outside the United States? In some cases you can still benefit from a 1031 exchange. Real estate located outside the United States is not like-kind to real estate in the 50 states, even if it is located in an affiliated commonwealth or territory, such as Puerto Rico.³ However, you can exchange “foreign for foreign”, (e.g. Belize for Bermuda) as long as the other requirements are met.

A tax-deferred exchange is one of the few wealth building tools available to virtually any investor. Taxpayers should consider the benefits of a tax-deferred exchange whenever they plan to sell property that is not their principal residence.

from First American Exchange Company –

The Exchange Update

A Newsletter For 1031 Tax-Deferred Exchanges

Historical Tax Freedom Day

Tax Freedom Day By State

The total tax burden borne by residents of different states varies considerably, not only due to differing state tax policies, but also because of the steep progressivity of the federal tax system. This means higher-income states celebrate Tax Freedom Day later: Connecticut (May 5), New Jersey (May 1), and New York (May 1) residents face a significantly higher total federal tax burden than lower-income states.

Residents of Tennessee will bear the lowest average tax burden in 2012, with Tax Freedom Day arriving for them on March 31. Also early are Louisiana (April 1), Mississippi (April 1), South Carolina (April 3), and South Dakota (April 4).

from First American Exchange Company – The Exchange Update

Buyers who find a home they’d like to buy soon after they start their home search often pass on it because they feel they haven’t seen enough listings. Months later, when they haven’t found anything to compare to the first home they really liked, they can regret that they didn’t seize a great opportunity when they had a chance.

It takes a leap of faith and complete trust in your real estate agent to make a quick move in a market that’s new to you. You’ll feel more confident when you’ve done your homework and know the reasons why some listings sell for more than others. This is a process that takes time and is time well spent.

A characteristic of the current home-sale market, particularly in or near areas where job growth has improved significantly, is that there are not a lot of good homes for sale. In these niche markets, there tend to be more buyers looking than there are homes to satisfy the demand.

The housing market is bifurcated. Unlike the high-demand enclaves inspired by a pickup in employment, there are many more areas where there are far too many unsold homes and with too few buyers. This tends to have a dampening effect on home prices.

How long it takes you to find a home will depend in part on whether what you’re looking for is readily available. It will also depend on how many buyers are looking for the same kind of home you’d like to buy. If there’s competition for a scarce commodity, you might make offers on several homes before you are able to convince a seller to accept your offer.

HOUSE HUNTING TIP: Investors snap up foreclosure listings quickly, but they aren’t going to call these places home. It’s rare for buyers to find a home they want to occupy as their primary residence quickly, either due to specialized housing needs or lack of inventory. Put the time you spend waiting to good use by learning more about the community in which you want to live. Patience should be your motto.

Patience is also needed to carry you through the contract negotiation and closing. Although each home-sale transaction is unique, it’s not uncommon for a glitch to come up at some point. Some homes don’t appraise for the price you’ve agreed to pay. If you don’t have any additional cash to add to the deal, and the seller won’t renegotiate the price, you’ll be back at square one, looking for a home to buy.

The glitch could occur before your offer is accepted if the sellers are stubbornly unrealistic about the price they’re asking. Recently, buyers were encouraged to make an offer on an overpriced listing that had been on the market for months. The buyers reluctantly made an offer for the top price they could pay for the house. The sellers flatly turned the buyers down and said they would never sell for that price.

Three months and one price reduction later, the house still hadn’t sold. The buyers were again encouraged to make an offer. They made an offer for the same price they did the first time, but the terms were more agreeable to the sellers. It was accepted.

Many unrealistic sellers never come around. Don’t waste your time on sellers who don’t have a strong motivation for selling. There’s a big difference between sellers who want to sell only if they can get an unrealistic price, and sellers who have purchased another home and have no need for the current one.

THE CLOSING: Until you have an accepted offer, keep your eye on the market; don’t miss a listing that will work for you and is reasonably priced.

By Dian Hymer, Monday, April 2, 2012.

Inman News®

Dian Hymer, a real estate broker with more than 30 years’ experience, is a nationally syndicated real estate columnist and author of “House Hunting: The Take-Along Workbook for Home Buyers” and “Starting Out, The Complete Home Buyer’s Guide.”

The Institute for Supply Management reported that the monthly composite index of manufacturing activity rose to 53.4 in March after a reading of 52.4 in February. A reading above 50 signals expansion. It was the 32nd straight month of expansion.

Total construction spending fell 1.1% to $808.9 billion in February from a revised $818.1 billion in January. Economists had anticipated an increase of 0.7% in February. Compared to a year ago, construction spending is up 5.8%.

Retail sales fell 3.8% for the week ending March 31, according to the ICSC-Goldman Sachs index. On a year-over-year basis, retailers saw sales increase 4.2%.

Factory orders rose 1.3% in February to a seasonally adjusted $468.4 billion, following a revised 1.1% decrease in January. Excluding the volatile transportation sector, orders increased 0.9% in February.

The Mortgage Bankers Association said its seasonally adjusted composite index of mortgage applications for the week ending March 30 rose 4.8%. Refinancing applications increased 4%. Purchase volume rose 7.2%.

The Institute for Supply Management reported that the monthly composite index of non-manufacturing activity fell to 56 in March from 57.3 in February. A reading above 50 signals expansion. It was the 27th straight month of expansion in the services sector.

Initial claims for unemployment benefits for the week ending March 31 fell by 6,000 to 357,000. Continuing claims for the week ending March 24 fell by 16,000 to 3.33 million. The monthly unemployment rate fell to 8.2% in March, the lowest level since January 2009.

from Prospect Mortgage Economic Update

Affluent international buyers, attracted by fire-sale prices, are snapping up real estate in some U.S. markets. In a report released today, Inman News identifies 10 markets where public records indicate foreign buyers make up the biggest share of overall buyers.

Most of the markets are located in sunny Florida, though areas in Nevada, Arizona, New York and Hawaii are also on the list. The report highlights the economic and personal factors that drive foreign buyers to buy; their preferred property types; top countries of origin; how they find the real estate professionals they work with; why the selected markets appeal to them; and relevant demographic and housing-related characteristics for the markets, including share of foreign-born population, distressed property footprint, home-price trends, and vacancy rates.

Among the findings in this report, researched and written by Inman News reporter Andrea V. Brambila:

• Population levels in the markets range from about 600,000 in Lakeland-Winter Haven, Fla., to nearly 5.6 million in Miami-Fort Lauderdale-Pompano Beach, Fla.
• Seven out of 10 markets had foreign-born populations above the national rate of 13.1 percent in 2010. The Miami metro had the highest share born abroad, at 39.2 percent.
• In six of the 10 markets, area inhabitants who were foreign-born and moved from abroad accounted for a higher-than-average share of overall inhabitants who reported moving in the previous year in 2010. New York County (Manhattan) had the highest share: 7.7 percent of the people who moved in that county were both foreign-born and hailing from abroad.
• In seven out of 10 markets, the median sales price for an existing, single-family home was lower than the national median of $163,500 in fourth-quarter 2011. In eight out of 10 markets, the median sales price for a condo was lower than the national median of $160,800 for that same quarter.
• Condo prices fell on an annual basis in the fourth quarter in seven out of 10 markets. All seven saw their prices decline by more than the national rate of -1.7 percent.
• Seven of the 10 markets had a higher share of distressed sales in fourth-quarter 2011 than the national rate of 23.7 percent. Eight of the 10 markets had higher foreclosure activity rates in fourth-quarter 2011 compared to the national rate.
• Nine of the 10 markets, except for Honolulu, had higher vacancy rates in 2010 than the national rate of 13.1 percent. Cape Coral-Fort Myers, Fla., had the highest rate, at 37 percent.

from Inman News Weekly Headlines

In last month’s article, we reviewed financing options for investors to use in their businesses. The two options discussed were traditional financing and asset-based financing (also called a hard-money loan). This month, we will review additional options, including seller financing and lease options, debt partners, and equity partners.

The whole point of both of these articles is to show you that there are financing options that will allow you to capitalize on some of the best real estate deals you will see in your lifetime. Now is the time to be creating a portfolio of real estate that will pave the way for financial independence. Applying these principles will make getting out of the rat race easier than it ever has been.

Seller Financing/Lease Options

Seller financing and lease options are very viable strategies in today’s market as it allows investors an option to bypass financing altogether. Usually when we discuss creative financing techniques, like seller financing or lease options, people usually wonder if these techniques are commonly used and accepted by sellers. The answer to that is yes and no. Let us explain…

Yes, the techniques are commonly accepted. In fact, seller financing is commonly used with commercial properties and other types of real estate that are not easily financed through traditional means (mobile home parks, commercial buildings, etc). Although it is less common with single-family homes, it still happens when it is explained the right way. And that brings us to the “no” part of the answer.

No, they are not common because it is usually explained the wrong way. Most investors will simply ask the seller if they would be willing to carry the financing. Most sellers are not sophisticated enough to know what that means, so they will say “no,” simply because they do not understand. As an investor, part of your success will be based on how you present this to sellers. You would be better off saying something like, “If I were to make your payments on the home until I could find a buyer and cash you out, would that work for you?” or “Would you like cash, or more cash?” Either of these questions will open up the door for the conversation to go further. At that point, you can explain how seller financing or a lease-option works and they can make an educated decision.

When you are presenting seller financing, always frame the discussion around the benefits for the seller. These benefits include monthly cash flow from your payments, more money because of the interest on the loan, no more hassles of being a landlord, and the tax benefits. Tax benefits are a huge reason for people to consider seller financing. If the seller is selling a property where they are making a gain and it is not their personal residence, or if they have lived in the property less than two of the last five years, the seller must pay capital gains taxes. If the seller is receiving a lump sum of money from the sale, they have to pay capital gains taxes. When they are taking monthly payments from you on seller financing, they only pay taxes on the payments received and greatly reduce their capital gains tax. Or, if you are using a lease option, the title of the property has not transferred and it is not subject to capital gains until the property is purchased and title is exchanged.

The whole point of creative financing is to find a win-win scenario. When you construct deals that benefit both parties, you can produce great results by investing and you can also sleep well at night knowing that you have benefitted someone else.

Debt Partner

Most people think that a partner is a partner and there is not much difference between a debt partner and an equity partner. The truth is, that they are very different.

A debt partner is someone that partners with you by owning the debt of the property. In other words, they put up the money, and you are paying them a return in the form of interest on the loan. For the sake of clarity, let’s explain it this way…

When you buy a property through a bank and use traditional financing, the bank is your debt partner. They own the mortgage and expect you to pay them interest on the loan. They make money as the payments are made each month, regardless of how well (or poorly) the property performs. They make money by financing you and you repay them the interest. If the property goes up in value or receives more positive cash flow, they do not receive a greater return.

When you have a partner that puts up the money and they only want you to pay them interest on the money you are using, this is a debt partner. They do not have any ownership in the property. They own the financing behind the property. The property is their security in the event that you do not pay them. If payments are not made, they would have the right to foreclose and secure the property to recoup their investment.

What would make someone want to be a debt partner? It is all based on the return that they would get. Consider the options from their point of view. They could put their money in a CD at the bank and get a return that won’t even keep up with inflation. They could put it in a mutual fund or the stock market and get a lower return. Generally speaking, most mutual funds and index funds offer low rates of return. As a debt partner, they could finance the money on a property, get a fixed return in the 5-9% range, and have the property as security for their investment. That is a pretty safe deal for them when you consider their other options.

Equity Partner

The equity partner is different from the debt partner. Instead of owning the debt on the property, the equity partner owns a percentage of the property based on splits that are predetermined. Since there is not a fixed return (based on an interest rate on the loan) there is no guarantee that the partner will make money.

However, as the property increases in value or cash flow increases, their return increases as well. You will find that most people will prefer to have an ownership interest as it will also provide them a greater return.

When you are raising capital from other people, there are rules that you must comply with or you can get into trouble with the Securities and Exchange Commission (SEC). You will want to read up on Rule 506 for Regulation D on the SEC’s website. It will walk you through exactly what you have to do to be in compliance when raising capital for an investment.

The presentation to potential money partners is one of the most important aspects of raising capital. The presentation should ideally cover market conditions, the type of properties you will be purchasing, why you are able to provide a return, and how the return will be shared. If you do not adequately address all of these issues, then you will not be as successful raising money as you could be.

When you are working with money from your investors, you must be conservative and handle their money the way it should be handled. Provide them with an accounting of each fee, expense, and return. The worst thing you can do with a money partner is to not communicate with them. They will get the impression that you are trying to hide or run away with their money. That does not inspire a lot of confidence.

Raising capital is one way of being able to finance almost any kind of deal. Investors that are successful with equity partners will be able to take their business to the next level without investing any of their own money into the deal.

That is the whole point of these two articles on financing options. There are so many possibilities out there. It is just a matter of finding solutions for your deals. When you open your eyes to the possibilities, you will see that there are so many more options than just traditional financing.

from Rich Dad Education Newsletter

The White House recently announced significant changes that will reduce the fees charged for the Federal Housing Administration‘s (FHA) Streamline Refinance Program.

Beginning June 11, 2012, the Streamline Refinance upfront fee of 1% will be reduced to 0.01% of the total loan amount. And the annual fee will be lowered from 1.15% to 0.55% of the total loan amount.

By refinancing through this streamlined process, the average qualified FHA-insured borrower will save approximately $3,000 a year or $250 per month, on top of any savings from refinancing to a lower mortgage rate.

The “streamline” refers to the minimal amount of documentation and underwriting that needs to be performed. Streamline refinancing can be done without an appraisal or income verification, providing the person(s) on the loan hasn’t changed.

There are no loan-to-value (LTV) restrictions on streamline refinancing. This is significant for underwater borrowers whose loan amount may exceed the current value of their home. However, second liens must subordinate with a maximum combined LTV ratio of 115% based on the original appraised value of the property.

The basic requirements of a streamline refinance are:

• The loan must already be FHA insured and endorsed on or before May 31, 2009.
• Borrowers must be current on their mortgage payments with no late payment in the previous 12 months.
• The refinance must result in a lowering of the borrower’s monthly principal and interest payments.

Currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a 5% annual interest rate on their FHA-insured mortgages.

from Prospect Mortgage Industry Insider