P/E Ratio Of Your Investment Property

There are many formulas you can use to evaluate your investment property but what about how about to evaluate your property versus other investments? Welcome to the housing P/E ratio. The P/E ratio is commonly known in the stock market as the price to earning ratio. It's the (Price paid for the equity)/(Income-Expenses). Individual stocks in the market trade around multiplies of this.
There are a couple of great uses of the P/E ratio for your investment property.

• Comparison - You can compare P/E ratios with other investment properties around yours to see how profitable your property is compared to the compitition.
  


• Selling - When you are ready to sell your investment property, you can advertise this number as a selling point to interested buyers.

SOURCES:
Wikipedia. Real estate bubble

NEXT:

Area's housing market hottest in Northeast

According to The National Association of Realtors, the Buffalo/Niagara region is rated the hottest market in the northeast country. It acctually rates higher than percentage change than Las Vegas, Fort Myers and Chicago. The average percentage change of a home in 2009 has change by +4.8%.

SOURCES:
Robinson,David. Area's housing market hottest in Northeast. 10 November 2009.

NEXT: P/E Ratio Of Your Investment Property

Buying/Selling Hauted Housing

It's Halloween time and I thought that this posting would be very fitting for the rest of the month!

You wouldn't think, as a realtor, that just because a home is haunted, you would have to disclose it. YOU DO!! This is crazy but you have to disclose that the home is haunted. My question is, how do you prove it?

So what is a ghost? According to Pope-Handy it is "a bodiless human being seen here, in our world, after death". She states that there are three main types of ghosts in a home. First, those who reside in the home and have not crossed over shortly after death. Second, those who reside in the home and have not crossed over in the long term after death. Finally, there are those ghosts who have crossed over but are just visiting for a short time. If you are interested in purchasing a home that is haunted, you can visit a database dedicated to haunted homes San Diego Paranormal Research site.

There have been some court cases about haunted homes that have resulted in owners being forced to back out of contracts because they did not properly disclose that their home is haunted.

According to Wisconsin REALTOR Association in an article titled The Haunted House, you must disclose that the home is haunted if the ghost has caused physical damage. Also, the fact that it is haunted can cause the home value to decrease in value.

In Nyack, New York, the term, "ectoplasmic fraud" was used by the Stambovsky family when going to court against the Ackley family for purchasing a $650,000 home. Apparently, the Ackely's knew the home was haunted and never disclosed it to the Stambovsky family prior to closing. In 1997 Reader's Digest article titled "Our Haunted House on the Hudson", Mrs. Ackely says that the 3 ghosts were thought to date back to the Revolutionary War, a red-cloaked woman often seen demurely descending the staircase, a wandering sailor with a powdered wig and an elderly gentleman sitting in the living room suspended four feet above the floor. She also goes on and says, "Our ghosts have continued to delight us".
The Supreme Court ruled that you have to disclose that the home is haunted and awarded the Stambovsky family their money back from the purchase. This law now part of the "stigmatized property" laws in real estate according to an article written by Greg Brian.

Ultimately, you must disclose if the home is haunted before selling your home, this is according to legalzoom.com Ghoul Disclosure: Must Home Sellers Disclose Paranormal Activity?. If anyone can find a haunted home disclosure from that would accompany a contract for a haunted house please post it as a comment on this blog.

SOURCES:
San Diego Paranormal Research
Boyer, Mark. Legal guidelines for selling your haunted house. 29 October 2008.
Unknown. Challenges of Selling a Haunted House. 30 September 2009.
Wherland, Virginia. An Inconvenient Spirit: Selling Your Haunted House
Brian, Greg. Selling a Haunted House: A Satiric Real Estate Deal Based on the Famous Stambovsky Vs. Ackley Case. 20 October 2007.
Perkins, Broderick. Do You See Dead People? Disclose It. 23 October 2003.
Pope-Handy, Mary. Haunted Real Estate: A Primer for Real Estate Agents
Funaro, Susan . Ghoul Disclosure: Must Home Sellers Disclose Paranormal Activity?

NEXT:

Selling Your Home on Ebay

EBay.com is a great place to sell things. It offers exposure to markets that almost any other website cannot offer.

Selling real estate on Ebay is a great idea. It covers a vast audience in all parts of the world. Also, it allows people to bid on your home giving you a better idea of what people are willing to pay. You may also choose to place it on Ebay for a fixed price or place a reserve on a price. A reserve price is not published but allows for the seller to not take any bids lower than a certain amount. This is good because a potential buyer may bid higher that the reserve amount thus creating a greater profit. Lastly, the most beneficial reason to use Ebay to sell your home are the fees. The fees are well below a REALTOR fee for selling a home.

There can be some negative aspects of selling your home on Ebay. First, when you list your home on Ebay, a potential buyer is going to want to see the home in person. They are going to have to travel from out of town to see it. This might limit the amount of buyers of your home. Second, as a buyer, anyone can make false pictures and place them on Ebay for a listing. Lastly, as a buyer, the seller is not regulated to what information they disclose to you on the description. They can easily falsify the information. There also can be hidden cost to the property. According to a Wall Street Journal article called "Should You Buy or Sell A Home Through eBay?", a Chicago based writer bid on a time share and successfully won. When it came time to pay for the time share, the writer discovered that there was a yearly assessment fee which was not disclosed on the website. The writer ended up dropping out of the bid.


SOURCES:
Ebay.com. Ebay Real Estate Page
Farrell, Dan. Selling Real Estate on eBay
Vekselman, Peter. How Can You Go About Selling Real Estate On E Bay? 11 February 2009.
Koprowski, Gene J. Should You Buy or Sell A Home Through eBay?

NEXT: Landlord 101: 201(k) Loan

World's Tallest Building: Burj Dubai Tower

The Burj Dubai Tower in Dubai is the worlds largest building and officially opening December 2, 2009. It hosts hotel guests, the worlds largest mall, commercial and residential real estate and 16,000 parking spaces in the basement.

Emaar Properties spent $4.1 billion to own Burj Dubai Tower (I wonder if Bank of America would give me a home loan for that? And get the tax credit?). This massive building stands 2,640 feet tall dwarfing the current tallest building, The Willis Tower (which was named the Sears Tower) by 1,190 feet. The Samsung Corporation from South Korea made the tower from glass, aluminium, concrete and steel.

Currently, if you would like to buy an office space, you are going to pay $4000 per square foot! Also, an apartment can go for $3500 per square foot!

The Burj Dubai Building

If you would like more information, you can visit the official Burj Dubai web site.


SOURCES:

Gizmag Team. World's tallest building and largest mall announced
Unknown. Burj Dubai
Unknown. Willis Tower

NEXT: Selling Your Home on Ebay

Types of Insulation

There are many types of insulation that you can buy for your home. The type I will be discussing will be blanket or batt and roll insulation. It's commonly made of fiberglass and can be rolled into place. It typically also has a facing that serves as a barrier between water and the insulation and it also can fire resistant.

Insulation is usually classified into thermal resistance values or R-Values. These can range between R=11 and R=38.



SOURCE:
U.S. Department of Energy. Blanket (Batt and Roll) Insulation.

NEXT: World's Tallest Building: Burj Dubai Tower

Purchasing a p.o. box

A landlord should always have a p.o. box to send stuff to. The following are a few reasons to have a p.o. box:

1. It places a buffer between you and the.
tenant. The last thing you need is a tenant
to knock at your door when something is
wrong.
2. It ligitimizes your business. If mail is sent
to your home, it doesn't look to
professional. This separation between you
and your business allows for privacy.
3. Its a tax right off.

Typical boxes can range between $60.00 - $100.00 per year for a 3 IN X 5.5 IN box. Of course they can be priced higher for larger sizes. You can find these prices at the United States Postal Service website by typing in your zip code.

SOURCES:
United States Postal Service

NEXT: Types of Insulation

Niagara County Home Sales Report

According to Realist.com, single family home sales in Niagara County during the months of July and August have gone up 8% from $95,200 to 102,900.

Sales Statistics for NIAGARA County NY

Realist's most recent recording date for this county is 09/18/2009 for Single Family Residence.

Time Period	Number of Sales	Median Sales Price
Aug 2009	416	$102,910
Aug 2008	207	$100,000
Jul 2009	436	$95,200
Jul 2008	220	$105,000
2009 YTD	220	$105,000
Jul 2008	220	$93,400
2008	1,887	$100,000

SOURCES: Relist.com. 18 September 2009.

NEXT: Purchasing a p.o. box

410(k) hardship and ROTH IRA to Purchase Home

There are people who always ask "How do I find the money for a down payment to purchase a home?". The answer: YOUR 401(k)!

You 401(k) is a very valuable savings account. You may withdrawal the money for medical problems, foreclosure, education and to purchase your first home.

Lets say that you are 100% vested. You may withdrawal your entire 401(k)k account to purchase a home. There are tax penalties for doing this, however, you may have these tax penalties deferred until you file your taxes. You may elect to have taxes taken out at the time of the withdrawal but you may also have taxes taken out when they are due in April. The penalty is 20% and possibly another 10% of the total withdrawal. This is not that bad considering you will pay around a 30% income tax anyways. Also, you might not be able to contribute to your 401(k) plan for 6 months. You might want to consider a hardship withdrawal for purchasing your new home. Consult your human resource department before making any decisions.

Another way to use your 401(k) is to take out a loan to purchase a home. Your 401(k) plan may offer a loan that can be paid back much longer than the typical 5 years. This is a better option than a hardship loan but you are only allowed to take a loan for half of the amount that you put in and half of your vested amount. A drawback from this is that sometimes your employer only allows for one loan at a time. So if you were to take out a loan today and three years from now you needed cash for an emergency, you would not be able to get it unless you paid back the first loan.

Your ROTH IRA is a second choice to take money from to purchase a home. Throughout the life time of your ROTH IRA, you are allowed to withdrawal up to $10,000 to purchase your first home with no penalties. To qualify for the no penalty status, you need to have the account open for 5 years or you will have to pay a 10% penalty for early withdrawal.

When you read all of the so called experts, they will say don't touch your retirement egg. THAT'S CRAP!! In my opinion, if you were to withdrawal the $10,000 from the ROTH IRA then take a $20,000 10 year home loan from your 410(k) to purchase your first home is the best bet for a few reasons:

• Why pay rent when you can own? Instead of paying someone else rent, you could be paying yourself equity every month. When the home is payed off you will have an asset worth 10 times your initial investment or 1000% return. A ROTH IRA and 401(k) can not offer these returns. In the article by Erin Burt titled "Why you need a Roth IRA", her example of a person who is 25 paying $5000 per year at 8% is only 7 times your money or 700% return to make $1.4 million by retirement.


• Diversification. By purchasing a home, you are diversifying your assets which is always good. You are not just exposed to the stock market with your Roth IRA and 401(k), you are now exposed to the housing market. This exposure is great during years of high inflation because it creates high appreciation of your home.


• Income generating! If you are ready for the landlord life, you are also adding an advantage because you are now letting someone else pay for you home or part of it instead of you. Yes, a multi-unit apartment also counts as a first time home purchase. So, if you were to put the $30,000 into the pot as stated above and let your tenants pay for the mortgage, in the end you will have put $30,000 in an get $400,000 out just by appreciation of the apartment. That's 13 times your money or just over 1300% return.

Personally, I have done all of these at once to purchase a home. I think it is great! I would take the ROTH IRA withdrawal first then the 410(k) loan. Please consult a financial advisor first before withdrawing any monies from your accounts.

SOURCES:
Kennon, Joshua. 401K loans and 401k hardship withdrawals: Accessing Your Retirement Money.

Burt, Erin. Why You Need a Roth IRA. 19 March 2009.


NEXT: Niagara Home Sales Report

Air Freshner for Furnace

Landlords! There is a product that makes your apartments smell fresh! 6'6 pads that fit over the furnace filter available in scents such as french vanilla and ocean mist. This might sound like just another budget exhausting product but when you are ready to rent an apartment, you might consider running the furnace fan with one of these pads on it to freshen up the apartment. This will make it that much more easy to sell the apartment.
These pad are available at Walmart, Home Depot and on the Internet for between $3.50-$5.00 a piece.

SOURCES:
Doitbest.com scented furnace air filters.
Home Depot scented furnace air filters.

NEXT: 410(k) hardship and ROTH IRA to Purchase Home

Extension of Home Buyer Credit

There have been people asking me if the home buyer credit is going to be extended. The Senate, on September 16, 2009 introduced a bill that would do just that until June 1, 2010. How likely will this extension pass? According to an article written in U.S. and World Report dated September 18, 2009 titled "Will the $8,000First-Time Home Buyer Tax Credit Be Extended?, there is a 75% chance. As a REALTOR, I totally endorse this bill because it allows for an incentive to purchase a home for a buyer. The following article was taken from Bloomberg.com about the home buyer credit extension.

Homebuyer Tax-Credit Extension Gains Lawmaker Support (Update1)

By Dawn Kopecki

Sept. 16 (Bloomberg) -- An extension of the $8,000 U.S. homebuyer tax credit is gaining support in the Senate as bill sponsor John Isakson said he is rallying lawmakers to continue a program that helped boost home sales by more than 1 million.
“I’m working the floor now to make everyone aware that the $8,000 credit sunsets on Nov. 30,” Isakson, a Georgia Republican, said in an interview today. The former real estate executive says he is “talking to everybody and anybody.”
Realtors, bankers and homebuilders have joined in the push, starting a campaign that encourages Congress to extend the program for one year with the tag line: “Don’t Let America’s Real Estate Recovery Expire.” Executives including Fannie Mae’s Michael Williams and Hyperion Partners LP’s Lewis Ranieri have attributed improvements in home sales and prices to the credit, and Isakson said he is worried the market may suffer without it.
“If you take that kind of business out of what’s already a very weak housing market, you do nothing but protract and extend the recession,” Isakson said. December “marks the beginning of the historical worst time for home sales,” he said.
White House spokesman Robert Gibbs told reporters today that President Barack Obama’s economic team is looking at the tax credit and “evaluating the impact” on new home sales.
“Through that evaluation we’ll come to something to give the president a recommendation,” Gibbs said.

A Tough Sell

Isakson’s legislation would extend the program through the end of 2010, almost double the credit to $15,000 and remove restrictions that prohibit individuals who already own homes or earn $75,000 -- $150,000 for couples -- from getting the tax break. The bill, first introduced in June, failed in a 47-50 Senate vote in August.
The bill has at least 15 co-sponsors including Senate Banking Committee Chairman Christopher Dodd, a Connecticut Democrat, and senators Patty Murray, a Washington Democrat, and Joe Lieberman, a Connecticut independent.
Mark Weinberger, an Ernst & Young LLP vice chairman who negotiated President George W. Bush’s tax cuts while working at the Treasury Department in 2001, said extending the homebuyer credit will be a tough sell in Congress with budget deficits exceeding $1 trillion.

“Even the most routine extenders are going to be under additional scrutiny,” he said, referring to a collection of dozens of other temporary tax breaks that are renewed every year or so. “Even if it’s extremely popular, it’s going to have to be matched up with something unpopular” such as a tax increase on other Americans to pass, Weinberger said.

“You can’t take it for granted in the current budget situation,” he said.

Effect on Sales

Existing home sales jumped 7.2 percent in July to the highest level in almost two years, while new home sales increased 9.6 percent, according to Realtors and Commerce Department data. An S&P/Case-Shiller index of homes prices in 20 U.S. metropolitan areas showed the first month-over- month increases in values since 2006 in May and June, reducing the average decline from the 2006 peak to 31 percent.
“It is having an impact in lifting sales and reducing inventory, which will help stabilize home prices,” Lawrence Yun, the National Association of Realtors’ chief economist, said in an interview. “Stabilizing home prices is key to economic recovery, because that means bank balance sheets will not bleed and consumer confidence will improve.”

Yun estimates that about 350,000 home sales through August were directly attributable to the tax credit, which has been used in 1.2 million home purchases so far this year.

Tapering Off

The Realtors group teamed up with the Mortgage Bankers Association and National Association of Home Builders in buying advertising this week and next in Washington newspapers including Roll Call and Politico.
Because most loans take as long as 60 days to process, mortgage bankers worry that volume will start tapering off early next month, said Steve O’Connor, the chief lobbyist for the Mortgage Bankers Association. “At some point, they’re going to stop taking applications on tax-credit loans unless the tax credit is extended,” he said.
Ranieri, a mortgage bond pioneer at New York-based Salomon Brothers in the 1980s, said in a Sept. 15 interview that the tax credit has helped, along with other government programs, in stabilizing the housing market.
Prices on homes financed by Fannie Mae and Freddie Mac were up last quarter, attributable to borrowers taking advantage of the $8,000 credit and more affordable home values, Williams said in a Sept. 9 speech in Washington.

To contact the reporter on this story: Dawn Kopecki in Washington at dkopecki@bloomberg.com.

Last Updated: September 16, 2009 17:34 EDT


SOURCES:
Kopecki, Dawn. "Homebuyer Tax-Credit Extension Gains Lawmaker Support (Update1)". 16 September 2009. Bloomberg.com.

Mullins, Luke. Will the $8,000 First-Time Home Buyer Tax Credit Be Extended?. 18 September 2009. Usnews.com.

NEXT: Air Freshner For Furnace

Condominiums

Condominium's or condos are a special type of real property. By definition according to Spada, a condominium is a structure of two or more units. The interior space of the unit is separately owned while the exterior or common elements are owned by the owners of the units. An example of a common area are recreational rooms, pool rooms, outside patio and laundry room.
When buying a condominium, there are three major elements that need to be considered before purchasing.

• Owner's Association - An owners association is created to take care of day-to-day operations of the building's common areas such as maintenance, taxes and any other charges. They are board members who are elected by the owners of the condos. Dues must be paid every month to the owner's association to help pay for maintenance and any other expenses that may come up. The association is also responsible for collecting reserves for major maintenance issues such as new roofs or repaving the parking lot. For more information on Owner's Association please visit Rental Housing Online.


• Bylaws - Bylaw's are rules of the building. They are recorded with the deed. They dictate how management will be determined, how association fees will be collected and how personnel will be hired. To see an example of bylaws click here
.

• CC&R's - Covenants, conditions and restrictions tell an owner how they can alter their condo. These are in place to help protect the investment side of owning a condominium. For more information please view What are the CC&R's?.

According to Wiedemer, there are some significant advantages and disadvantages of owning a condo. A major advantage decreases taxes for owners by a significant amount. Usually, condos include common areas such as pools and recreational rooms that individual homes may not provide. Disadvantages of owning a condo are close proximity of a neighbor. Individual homes provide space between homes thus creating more privacy. Decisions are made by a group of people (board of directors) instead of the the individual owner. This could be a problem because priority is placed high with some items and low with others.
When buying a new condo that is not yet constructed, an individual will sign a letter of intent. This letter will state where the deposits are held. It is a smart idea to place them in an escrow account rather than let the owner keep them. When the owner keeps them, they may use that money for construction costs now and may not refund them if the project was not completed. If the deposit is placed in escrow, the deposit will be refunded and the owner may not use them for anything.

To view a sample condominium contract click here.

SOURCES:
Wiedemer, John. Real Estate Finance. 8th ed. pp. 436-443.
Spada, Marcia. New York Real Estate for Salespersons. 2009. pp.470-473.
Community legal resources. Sample Condominium Bylaws.
RHOL.com. Condominium Owners Associations.
Realtor.org. What about the CC&R's?.

NEXT: Extension of Home Buyer Credit

Investor 101: Home Office Deduction

Part of your business is making money or profits and the other half is protecting as much of those profits as possible by using tax deductions. One such deduction is the home office deduction. The home office deduction allows you to take a portion of your home or apartment and deduct it as a write off against any profits. This is done by the following example:

Suppose your work office at home is a 10 X 10 room equaling 100sq ft. Now suppose that the total square footage of your house of apartment is 1000sq ft (for simplicity). Since this office space in your home or apartment is 10% of the space, then you may deduct 10% of all utility bills, Internet bills and any improvements you may have done on the house as a 'Home Office Deduction'. This space is only defined as livable space meaning kitchen, dinning room, living room and any other rooms. It does not include any bathrooms, closets, attic or basement space.

When claiming this space, you may now also claim any mileage to and from your office that is related to work. The mileage adds up quick and will be a nice portion of your tax write off.

Please remember to consult with your account or tax advisor for more details on the home office deduction! The book used as reference was featured in April 2009 "Book Review: Every Landlords Tax Deductions".

SOURCES:
Fishman, Stephen. NOLO: Every Landlords Deduction Guide. November 2008. ed 5.

NEXT: Condominiums

What Comes with a Home Purchase?

Ever wonder what comes automatically with a home that you might purchase? Here is an excerpt from a contract section 3D,E,F:

D. Fixtures and Other Items. Unless excluded in Paragraph 3(F), the following items are included:

• (1) All buildings and improvements.



• (2) All fixtures and property attached or appurtenant to the land, buildings and improvements including: all heating, air conditioning (except window units), plumbing (including septic systems, well pumps, water pumps, sump pumps, water filtration systems and water softeners), electrical and mechanical systems (including hard wired electricity generators); plumbing fixtures; lighting fixtures (including bulbs) and landscaping (except free standing planters); storm windows, storm doors, screens and awnings; exterior T.V. antennas and satellite dishes; garage door openers; weather vanes; window boxes; fences; underground electric pet fencing and equipment; flag poles; in-ground or garage mounted basketball backboards and poles; wood-burning stoves, oil and gas fired space heaters, fireplaces, fireplace inserts, screens (including free-standing screens), grates and glass enclosures; wall to wall carpeting and attached runners; linoleum; garbage disposals; ceiling fans, exhaust fans and hoods; security systems; intercom systems; central vacuuming systems (including all hoses and attachments); smoke detectors; carbon monoxide detectors; mirrors; window shades, curtain rods and traverse rods; all styles of window and door blinds; cabinet and wall-mounted appliances; and all motors, transmitters, receivers, controls, system operation keys, remote units and all component parts.



• (3) If presently on the Property and unless free-standing, all cabinets, shelving, dishwashers, refrigerators, ovens, ranges, microwave ovens, trash compactors, humidifiers, dehumidifiers and air filtration systems.



• (4) All of Seller’s rights in and to public and private streets, highways, alleys, driveways, easements and rights of way.



• (5) All of Seller’s rights to receive all future rents and royalties due under any lease, agreement or tenancy.

E. Included Items. Unless excluded in Paragraph 3(F), the following items are included:
___________You May Add More Items Here. ____________________

• If presently on the Property, all mailboxes, utility sheds, gas operated post-type outdoor grills, swimming pools/hot tubs/spas and related equipment, outdoor play sets, and matching kitchen islands.


• All appliances set forth in Paragraph RPR1, if applicable, and

F. Excluded Items. The following items are excluded from this sale: furniture and household furnishings; and also
___________You May Add More Items Here._____________________
.
SOURCES: Residential Contract

NEXT: Investor 101: Home Office Deduction

Housing Report

According to realist.com, in Niagara County during June 2009, 317 single family homes were sold averaging a price of $107,000 which is down from $124,000 a year ago. The good news is that from May 2009 to June 2009, the average price of a home has risen from $100,000 to $107,000 and demand has picked up about 40% from 226 homes sold in May 2009 to 317 homes sold in June 2009.

Erie county, however, shows very strong month-over-month home price increases. From April 2009 to May 2009, housing prices have gone up from $117,500 to $127,000. This is due in part because of demand rising from 443 single family homes sold in April 2009 to 631 homes sold in May 2009. From May 2008 to May 2009 year-over-year sale prices have increased about 1.6% to $127,000.

In both Erie and Niagara County however, the average price for a home has decreased.

*Realist.com is a database (First American CoreLogic database) of housing data for a specific region. The First American CoreLogic database contains data for each property in counties throughout your MLS region. The database combines assessor data, recording data (sales and mortgages), property owners' mailing addresses and phone numbers, census tract numbers and latitude and longitude for each property.


SOURCES:
Realist.com

NEXT: What Comes with a Home Purchase?

Forms of Ownership of Real Property

There are two residential forms of ownership of a property: Estate in Severalty and Co-Ownership. Co-Ownership is then divided into two types: Tenancy in Common and Tenancy by the Entirety.

• Estate in Severalty -
If on person owns a piece of property, it's interest is 'severed' from other owners.

• Co-Ownership - Ownership of two or more people takes this form of ownership. For co-ownership to be recognized, there must be one or more of the following unities that must exists: Unity of Time, Unity of Title, Unity of Interest or Unity of Possession.
  
  - The unity of time exists when all owners of the property receive the title at the same time.
  - The unity of time exists when all owners have the same types of ownership.
  - The unity of interest exists when all owners have the same percentage of ownership.
  - The unity of possession exists when all owners have the right to the property without limitations.





1. Tenancy in Common - Title of the property is held at the same time by all owners. When an owner dies, their shares are inherited by who is stated in a will. This is known as no right of survivorship. An owner may sell their share of the property without permission by the other owner(s).


2. Tenancy by the Entirety - This type of ownership allows for the right of suvivorship. When one owner dies, the other owner will automatically receive all portion of the deceased owner. In New York State, this type of ownership can only be achieved by marriage and must contain all unities listed under co-ownership. When a divorce happens between the owners, tenancy by the entirety automatically converts to a tenancy in common.

SOURCES:
Spada, Marcia. New York Real Estate for Salespersons. 2009. pp.103-107.

NEXT: Housing Report

Forms of Deeds

A deed is used to convey title to a piece of real property. There are four types of deeds that will be discussed: Full Covenant and Warranty Deed, Bargain and Sale Deed, Quitclaim Deed and Judicial Deed.

1. A full covenant and warranty deed has the most warranties offered of any deed form and contains six covenants.
   
   
   
   1. Covenant of Seisen - This covenant ensures that the deed being conveyed to the grantee is the one on the title.
   
   
   2. Covenant of Right to Convey - allows the grantor legally to convey to the grantee.
   
   
   3. Covenant Against Encumbrances - Conveys that the property is free of all encumbrances.
   
   
   4. Covenant of Quite Enjoyment - Allows the grantee to freely and quietly enjoy the property without any disturbances.
   
   
   5. Covenant for Further Assurances - This ensures that the title, if defective, will correct any defects before handing it over the the grantee.
   
   
   6. Covenant of Warranty - Grantor will defend the title against any lawful claims.
   
   
   
   


2. Second, the bargain and sale deed, may or may not be with covenants of warranty. This type of deed has some but not all warranties.


3. Third, the quitclaim deed has no warranties. It just releases the title. These are used to clear up any damage on the title. An example of this is when there is an auction by a county or city of properties. They execute a quitclaim deed to sell the property.


4. Lastly, a judicial deed has no warranties other than there is no encumbrances on the property. There are many types of judicial deeds such as guardian's deed, sheriff's deed, referee's deed and tax deed.

SOURCES:
Spada, Marcia. New York Real Estate for Salespersons. 2009. pp.125-129.

NEXT: Forms of Ownership of Real Property

Dating the Hot Water Tank and Furnace/Boiler

Ever wonder the age of a furnace or hot water tank of a home that you would like to buy? Well now you can!

According to bobvila.com, the age of the furnace is located on the nomenclature. The date is the last 2 digits and the year is the letter (A=January, B=February, etc..).

NOMENCLATURE


The hot water tank is very similar with the first two digits and last letter. The website Buyerschoiceinspections.com provides a great directory to look up age of the hot water heater.
HOT WATER TANK



There are also websites you can go to to figure the ages out such as inspectapedia.com

SOURCES:
Unknown. Bobvila.com. Community: Heating and Air. March 11, 2009.
Buyerschoiceinspections.com. Determining Water Heater Age


NEXT: Forms of Deeds

Types of Mortgages

There are many types of mortgages you can get from a bank.

• Amortized Mortgage - This type of mortgage allows someone to pay a payment by installment payments. The interest rate is fixed and payments can only decrease. The interest is payed first then the remaining part of the payment reduces principle. Every payment, the interest is reduced because there is less of a balance that is charged interest. This is how your typical home loan works. FHA loans are only written as amortized mortgages.


• Straight Mortgage - Interest is only payed for a specified amount of time then payment of the principle is due. This is also known as an interest only loan.


• Adjustable Rate Mortgage (ARM) - This type of loan behaves just like an amortized mortgage except that the interest rate is a variable rate. The interest rate is determined by two variables: a standard index and margin. They are added together every month to decide the interest rate. Usually there is a cap rate which limits how much the interest rate can positively or negatively vary.


• Graduated Payment Mortgage (GPM) - Payments during the beginning of the pay back period are lower and gradually get larger during the mortgage term.


• Pledged Account Mortgage - Payments are made in conjunction with money in a bank account.


• Open-End Mortgage - This type of mortgage usually allows the owner to be advanced money from the equity of the house. This is typically known as an equity line of credit and is limited to the amount of the equity of the property minus a percentage.


• Blanket Mortgage - A blanket mortgage is usually a commercial mortgage that allows a borrower to use two or more pieces of land to pledge as collateral for the purchase of another piece of property. This type of mortgage has a clause in it called a 'release clause' allowing pledged land for the mortgage to be released as the mortgage is reduced.


• Wraparound Mortgage - allows a buyer to pay the seller while the seller pays on the original mortgage.


• Swing/Bridge Loan - Allocates monies above and beyond the original loan until more permanent financing is available. A swing loan uses the equity in one property to obtain another property. A bridge loan allows a buyer to obtain a property without selling another property.


• Construction Mortgage - This type of funding is reserved for improvements on a property and is usually short term.


• Reverse Annuity Mortgage - The bank give payments to an owner of the property in exchange when the property is sold, then this debt is payed back at once.

For a mortgage calculator go to Mortgage-Calc.com

SOURCES:
Spada, Marcia. New York Real Estate for Salespersons. 2009. pp.236-241.
Wiedemer, John. Real Estate Finance. 8th ed. 2001. pp. 86-92.

NEXT: Dating the Hot Water Tank and Furnace/Boiler

Steps for Buying a Home

When buying a home, there are steps involved that must be taken to ensure a smooth process.

1. Getting pre-approved
This is the first step and most important. If. you don't get
approved, you can't buy. To submit a contract for a house, part of the
information submitted is the pre approval. This make your bid that much more
stronger. Also, by getting a pre approval, you as a buyer know your price range.

2. Looking at houses

3. Submitting a contract or bidding
Submitting a contract is very simple but contains a lot of new information.

4. Negotiation
Negotiation is necessary and sometimes drawn out. Always ask for a concession
when asked to give one up. Once the negotiation ends, then a signed copy of the
contract by both parties is submitted to the lawyers

5. Home inspection
The home inspection is known as the deal breaker. A more detailed inspection is done by a professional. If there is something wrong, then negotiations start again. Make sure a copy of the inspection is obtained. A home inspection may be waived by the buyer.

6. Final walk through
A final walk through is done by the agent and buyer. This is done to ensure that
what you bought is what you are getting.

7. Closing
This is process of buying the house. The title is transferred to the new owner.
This process can take an hour or so and there are a ton of documents to sign.

8. Move in!


NEXT: Types of Mortgages

The Law: Short Sales

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.

An article entitled Short Sales: 7 Legal Pitfalls " by Robert Freeman published in April 2009 explains how a Realtor has to protect themselves legally against misrepresentation, taxes, fraud and more.

Sources:
Freeman, Robert. Realtor.org. Short Sales: 7 Legal Pitfalls. April 2009.

NEXT: Steps for Buying a Home

Water Rights

Water rights can be a concern for a buyer and seller. A seller can add value to their house if the land has water rights and the buyer would pay more money for a property that has water rights.

There are two types of water rights: raparian and littoral rights. Raparian rights are rights given to an owner who is bordering a flowing body of water such as a stream. Littoral rights are given to an owner who is bordering a fixed body of water such as a lake. Remember this is only an encomberance, the right to access, and not the ownership right of the water itself.


SOURCES:
Spada, Marcia. New York Real Estate for Salespersons. 2009. p.97.

NEXT: Estates in Real Property

The Law: Cancelled Deal = No Pay!

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.

An article entitled "No Pay for Cancelled Sale" by Mariwyn Evans published in January 2009 explains that if a seller is under contract and decides to back out, they agents are NOT entitled to the commisions.

SOURCES:
Evans, Mariwyn. Realtor.org. ""No Pay for Cancelled Sale". January 2009.

NEXT: WATER RIGHTS

Title Insurance

Title insurance, according to Spada, insures the buyer of the property against any title defects. This can usually run about $300 and up. When purchasing a house, title insurance is covered in part 11 "Status of Title" and ATC5 (Addional Terms and Conditions). The cost will be located on a form called HUD1 line 1108. Title insurance does not cover property damage, it covers anything that is not discovered on the title itself due to recording errors. It will compensate the mortgage company and borrower the total cost of the real estate and any legal fees.

Title insurance originated in an 1868 case, Watson v.s. Muirhead. Muirhead lost his investment because of a lien against the property. Watson discovered the lien, which his lawyer determined was not valid, but did not report it to Muirhead. The case was determined that Watson was not responsible. As a result of this, in 1874, a Pennsylvania Legislator allowed for title insurance companies to be incorporated.

Fee insurance is a form of title insurance that goes above the purchase amount. In hot markets, the time between agreed to price and closing could result in the house to rise in value. Fee insurance would then cover this amount if you should need to exercise the title insurance. At closing to prove the value of the house, a second appraisal would need to be done.

SOURCES:
Spada, Marcia. New York Real Estate for Salespeople. p.136. 2009.
Unknown Author. Wikipedia. Title Insurance in the United States.


NEXT: The Law: Cancelled Deal = No Pay!

Treasury Bills and Mortgage Rates

Ever wonder how mortgage rates are determined? The treasury bills or T-bills dictate the mortgage rates. The t-bill is typically called the yield and when they go up, so do mortgage rates. This makes sense because when the Federal Reserve raises rates, the treasury increases causing short term mortgage rates to rise. Specifically, adjustable rate mortgages are determined by short term treasures and long term treasuries, such as the 10 or 30 year, determine the long term 30 year mortgage rate. The following graph is taken from the federal reserve of San Francisco.



Currently, the mortgage rates are very low around 5.35% for a 30 year fixed rate mortgage according to mortgage101.com

Mortgage-X.com. Treasury Market and Market Rates.

Federal Reserve Bank of San Francisco. What is the relationship between the discount rate and mortgage rates? 6/2002.

Bankrate.com. Treasury Bills


NEXT: Title Insurance

Encumbrances

An encumbrance is the right of way to another by the owner. There are many types of encumbrances such as liens, easements and equitable servitudes.

• A lien is a financial tie to the property such as a judgment or mechanics lien. Liens can be voluntary (mortgage), involuntary (mechanics lien), general (judgment) or specific (mechanics lien).
  
  A mechanics lien is a lien that is placed against the house for services not paid for such as a roofer. The reason this lien is specific and involuntary is because it is only attached to the house and not the the person and their other assets. It is involuntary because the owner didn't ask for it to be on the house. Usually it is placed on the house via the court.
  
  Liens take a priority as of the date that they are filed. The only exception are property taxes. If there are any unpaid taxes on the house, they jump ahead of all liens such as a mortgage and become number one on the list of liens. This is why you pay property taxes as part of your mortgage payment.


• Second is an easement. An easement is the right to go on, over or under the land. There are four types of easements: Express grant, reservation, implication and prescription.
  
  An implied easement is by necessity. A landlocked piece of property, for example, need to be accessed by a road which will be located on another property. This easement would be granted because there is no access unless you travel on the private property.
  
  You can also grant a license for someone to use your land to access another piece of land. An example of this is a house which is located on the beach. The owner may issue a license to those who wish to access the water via his property. A license is personal and cannot be carried to the next person. Permission must be given to each person wanting access.
  
  Easements cannot be terminated even if the owner dies. They are part of the property and not the owner.


• Lastly, equitable servitudes are those people who wish to go beyond their powers and control how the land is used. If you would like to build a store in a residential area you will have to ask permission from the zoning board to change the property zoning from residential to commercial.

SOURCES:
Cusack, Thomas. NYS Salesperson Workbook.

NEXT: Treasury bills and Mortgage Ratges

The Law: Home Warrenties

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.

An article entitled "New Home Warranties: The Basics" by Andrew Dick published in March 2009 explains why, as a Realtor, you might want to prepare yourself for questions about the home warranty of a newly constructed home and what recourse your clients have if the home is faulty.

SOURCES:
Dick, Andrew. Realtor.org. ""New-Home Warranties: The Basics". March 2009.


NEXT: Encumbrance

PMI (Private Mortgage Insurance)

PMI or Private Mortgage Insurance is a fee that must be paid if the owner has initially placed less than 20% down of their mortgage. It usually ranges between $10.00 - $100.00 per mortgage depending on the sales price. Usually a FHA loan requires this because the new owner only places 3.5% down and would need another 16.5% down to override the PMI payment. The reason why you pay PMI for less then 20% down is because it is shown that those who put less then 20% down are more likely to default then those who place more equity down.

To cancel PMI you must either:

1. Place 20% down for your original down payment.

2. Once you have paid 22% of the loan back, then automatically PMI is cancelled.

3.Wait until you have 20% equity in the home, which could be as early as two years, and have an assessment down to prove the 20% or more equity in the home. This is usually done in hot markets as houses appreciate.


SOURCES:
Outfamilyplace.com. Understanding PMI
hombuying.about.com. How to eliminate PMI


NEXT: The Law: Home Warrenties

Steering

As Part of the Fair Housing Act of 1968 race, religion, color and/or national orgin were considered discriminatory. Steering, which is a form of discrimination, is a violation of the fair housing laws of the United States. Steering, according to Spada, occurs when Realtors direct their clients to specific areas of a municipality according to their race, religion or ethnic background to avoid integration into other areas that do not have that particular race, religion or ethnic background. Some example are:

1. Showing a white couple houses in only white neighborhoods.
2. Showing a Polish couple only houses in a Polish neighborhood.

To test Realtors, the government may send out testers who give false information to buy a house of rent an apartment. According to DeVise, the court case Havens Realty Corp. v. Coleman (1982), the supreme court allowed testers who give false information to sue unethical Realtors who practice steering.

The following are ways that Realtor.org suggests to avoid steering: 6 Ways to Avoid Illegal Steering.


SOURCES:
1. Realtor.org. 6 Ways to avoid illegal Steering. April 2009.
2. Spada, Marcia. New York Real Estate for Salespersons. pp. 361-367. 2009.
3. DeVise, Pierre. Steering. The Electronic Encyclopedia of Chicago.


NEXT: PMI (Private Mortgage Insurance)

Online Real Estate Radio

There are a few Real Estate Radio online such as The Real Estate Guys and Real Estate Today. A side variety of programming has been offered such as investing in other states, tax strategies and using the tax deferred exchange or 1031 exchange. These radio shows allow you to participate in them by blogging and calling into the show. You may also pick up the podcast and watch a live taping of the show. They have also have had some notable guest such as The Real Estate Guys hosted Robert Kiyosaki.

So if your at work or at home, try to listen to any of these live feeds and you might just learn something.

NEXT: Steering

Advertising Online: PPC v.s. Organic

Advertising is a needed tool for your real estate website. How else are potential clients going to find your products? According to Lisa Balmes's blog called Advertising...Internet v.s Print, she states that 80% of potential clients go to the Internet to find a home. In my opinion, in the near future, clients will turn to their smart phones to find properties.
When advertising on the Internet, there are two main ways: Organically or PPC (Pay Per Click). Both ways are uniquely effective.

Organic advertising is very simple. You would pay an advertising company such as google for this service. An add would appear usually on the upper and right part of the screen. This type of advertising can be controlled by a budget. On google adwords, for instance, you can use adwords to set your advertisement up. You can set a limit for google to spend every month no matter how many clicks you will get by the advertisement.

PPC or pay per click advertising is very simple. Every time someone clicks on your add, you have to pay. This type of advertising can be directed to a specific audience such as: Ages between 21-40 who work at Walmart that live in North Tonawanda, NY. Facebook advertising is a great example of this type of advertising. With facebook, you can set the amount of money you are willing to pay a page to advertise your add. Advertising your add involves key words that are placed in the meta data of the script related to your advertisement. This is a great way to nail down a specific demographic. One negative aspect of PPC is that it can be abused. Your competition, for instance, can click on your add repetitively and you could pay the price.

According to WebProNews.com, investors who take part in organic advertising will get more bang for their buck. There are two reasons for this:

• People use search engines more versus adds so you will get more traffic that way.


• You can pay a company to give your link a more popular rank amongst the competition.

SOURCES:
Wikipedia. Pay Per Click.
Hockin, Matt. WebProNews.com. Organic SEO vs. PPC Advertising. 15 Novemeber 2004.

NEXT: Treasury bills and Mortgage Ratges

The Law: Pesonal Injury on a Showing

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.
This article, written by Freedman, is very interesting. According to a court in Indiana, a realtor and owner is not responsible for injuries while showing a home. A Realtor only has the responsibility to warn clients of potential property damages and not obstacles.
Law and Ethics: No Liability for Client's Injuries


SOURCES:

Freedman, Robert. www.realtor.org.No Liability for Client's Injuries. June 2009.

Book Review: Joy at Work

Bakke's book, entitled "Joy at Work" is a great management book about how employees provide great insight on how to run a company. He explains that management doesn't always have all the answers or hands-on experience to fix problems. In my opinion, this is a must read for every manager wanting to enhance their managerial skills. He not only shares the principle used to solve a problem, he then follows up with the real world experiece with results. The following is a book description from Amazon.com:

Amazon.com Review
Dennis Bakke was co-founder and eventually CEO of AES, a large energy company which grew to over $8 billion in annual revenue and over 40,000 employees. Bakke's Joy at Work is in part, a CEO memoir, as it chronicles AES's growth, complete with anecdotes about boardroom confrontations, employee relations, and new openings of production facilities. Joy at Work goes beyond the standard business tale, though: Bakke believes in moral values as ends in themselves, as opposed to means towards the end of greater financial return, and he's not afraid to say it.
A number of authors in recent years have made the case that companies which embody humanistic values, and which nurture uplifting cultures, come to house happier, more productive employees. "Values" should be embraced, the argument goes, because they lead to better business results. Bakke shuns such thinking. He wants "values" for values' sake--because he believes they are an integral part of the human experience, and one that daily work should incorporate. He argues that financial return is only one good alongside others. As Bakke writes at one point in Joy at Work: "Why should enriching shareholders be more important than producing quality products and selling them to customers at fair prices?"

Hardcover: 314 pages
Publisher: PVG; 1 edition (March 7, 2005)
Language: English
ISBN-10: 0976268604
ISBN-13: 978-0976268604
Average Customer Review:
4.1 out of 5 stars(26 customer reviews)

SOURCES:

Bakke, Dennis. "Joy at Work: A Revolutionary Approach to Fun on the Job". 2005. ISBN:0976268604.


NEXT: The Law: Pesonal Injury on a Showing

Landlord 101: Bathrooms

The bathroom is one of the most important rooms in the apartment that must be kept clean. This is because when you are showing it off to potential renters, you are pitching women. Women care most about the kitchens and bathrooms.

The tub must be clean! Make sure that you caulk around the tub and around the base where the tub meets the floor. You do not want to get water between any opening where the tub meets the floor or wall. Water can create mold eventually. I suggest removing all caulk around these areas and re-caulking. When done caulking, use a caulking tool (shown below) to create a smooth edge where you have caulked. Also, you should install either a tip-top drain or a tub drain with a grate. This will prevent a tenant from shoving things down the tub. This should be also installed in the bathroom sink as well.

Caulking Tool


Tip-Toe Drain


Tub Drain with a Grate


To save money, you can place bricks inside the toilet to take up space. A regular brick is about 0.0175 cubic feet in volume. If you place three bricks in the toilet, you can save money on filling the toilet every single flush. I figure that shower water will provide extra water to help flush any material down the pipes to the sewer.

Lastly, textured ceiling paint can help with mold that may build up on the ceiling. You can buy this at home depot for about $35.00 - $50.00 per gallon. This is will create a maintenance free ceiling.

Textured Ceiling Paint



NEXT: Book Review: Joy at Work

The Law: Moving a Listing to Another Brokerage

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.
In June 2009, Bruce Aydt wrote an interesting article about moving your listing to another brokerage if you move to another brokerage. The results are surprising!
Law & Ethics: Listings Stay With the Broker

SOURCES:
Adyt, Bruce. http://www.realtor.org/. Law & Ethics: Listings Stay With the Broker. June 2009.

NEXT: Landlord 101: Bathrooms

Negotiation, How Good Are You!

Negotiation happens everyday in our lives whether we believe it or not. For instance, when we are going for a job, the future employer hires us at a base salary or hourly rate for pre-defined duties. Later, say a month or a year, the employer then tacks on more responsibility. Without hesitation, we accept it and maybe ask for a raise or even just do the work without compensation.
In a real estate transaction, negotiations are essential. You need to persuade the other side that your bid is the best and also the concessions you need are essential. They either happen really fast or they can be delayed for long periods of time. Negotiating a house might happen in a week where as a piece of commercial real estate that contains three business's and ten rental units above them, some rented and some vacant might take a few months or a year to negotiate.
In Chester Karrass's book entitled "Give and Take" (highlighted on June 22, 2009: Book Review: Give and Take by Chester Karrass), he offers a 60 question quiz on rating yourself as a negotiator. I scored a 280 which placed me into the second quarter ranking. The results might surprise you!
Rating Yourself as a Negotiator.PDF (5.16 MB)
Karrass Persuasion Model

SOURCES:
Karrass, Chester. Give and Take. 1974. pp. 262-276.

NEXT: The Law: Moving a Listing to Another Brokerage

CMA's

CMA's or comparative market analysis reports are used to figure out how much the value of a property is worth. This type of analysis uses historic, current and pending homes sales to determine what the value of the home is. Currently, you would want to use a 1 mile radius of the subject home and only go back about 3-6 months as comparable homes.
These reports can take some time to determine a value for the house. Say, for instance, your subject house has the following attributes:

• 3 Bedrooms


• 2 Baths


• 1800 sq ft


• New Deck


• Vinyl Siding

When doing your comparable houses search, you might not find many houses that compare exactly these same attributes. You must then take your list of comparable houses and add or subtract pricing of the house equal to the comparable attribute. For example, lets say you find a house that is exactly the same but only has 1 bath. You must add an amount to the subject house that will equate the two houses. To do this, you would want to compare two of the same house but one has 3 baths and the other has 2 baths. You might be able to conclude that the difference in price is due to the different amount of baths with a high degree of confidence. When using the realist.com system, it will add or subtract amounts based on square footage, number of bedrooms, number of bathrooms and year built.
I would also check realist.com and zillow.com for comparables. The more comparables, the better. The problem with using zillow.com is that it takes them time to update home values. This information can be helpful regardless.
After this homework is done, then a formal report is made up. Usually, a realtor has access to a MLS system that can generate this report for them. This report can be tailored made for the home sellers/buyers.

Forbes: Buffalo Top Ten Housing Market

Yes, its true, the Buffalo/Niagara region is rated one of the top 10 housing markets in the U.S (BNAR). According to Forbes magazine article, "America's 25 Strongest Housing Markets" dated January 7, 2009 Buffalo is amongst the top 10 housing markets. The article states that since Buffalo did not participate in the housing boom, when the bubble burst, we were not as effected as some markets such as Las Vegas or Miami.
According to relist.com, between March 2009 and April 2009 in Niagara County, there were more homes sold for a higher price by 1.16%. In Erie County between February 2009 - March 2009, there were more homes sold for a greater price of about 8.78%.
In my opinion, it is great to buy a new house because if the government is going to give you the 10% home buyer credit, as soon as you close, you will have accumulated about 11.16% equity in Niagara County and 18.78% in Erie County.

NEXT: CMA

The Law: Canceling a Deal

Every month, Realtor magazine publishes great articles about ethics and law to keep Realtors and other professionals up to date about current or unknown laws.
On May 9th, 2009, an excellent story about cancelling a contract was written by Robert Freedman. It highlights that a buyer can cancel a contract anytime during the whole process.
Law & Ethics: Canceling a Purchasing Agreement

SOURCES:

Freedman, Robert. http://www.realtor.org/. Law & Ethics: Canceling a Purchasing Agreement. May 2009.

NEXT: Forbes: Buffalo Top Ten Housing Market

Types of Commercial Leases

There are many types of commercial leases: gross lease, net lease, percentage lease, ground lease, index lease and graduated lease.
A gross lease is very simple. The tenant pays a set amount of rent and no other expenses associated with the property. The landlord pays all taxes, insurance and any other expenses of the property.
A net lease is a lease in which the tenant pays some or all expenses associated with the property. In a triple net lease, the tenant pays all taxes, rent and insurance.
A percentage lease includes a set amount of rent plus a percentage of the gross sales of the business.
A ground lease is a lease of unimproved land. Usually, one will lease this type of land to develop it. Ownership of the land and any improvements of it such as a building are separate. Donald Trump, for example, owns the rights of the land under the Empire State Building but not he actually building itself.
The index lease is a pre-agreed upon amount of rent that can either increase/decrease according to an index. Usually the index used is the CPI (Consumer Price Index).
Lastly, the graduated lease is a lease that shows a rent increase under a specific determined time under the lease terms. A new business, for example, might want this type of lease. They might want really low rent for the first six months then increase increments of rent for the next six months. This helps a new business lessen its start-up costs.


Sources:
Spada, Marcia. New York Real Estate for Salespersons. 4th ed. pp: 180-181. (ISBN: 0324659075)

NEXT: Eithics and Law: Canceling a Deal

Realtors, Why we need them?

Realtors provide amazing services that you might not see such as coordinating, gathering information and sending off contracts and other important information to the right parties. The following are just some ways that a Realtor is very valuable:

• Save the Buyer/Seller Time!


• Negotiation


• Advertising


• Certification

Many clients complain that Realtor fee's are ridiculous to sell a house. The fee's involved are very small for the amount of work put into each client. For instance, on the buyers side, a Realtor might show him/her 10-15 houses before they decide to bid on one. Even then they might not come to an agreement on price for the house thus starting the process then starts all over. Even worse, they they might decide that they are not interested in buying anymore. On the sellers side, they help coordinate the open house and give valuable advise such as wheather or not to upgrade the kitchen cabinets, floors or spend time painting. For both sides they spend time writing and reviewing all contracts, coordinating all parties involved and scheduling all important events such as home inspections.
Negotiation can be tough if you don't know the market conditions, laws and city codes. A Realtor is trained to negotiate for you to get a better price for your house. They also provide knowledge on the latest municipal codes so there are not any sudden surprises. For instance, when I showed a place to a client, there was no sub pump. The city of Niagara Falls about a year ago made it mandatory to have all houses in a certain section of town to install sub pumps before they are allowed to close on a house. This is a piece of information you would want to tell your seller before they sell the house. Of course the owners did not know this and were shocked when they found out after listing the house.
Realtors advise on bidding/listing prices. They will be able to tell if the current market can or cannot support the asking/listing price by providing valuable data consistent with market trends.
We also provide transparency and the ability to network the seller/buyer to those who can help them purchase a home or that next multi-unit apartment building. They can introduce you to mortgage brokers, home inspectors and lawyers. Allot of times they are willing to give you a discount because you were referred to them by your Realtor. So they can save you money!
Advertising is a very big expenses if you do it on your own. When spending money on advertising, you might not get that much exposure for you money. Probably newspapers, craigslist and possible facebook. However, a Realtor can take it a step further and place you on a national advertising level by using their companies website such as Coldwell Banker, Realty USA or ReMax. They can also place your house for sale on the local MLS (Multiple Listing Service) to get your house sold.
Lastly, Realtor's are certified by the state for which they practice. We are held to higher standards because we carry the Realtor title. They also have to take 22 1/2 hours of continuing education to maintain their license.
Before you decide to sell your property on your own, which is fine, ask your self this:

• How would you price your house?


• Do you think that you could negotiate a better price?


• What variables are you using to determine the list price of your house?


• Do you have the time to perform the homework necessary to sell/buy a home?


• Do you have access to legal papers such as a contract?

It is hard sometimes to pay a Realtor for services but they justify their cost from start to finish. People who wish to buy a house, using a Realtor is free! For more information on this subject please check out Why Use a Realtor? on Realtor.com.

NEXT: Buffalo Top Ten Housing Market: Forbes

Landlord 101: Plastic Wood

Plastic wood which is made from PVC is going to be the new material to work with in the future. It is mold, weather and rot resistant. Technically it's called cellular PVC lumber which has the characteristics of real wood such as grain look, texture and usually comes with a lifetime warranty. They also come in various colors such as brownstone or slate gray.
According to toolbase.org, it comes in sizes of up to 11 1/4 and as thin as 1 1/4 -1/4. Currently, the material is too weak for the use of siding but can be great for eves, window frames and smaller projects. This material is great for decking with it's snap-in ability (check out Azek PVC Porch Boards .
The only bad thing about PVC wood is that the cost is very expensive. Home depot, for example, has this product for $35.00 for an 11 1/4 by 1 1/4 piece of wood.

References:

Toolbase.org

NEXT: Realtors, Why we need them?

Book Review: Give and Take by Chester Karrass

Give and Take by Chester Karrass (ISBN-10: 0887307434) is a great book on negotiation. It gives many aspects of the negotiation process such as concessions, stalling, taking without giving and different tactics to consider when negotiating. It does lack the real world examples of how these tactics are put in place to accomplish a goal. The following is a review from amazon.com HERE.

NEXT: Landlord 101: Plastic Wood

Landlord 101: Carpeting

Carpeting is an essential part of any rental unit. It can create character and clean up a room that is damaged. It can also protect hardwood floors from being damaged from tenants. There are two main types of carpeting that is offered, loop pile and cut pile. A loop pile is wound twice creating a looped surface while a cut pile is cut at the top leaving the carpeting sticking straight up. Under these two main types of carpeting, there are about four types of each.

A specific type of cut pile of carpeting know as berber carpeting is the most durable carpeting to place on the floor of your investment properties. It can be easily cleaned and maintained. The investment is average, around $1.50 per square foot, but worth it. Typically, you would want to buy a light brown color (shown below) to hide any stains that might be evident from spills.


BERBER CARPETING


When having carpeting installed always remove the old carpeting and under lament so the installation process goes faster.

Sources:
The Carpet Site

NEXT: Landlord 101: Types of Commercial Leases

Manhattan Apartments

I received this article from my buddy on Sunday about Manhattan apartments published in the the New York Post on May 25, 2009 by Tom Topousis. The article, entitled "Livin's a bit easier as Manhattan rents fall" states that rents are the lowest since 2007. Some apartments rents have dropped as low as 20%. My question would be, once the rents are this low, are they covered in rent control? I am going to email Mr. Topousis about this. Check out the image below from the article of how much the rents are!

Investing 101: Foreclosures

First take this quiz to see how much you know about foreclosures!
This topic is very interesting because everyone wants to buy one but know one has a good idea how much they cost to fix up. Everything can be wrong with them including dry wall, copper piping, electric updates and roofing. Those alone can cost tens of thousands of dollars to fix.

A foreclosure according to Wiedemer is a legal procedure by means of which property pledged as collateral is sold to satisfy the secured debt. The mortgage actually grants the right to foreclose in the event of non-payment. You can be foreclosed on because of a lien placed on the property or not complying with local building codes.

There are three types of foreclosures:

• pre-foreclosure
• foreclosure
• post-foreclosure

Pre-foreclosure stage is the best to be in because the owner can be contacted and price negotiation can begin. Most likely, the owner has not trashed the place and is willing to work out a deal.

The foreclosure stage requires the investor to locate the local county clerks office and bid on the house depending on if the state is a deed state or lien state (see the April 20th, 2009 blog: Tax Liens).

Post-foreclosure is when the bank already owns the or has taken over the property. These are usually called REO's (see the April 15th, 2009 blog: REO's).

The important part of foreclosure is to determine what stage to enter. For instance, the first state might be less costly as far as repairs but the investor might have to obtain a loan to acquire the property. The third stage will be the most costly but you will get the property at a discount but will most likely need major repairs.

To find foreclosures, you can contact either a real estate broker or your local bank for a list. Also, you may want to go to HUD (The US Department of Housing and Development.


References:

Wiedemer, John. Real Estate Finance. 8 ed. pps: 251-252.

NEXT: Landlord 101: Carpeting

Investing 101: Break Even Ratio (BER)

The break even ratio (BER) is also called to debt-to-income ratio. In simple terms, this states how much are your expenses compared to your income expressed as a percentage. This This is a very simple calculation granted that your operating expenses are correct. The formula is:

Break Even Ratio = (Operating Expenses + Debt Service)/(Gross Operating Income)

Typically, lenders would like to see a break even ratio (BER) less or equal to 80%. This is dependent on which lender you use. This means that for every dollar you take in, you need to keep at least 15 cents of it or more. Say, for example, annually you have an operating expense of $22,000, a debt service of $50,000 and a gross operating income of $118,000, then the break even ratio is 61.01%. This means that you can have a gross operating income 38.99% less and break even for the year.

References:

Gallinelli, Frank. Mastering Real Estate Investment: Examples, Metrics and Case Studies. pp.101-105.

NEXT: Investing 101: Foreclosures

Investing 101: NOI (Net Operating Income)

In an earlier (4/5/09) blog posting entitled "What to do Before Buying Your First Investment Property " the stack was mentioned. Part of it is how you compute NOI or net operating income. It's a very straight forward computation but can be very complex.

The Stack

Potential Gross Income (PGI)
- Vacancy and Collection Loss (v)
+ Other Income (OI)
--------------------------------
= Effective Gross Income (EGI)
----------------------------------
- Operating Expenses (oe)
-------------------------------
= Net Operating Income (NOI)
--------------------------------

1. Potential Gross Income (PGI) is how much rents are going to be collected.

2. Vacancy Rate and Collection Loss (v) is a percentage of the property that will be vacant every year. This percentage is a just a figure that is estimated. Typically, I like to use (1/12)X(PGI) or that vacancy will be one month out of every year. This is very conservative.

3. Other income (OI) could be from renting out garages or late charges for late rents.

4. PGI-V-OI = Effective Gross Income (EGI)

5. Operating expenses (OE) is the tricky part. Depreciation, capital expenses and mortgage payments are not considered operating expenses. They should be only expenses to run the property. Depreciation is used later in the stack and mortgage payment is used later under annual debt service (ADS).

References:

Gallinelli, Frank. Mastering Real Estate Investment: Examples, Metrics and Case Studies. pp. 30-36.

NEXT: Break Even Ratio (BER)

FOR SALE: 1863 South Avenue / Niagara Falls, NY / 14305

1863 South Avenue / Niagara Falls, NY / 14305 / ML:336131

GREAT CURB APPEAL! QUAINT SINGLE FAMILY HOME IN NICE NEIGHBORHOOD. UDATES INCLUDE: ROOF (2000), NEWER FURNACE! YOU CAN'T BEAT THIS PRICE! WONDERFUL AS OWNER OCCUPIED HOME OR AS AN INVESTMENT WITH RENTAL INCOME. TENANT CURRENTLY PAYS $525.00 PER MONTH PLUS UTILITIES. DON'T MISS OUT! HYDE PARK TO SOUTH.

Est. taxes: $1,104.00

Listing Agents Name: JOHN BENNETT
Listing Agents Number: 716-510-9355

For more information, view this property on Buffalo Niagara Homes or John Raymond Properties.

Investing 101: Cash-on-Cash Return, Capitialization Rate and Debt Coverage Ratio

There are many variables to consider when investing in real estate. Today, I am going to talk about cash-on-cash return, capitalization rate and debt coverage ratio.

Cash-on-cash return is exactly what is sounds like. There are two variables: annual cash flow and cash invested. The answer is expressed as a percentage. The formula is:

Cash-on-cash return = Annual Cash Flow/Cash Invested

An example: Say you invested $86,000 in a property yielding a $7,200 cash flow before taxes. The cash-on-cash return is 8.37%. Now you have already seen this in say a CD (certificate of deposit). But the cash-on-cash is always given and the amount of cash invested but the unkown varible is annual cash flow. A good investor will compare cash-on-cash return ratios amongst different investment vehicles to get a better return on investment with thier cash.

The second variable is called the capitalization rate or cap rate. The capitalization rate is an indirect way of show how long the asset will pay for itself. This variable is an expession of NOI (net operating income) divided by the value of the asset. (NOI will be the subject of the next blog).

Cap Rate = NOI / Value

NOI must be carefully calculated because it can have many variables that determine it. If this is wrong, it can a major effect on it. Value can be the value of the properties selling price. To figure out how long the asset will pay for itself: 100%/cap rate. An example: If the NOI=$43,000 and the value of the asset is $3,245,000 then the cap rate = 1.33%. It would take about 76 years to pay off this asset at the current cap rate.

Lastly, the debt coverage ratio (DCR) is the ratio of the annual net operating income (ANOI) and the annual debt service (ADS).

DCR = ANOI/ADS

This is the ratio that banks look at to dertermine if you will make enough money to cover the loan each year. If:

• DCR>1 then you can cover the loan and possible will have profits
• DCR<1,>
• DCR=1, then you are able to cover just the loan and no other expenses.

Most lenders would like to see a DCR equal or greater than 1.20. This means that the DCR would have to be 20% higher than the annual debt service. Suppose you have a ANOI of $50,000 and an ADS of $20,000 then the DCR would be 2.5. A bank could jump at this and lend you the money. Of course keep in mind that there are other variable involved when the choose to lend money out.

References:

Gallinelli, Frank. Mastering Real Estate Investment: Examples, Metrics and Case Studies. pp. 37-41. 59-63. 97-100.

Wikipedia. http://en.wikipedia.org/wiki/Capitalization_rate

NEXT: NOI (Net Operating Income)

Guest Blogger: Dan Richards from radonseal.com

Radon is an invisible and odorless gas produced by the natural decay of
uranium and thorium, which are plentiful in nearly all rocks and soils, as
well as common building materials like concrete and drywall. It is much
heavier than air and accumulates in basements, which directly draw in radon
from the ground through any cracks, openings, and pores in concrete.
Ventilation then spreads the gas throughout the house.

What makes radon dangerous is that it is radioactive ­ it disintegrates into
microscopic metal particles, which float in the air. When breathed in, they
continue their decay and emit radiation that damages living cells and may
cause lung cancer. The average person thus receives a higher radiation dose
from radon at home than from all other natural or man-made sources combined.

Lung cancer is the deadliest of all cancers and radon is the second leading
cause of lung cancer. According to the US EPA, radon in homes causes more
deaths than fires, drownings, and airplane crashes combined.

Radon test kits are inexpensive and all homes should be tested. While radon
gas is dangerous at any level, EPA recommends that the home should be fixed
if the radon level exceeds 4 pCi/L at the lowest livable level. And if the
level exceeds 2 pCi/L, the home owner should consider fixing it. Radon
mitigation contractors install fan-based radon mitigation systems. Or if the
basement is still unfinished and unpainted, the home owner can seal his
basement with RadonSeal deep-penetrating concrete sealer.

Dan Richards
http://www.radonseal.com/
1-800-472-0603

Radon

Radon is an orderless, transparent gas which can cause cancer. According to radon.com, radon gas is a naturally-occurring byproduct of the radioactive decay of Uranium in the soil. According to Raydonsealer.com, it causes 21,000 lung cancer deaths each year. An acceptable level of radon in the soil is 0.4 pCi/L. Radon can be found in just about everything but the highest levels are found in rock decay.

Below is a map of where the greatest concentration of radon is:


PDF version available here.
Zone 1 counties have a predicted average indoor radon screening level greater than 4 pCi/L (pico curies per liter) (red zones). Highest potential.
Zone 2 counties have a predicted average indoor radon screening level between 2 and 4 pCi/L (orange zones). Moderate level.
Zone 3 counties have a predicted average indoor radon screening level less than 2 pCi/L (yellow zones). Low level.

To test for rayon, you can buy a kit. They are between $15.00 - $35.00. You can purchase it for $15.00 from the EPA with a coupon here.






The National Environmental Health Association (NEHA) National Radon Proficiency Program Toll Free: (800) 269-4174 or (828) 890-4117Fax: (828) 890-4161
Website: www.neha-nrpp.org/ E-Mail Address: angel@neha-nrpp.org

The National Radon Safety Board (NRSB)
Toll Free: (866) 329-3474 Fax: (914) 345-1169
Website: http://www.nrsb.org/E-mail Address: info@NRSB.org

References:
http://epa.gov/radon/pubs/citguide.html#overview
http://www.radon.com/
http://www.radonseal.com/radon-health.htm
http://radsci1.home.mchsi.com/irlcs.pdf
http://www.cancer.org/docroot/ped/content/ped_1_3x_radon.asp

NEXT: Investing 101: Cash-on-Cash Return, Capitialization Rate and Debt Coverage Ratio

Landlord 101: Types of Plumbing Joints

Plumbing can intimidate a lot of people. When a pipe breaks a lot of people will just call the plumber and pay outrageous prices to fix the problem. This article specifically highlights specific products for draining liquids that are easy to install which can prevent or fix problems for a cheap price. REMEMBER TO SHUT THE WATER OFF FIRST BEFORE WORKING ON A PROJECT! First, we need to talk about the tools used for fixing a plumbing problem.

2 Plumber Wrenches (pipe wrench)

Plumbers Tape
Screw Drivers / Phillips Head

Now, here are some very handy components that you should install to avoid hours of working when there is a problem. I recommend using these only in drainage systems because there is no pressure being added to them.

Rubber Coupling - They are nice because you can take them off and on easily. These are great because you can just screw them on and off. The are heavy duty and never need replacing. They come in all sorts of sizes and shapes such as elbows and two way connections.
PVC elbow pipes with a drain at the bottom are great. The nice thing about them is that when you have a backup, you can drain the water from the bottom then take the entire fixture apart. These type of connection might be a no brainer, but alot of people never think of connecting this elbow to a pipe connection.
Electric plumbing snakes are used to unclog the main line between your house and the sewer. They can cost between $500 and $2500 to buy but they are worth it. Plumbers will tell you that you should use them for their services to unclog the main but that is not true. Anyone can learn how to use these. It might take a day or two to figure it out but you can do it. These machines usually come with a line between 1/4 inch - 1/2 inch thick. In my experience, there is no difference.
Drain covers are very helpful. They will allow nothing to pass down your drain such as toys, needles, glass and hair. These are a must have in any house or investment property. They cost between $1.00 - $35.00 but are well worth it. I suggest placing one anywhere you can especially for investment properties.
Lastly, yes I would like to talk about stockings. These are not just for women, they are for your tube that runs from the washer machine into a drainage tub. These will stop all lint from entering the drain and into your main sewer line. This is more of a preventive action but it could save you time unclogging the main line to the sewer.

Remember, when reconstructing a plumbing drain system, keep it simple, always make sure you can drain the water out when there is a clog and try to put as little of joints together as possible without glue.

NEXT: Radon

Londlord 101: Leasing Terms

Leasing terms are very important. They define the do's and dont's between you and your tenant. It creates a relationship that is binding and non-negotiable. When these are written, they should be very clear and specific. Never leave any grey area when writing them. You never know when your going to have to defend your lease in court!

One example of a term is defining who gets keys, penalties associated with loosing them and how many are given out. For instance, in my residential leases, I state that if locks are charged a $25.00 fee. Any key that is replaced are $15.00. Also, if a tenant looses their key and needs to get in their residence, they are charged $15.00 between 12am-10am and $10.00 beyond those hours. The lease specifically states that each tenant gets 1 key per door and the doors are stated.
Another term that is stated are where vehicles are parked. Specifically state if there is off street parking or park in a garage. If there is a garage, you might want to include a garage rider (more about riders in future blogs).

The following are a list of others terms:

• Late payment charge
• Occupants
• Assignment and subleting
• Utilities coverage
• Conduct
• Notices
• Attorney fees
• Yards/grounds
• Abandonment
• Compliance with the law
• Insurance
• Pets
• Extended absences
• Disclosures (riders)
• Satisfied inspections
• Use of premises
• Plumbing
• Alterations
• Vehicles
• Repair reporting
• Indemnification
• Security deposit
• Appliances
• Owners right to access
• Residence termination notice
• Liens
• Damage and destruction
• Joint liability
• Additional provisions
• Grounds of termination
• Read the entire agreement
  

As you can tell, you need to be exact when stating the terms in your lease. Don't ever be worried if your lease is too long. Always take the time to review the lease with a new incoming tenant. Explain to the incoming tenant that a long lease clearly defines terms and conditions so it protects both them and you. A great book to get if your a new landlord or looking to solidify your current lease is "The Landlords Kit" - Jeffrey Taylor (ISBN: 0793158737)". You can also review a copy of a lease here. This is one of my old leases that I used to give to incoming tenants. Its about 20 pages long!

NEXT: Landlord 101: Types of Plumbing Joints

Viral Marketing

Viral Marketing is defined as a message that disseminates amongst people and groups exponentially by itself. This is a great tool to increase branding, product knowledge and product awareness.

The term 'viral marketing' was coined by Tim Draper a graduate from Harvard Business School. He used it to describe how email accounts, specifically hotmail, was advertised amongst people. He noticed that users of hotmail would sign-up for a free hotmail email account. After, they would then send an email to their friends. When a friend would open the email, an advertisement would be shown on the bottom that says 'free email account. Sign up here'. The friend would then click on that and set up an email account.

Ralf Wilson, an e-commerce consultant, states the very simple example of the email account is the most basic example of how viral networking begins. He also states that there are six principles of viral marketing:

1. Gives away products or services
2. Provides for effortless transfer to others
3. Scales easily from small to very large
4. Exploits common motivations and behaviors
5. Utilizes existing communication networks
6. Takes advantage of others' resources

As one person sends it to another, then that person sends it to two more people, the message can spread quick. Spreading this message is free and can reach an unlimited amount of people. If the message is useful, you can see how it spreads by itself as others send it to their contacts. You also penetrate social networks that you didn't know existed and hopefully making new contacts or audience for you because of your message.

Resources:

Wilson, Ralf. The Six Simple Principles of Viral Marketing. http://www.wilsonweb.com/wmt5/viral-principles.htm
http://www.wilsonweb.com/wmt5/viral-deploy.htm
http://en.wikipedia.org/wiki/Viral_marketing

NEXT: Landlord 101: Leasing Terms

Investing in Tax Liens

Tax Liens can be very lucrative when investing in them. There are two types of investments you can make: Tax Liens and Tax Deeds. Each state dictates which type of investment you can make (either a lien, deed or both) and the terms. For instance, Vermont only lets you invest in tax liens. Vermont lets the owner have a one year redemption period, lets the county select which month to have a tax lien sale and sets the interest rate at 12% per annum.

There are times in which property owners have to pay their property taxes late because of some unforeseen event. So, when they do, they have to pay the tax plus late fees or penalties or they will loose their property to an auction. Liens can pay between 1/4 percent to 18 percent. Here are the different types of liens:

Lien States
- The investor only has a lien on the property and has no rights to it or cannot inherit it- The investor receives an interest rate until the taxes are paid off- The owner has a 'redemption period' to pay back the taxes until the property is auctioned offDeed States- The investor actually takes ownership of the property- There are no 'redemption periods' for the owner because the investor inherited itHybrid States- The investor inherits the ownership of the property after the redemption period- Owner has a redemption period to pay all taxes plus penalties and interest

How do you get a return on your money? According to Loftis, a good return on your money is between 8% and 15%. A basic auction starts by bidding down the interest. Bidders can include institutions and regular people. You can bid the interest rate as low as 1/4% but most states will make a minimum penalty that makes it worth the investor to buy the lien. For an example, if I were to win a bid at 1/4%, the state might have a minimum penalty of 5%. So I actually get 5% and not 1/4%. Now, say you win the bid and the owner pays the lien off in 2 months. Then your rate of return is 30%. This is because the interest rate is for over a year. If the owner pays earlier than a year, in this case 2 months then your return is (5 X )(12(months)/(2 months paid off)). Obviously, the longer the owner takes to pay off the taxes, the smaller the interest rate you will receive but not lower than the states minimum. In this example, the larger is 60% and the smallest interest rate per year is 5%.

One negative aspect of lien investing is that many times you might have to wait 1-2 years before the owner pays the taxes with interests and penalties in full. That means that you will have that money tied up for a long length of time.

Tax deeds can get messy meaning that when you inherit the house, the house could be a mess. Piping could be gone and you might have to dump a significant of money in it to get it up to code.

References:

Loftis, Larry. "Profit by Investing in Real Estate Tax Liens". 2005. ISBN: 0793195179

NEXT: Viral Marketing

Book Review: NOLO's "Every Landlord's Tax Deduction Guide"

Pub. Date: Nov 2008
Edition: 5th
Pages: 528 pp
ISBN: 9781413309065

Synopsis(Barnes and Nobel)

The only book on tax deductions specifically for residential landlords! Named a "Top 10 Real Estate Book" by Robert Bruss, syndicated real estate columnistIf you own rental property, you should be taking advantage of the many tax write-offs available. Every Landlord's Tax Deduction Guide gives residential landlords the plain-English guide they need to save money on taxes -- without the services of a pricey accounting firm.This book explains how to maximize your deductions without drawing the ire of the IRS. Find out how to:

• Fill out IRS Schedule E
• Take real estate tax credits
• Figure out if an expense is a repair (deductible) or an improvement (depreciable)
• Maximize your depreciation deductions
• Deduct losses arising from real estate ownership
• Keep proper tax records
• Deduct home office, travel, and casualty losses

Every Landlord's Tax Deduction Guide is comprehensive yet easy to read and provides interesting real-world examples. The 5th edition is completely updated for 2008 returns and reflects the latest tax information and numbers.

Los Angeles Times
This book cannot be recommended too highly.... explains rental property tax deductions clearly and details how to maximize tax benefits by using 'hidden deductions'...

This book is great! For the first time landlord learning how the tax side works of investing in real estate, I highly recommend this book. This book is available on Nolo's web site here. Also, Google has a preview of this book here.

NEXT: Investing in Tax Liens

Landlord 101: Leases

Leases is the most important aspect of owning real estate. A lease is a binding contract between a tenant and landlord.
There are 4 parts to a lease: Header, Terms, Signature Page and disclosures (riders). The, what I like to call, header should be clearly spelled out. Included in this section is the type of lease, rent amount and the full address of the property.
First, this section needs to spell out when the lease starts and ends. If you have a month-to-month lease (see future blog about lease types), the lease start date must be given and defined as 'continues until both parties agree to terminate.
Second, the amount to be paid should be shown in a dollar amount and spelled out for clarification. Also, state the total amount due per month and a yearly total. The notifies the new tenant how much they are paying.
Lastly, always list the address fully. Include the street address, city, zip code and apartment number or letter.
The second part of a lease is the 'terms' section. This will highlight the details about how the landlord and tenant interact. This section should state issues such as sub leasing, rent increases, utilities, key policy, disclosures (riders) added to the lease, late policy, tenant responsibilities, lawn and snow removal duties and landlord contact information (see a future blog on these pieces separately).
The last part of a lease are the disclosures or riders. These include a lead based paint rider, pets rider, garage rider and property condition rider. There are many more riders that can be included.
The most important rider is the lead based paint rider. By law if your house is built before 1978 you must:

1. 
   As a landlord, give the new tenant, a pamphlet called Protect Your Family From Lead In Your Home.
2. 
   You must have the landlord and tenant sign a lead based paint disclosure attached to the lease.

In closing, leases are very important to have and need to be as detailed as possible. Look out for more about leases on this blog.

NEXT: Book Review: NOLO's "Every Landlord's Tax Deduction Guide"

REO's

REO stands for Real Estate Owned by the bank. This is a property that has gone back to the lender after an unsuccessful foreclosure auction. REO's are usually a result from the note or mortgage being worth more than the home value. This is a very popular subject right now with the credit crunch because banks have a huge inventory of houses that they would love to unload.
With a REO, the bank completely owns the property because the bank confiscated the property from the previous mortgagor (last owner). The bank does all the necessary repairs to the house and negotiates with the IRS about tax liens and other tax issues regarding the house. This does not mean that all liens are payed. For an example, there could be a lien placed on the property from a roofing company.
When the property is sold, it is sold 'as is' meaning that it might not be up to code, the furnace and hot water tanks might not work and the copper pipping might not be there.
If you are interested in a REO property, make sure you do your homework on how much to offer. This process can take a long time because the bank has to look out for its shareholders. Approval could come from shareholders and others who have a stake in the company furthering more delays.
There is a great example of bidding on a REO in Investors United: Should I Invest in REOS.



References:

Fisher, Steven."The Real Estate Investor's Handbook: The Complete Guide for the individual Investor". 2006. pps. 85-86.

Harvey, Walt. "Buying Bank Owned Properties (REO)". Real Estate ABC. http://www.realestateabc.com/homeguide/reo.htm

Investors United: Should I Invest in REOS

NEXT: Landlord 101: Leases

Landlording 101: Section 8 Housing

Section 8 housing is one of the best ways to guarantee rental income. With section 8, the rental income, in the form a voucher, is sent directly to you or direct deposited into your business checking account from the government agency called HUD (Office of Housing and Urban Development). Here's how it works:

1. Advertise rental unit in newspaper. Make sure you advertise as "Belmont Welcome".
2. Show rental apartment to potential renters.
3. Ask potential renters if they are on any public assistance.
4. Once a section 8 renter is interested, then fill out paper work.
5. Sign lease (this is mandatory for section 8).
6. Allow a week or two for a scheduled inspection by the section 8 office.
7. Once you pass the inspection, then the checks (voucher) are sent out.

1. Advertising your rental unit is very important. It is imperative that you place the words "Belmont Welcome". This means that you are willing to take section 8 housing candidates as renters. Usually when people call they will ask you what 'Belmont welcome' means.

2,3. Showing your rental units is very tough because some people never show. Asking potential renters if they are on public assistance is a very delicate thing to ask because you are crossing over a line of discrimination. You are allowed to ask because in New York you are allowed to deny anyone your rental unit because of their ability to afford the unit.

4,5. The paperwork needed to fill out a section 8 housing application is lengthy. Sometimes it can be about 10 pages. Also, they are required to sign a year lease with you. This is great because then you at least have the security of the money for a year (see below *). Make sure your lease is very strongly written. See an upcoming blog dated 4-16-2009 entitled "Landlord 101: Leases".

6. The great thing about section 8 housing are the inspections. They can be a pain in the ass but they are worth it. It helps you keep up the house and they often point out tips on how you can improve your rental unit. They usually check the furnace, hot water tank, electric outlets, electric switches, windows, large amounts of paint chipping, separate utilities (if stated in lease), exterior condition of house, main service electric line and smoke detectors. You may want to visit your section 8 housing office for a booklet as a guide on what an inspector looks for in your community.

7. The very best thing about this program is that a rent check (voucher) is sent to you not the tenant! Usually, the government will subsidize about 80% - 100% of the rent amount. This is nice because you can offer section 8 tenants very affordable housing while collecting a good amount of rents.

* (4,5): A section 8 housing candidate is allowed to give the section 8 office a thirty (30) day notice without informing you. Usually, the tenant will call you and let you know that section 8 monies will be canceled at the end of the month. If they give you a 30 day notice, it has to be dated for the last day of the month and ends the last day of the next month. If they give you a 30 day notice on the first of the month, then your notice is good until the first of the next month. In this case, you are entitled to two checks for both months. ALWAYS GET YOUR 30 DAY NOTICE IN WRITING AND MOST IMPORTANTLY, DATED! Beware of tenants who call section 8 office before notifying you about their leaving. They could be trying to game the system. If the renter does this, call their case worker and tell them that they never gave the appropriate 30 day notice as stated in the lease. Also hint about how the tenant could be fraudulent by gaming the system with the 30 day notice.

In closing, I would like to say that most of my tenant are section 8 housing candidates. During a recession, these types of tenants are very recession proof. I have yet have the government not pay on any rent amonts due during any economic cycle. Also, I find that these tenants are very good. In my experience, they have never trashed an apartment. I have had that happen and heard it happen to tenants who are not on public assistance. One of my firm beliefs is that just because you are on public assistance of any sort, doesn't mean you are going to not care about an apartment.

Resources:

HUD Website

NEXT: REO's

Buy Real Estate with you Roth IRA

When I first heard this advertisement on sirius satellite radio, I had to check it out. This is a new idea that involves a self-directed Roth IRA, trust and LLC. This can be a very lucrative investment.

1) Form a self-directed ROTH IRA with a trustee (this is the key).
2) Form an LLC of which the ROTH IRA takes a majority stake in.
3) Purchase a piece of property.
4) Sell the property and any profits proportional to your ownership of the LLC are deposited into your Self-Directed ROTH IRA tax free.

Setting up a self-directed ROTH IRA is very simple. According to MoneyZine.com, just contact a broker and fill out two forms to set up your new account with a bank and the second is to rename your current ROTH IRA. Transferring information and funds could take up to 45 days. I have done this transfer and it took about a week. (if you are converting a traditional IRA, you may pay taxes to convert to a ROTH IRA or self-directed ROTH IRA. For more information on this conversion check out Money-Zine.com: ROTH IRA RULES.)

Once you have converted your ROTH IRA or traditional IRA into a self-directed ROTH IRA, the IRS guidelines are simple for defining your self-directed ROTH IRA as "Legitimate". Below is a table which describes "Legitimate":
Roth IRA Account Guidelines
The IRS has established guidelines that all IRAs - including Roth IRAs - must abide by to be considered "legitimate" IRA accounts. This includes self-directed Roth IRAs. Summarizing those requirements (IRS Publication 590: IRA's):<1>The trustee or custodian of a Roth IRA must be a bank, a federally insured credit union, a savings and loan association, or an entity approved by the IRS to act as trustee or custodian. <2>This list also includes a stockbroker's account.
<3>The trustee or custodian agrees not to accept more than the allowable annual contribution limits for a Roth IRA.
<4>All contributions - except for Roth IRA rollovers or conversions - must be in cash.
<5>The account must offer you a non-forfeitable right to your money at all times.
<6>The money in the account cannot be used to purchase life insurance.
<7>The assets in this IRA account cannot be combined with your other investment assets.
<8>Finally, you need to abide by all of the minimum required distribution rules that apply to IRAs. Roth IRAs do not have minimum required distributions.

Here is a video about a self-directed ROTH IRA:




After doing this research and watching these videos, I was wondering if you could form a ROTH IRA and roll it over into the newly created self-directed ROTH IRA. If this is possible, then you could make an unlimited amount of ROTH IRA' s with any amount in them and them transfer them into the self-directed ROTH IRA. This system would act as like a feeder account to the self-directed ROTH IRA (see picture below).

Contact a lawyer, trustee and accountant before diving into this.

For Further information:

Websites:
Investors United School of Real Estate: Tax-Free Profits with SDIRAs?
Money-Zine.com: Self-Directed Roth IRA
Sun West Trust
Pensco Trust Company
Self Direct IRA.org

Books:
Retire Rich With Your Self-Directed IRA: What Your Broker & Banker Don't Want You to Know About Managing Your Own Retirement Investments (Paperback)

How to Invest in Real Estate With Your IRA and 401K & Pay Little or No Taxes (Paperback)

NEXT: Landlording 101: Section 8 Housing

Advertising: Effective Real Estate Website

When creating a good real estate website the key is transparency and usability. Make the website so your little two year old sister can use it. You want to provide as much information as possible such as pictures, videos and discriptions.

Apartments Buffalo is not a very well made site. The only apartments that are shown under mostly any search are Campus Manor Apartments and Senior Affordable Rental Housing. I did a search for Neighborhood=Delaware District and Property Type=Apartment Complex and left all other fields as "any". The results showed "Your search returned no results. Please try a less specific search". However, when you view the right hand side of the page, there is a link for "browse all listings (11). Thats where you will find all the apartments for rent. Over half of the "for rent" apartments have no pictures. This does no good for a future renter.

The nice thing about Apartments Buffalo is that you can join as a landlord for free and you can post a vacancy for free. Also, When you do a search, you can click on the map on the right hand side and search by district.

The site CountryClubManorApt.com is very basic. It's nice how you can take a 360 degree tour of the place. The one thing that I dont like is when you click on 'floor plans', you are brought to a new web page. This site lacks continuity. Every page should have the same elements on it so the user does not get confused. This site is good over all tho.

A great site to look at is John Raymond Properties. Now, yes this is my own web site but that said, I have recieved nothing but compliments on it about userbility and transparency. When you goto this page, the objective is very clear, rent this property please! There is a picture and discription which draws potential tenants. Also, directions are huge. I offer this so that way the viewer doesnt have to open another tab to find directions and potentially loose your site.

When you click on that link, 423 17th lowerThis web site offers insight to individual apartments. You'll notice that the page is split in two. This is so that when you click on the left window, it displays to the right window. You can apply for this apartment right there from that page. It offers video, pictures, floor plan and discriptions of all rooms.

NEXT: Buy Real Estate with your Roth IRA!

Landlord 101: How to deal with Tenants who Complain about Other Tenants in the Building

If your a landlord, have you ever had a tenant complain about another tenant for noise or drug use? OF COURSE YOU HAVE! When you receive a call from a tenant about a complaint of another tenant, just do one thing: have them call the police and get a police report. Doing this will eliminate all unjustified complaints from the tenant. They could just be making false claims against the other tenant only because they just don't like them. As a landlord, when you show up to the tenants apartment to address the complaint, they will deny it so you have no hard evidence for eviction later. A police report will back you up for eviction reasons.

As a new landlord, you have to learn how to manage people and their personalities! Some seasoned landlords never learn how to do this. When you receive a copy of the police report either from the tenant who is complaining about an incident or the police themselves, be stern with the bad tenant. Let them know that you have received a police report and that that this is their last notice before their 30 day notice or immediate eviction. This is great because now you have proof to show the bad tenant about their misbehaving. Also, this should hold up in court when submitting a 30 day notice to your tenant.

The following are some articles show that once there is a police report written that the matter should be taken care of right away.

"City Police Cite Landlord for Maintaining a Nuisance", is crazy, the landlord should have done something about this before the 15th complaint. Some landlords deserve what they get.

"Landlord found liable in police officer's death. When a tenant puts up a thick steal door, there is probably drug dealing going on inside.

In both cases, a police report was issued and the separate cases could have been avoided by being stern with the tenants.

NEXT: Advertising: Effective Real Estate Website

Landlord 101: Floors

Finding new tenants can be a hastle. One of the very important selling points about an apartment are the floors. This is because if their is a single women or couple looking at your apartment for rent, they want clean and nice looking floors. Also, chances are that she will have the final say about renting your apartment or going down the street to your competition.

In an investment property when tenants move out they scratch, dent, cut and dirty the floors in varous rooms. To solve this, get rid of the linoleum flooring and get snap-together laminate pergo floors. The laminate pergo flooring will make the floors maintenance free.

This type of flooring is maintenance free and will not scratch. It cleans easily and cost between $1.50/sq ft - $3.00/sq ft. Once you install this flooring you will not have to worry about installing another flooring at all. Usually the flooring comes with a 25 year residential guarantee.

When installing, you will need to buy a padding to place down over the old linoleum floor before you lay down the pergo flooring. You will need to buy a tapping block, spacers and metal pull bar. These usually comes in a package together. You will also need a saw and hammer.



Below is a video that show how to install the flooring.








NEXT: Landlord 101: How to deal with Tenants who Complain about Other Tenants in the Building

Great Real Estate Web Sites!

The great thing about the web is information access. There are some really great real estate web sites out there on the web. Here are just a few highlighted:

Lets look at Zillow. Zillow is a great site to find what your house value is. Some would argue that this is not accurate. This site also lets you save all of your properties you own to a profile. Zillow also emails you automatically when there is a change in the "zestimate". A zestimate is their determination of what your house is worth. If your a real estate agent, you can list your for sale houses for free.

A second site that I recommend looking at is any MLS (multiple listing system) that your city offers. The Buffalo Niagara Association of Realtors (BNAR) offers Buffalo Niagara Homes website. Also, the Niagara Frontier Association of Realtors has a site called Niagara MLS. These sites are great for those looking for houses in the Western New York area. These sites offer searches for mostly all houses, condos and commercial real estate for sale.

Western New York has a for sales by owner site of FSBO site called WNYbyOwner.com. This site is brought to you buy those sellers who are daring to sell their house by themselves. The statistics show that 90% of all sellers who sell without a real estate agent, end up using an agent to sell their house.

Real Estate agents always need referrals. One site that I have explored is Reply! Real Estate. This site has been featured in many publications. There is a $54.95 start-up cost and then it's $54.95 for email leads that are buyers or sellers. They have a great policy of bad leads, 100% money back! They say that 15% of all leads turn into sales. They also guarantee that within 12 months, 1 lead will lead to escrow. If you do not achieve this, they will give you 12 months free of leads.

Lastly, blogging is very popular not only to network with others in the real estate business but also for those who are looking for houses. The Directory of Real Estate Blogs is a great site that offers tons of real estate blogs about all subjects of real estate.

NEXT: Landlord 101: Flooring

Guest Blogger: Brian Turner from Mesothelioma.com

Brian Turner is a Public Relations Assistant for Mesothemlioma.com. He contributed the following article to The Real Estate Investor blog site.


Homeowners Should Be Aware of Asbestos Hazards

As a new homeowner or potential seller, it is not likely that you are acquainted with the inner materials of a home. However, most buyers seek an updated home inspection before closing on a new property. It is important to reassure buyers that the home is safe and does not contain any potential health hazards. These inspections are critical to clearing hurdles down the road that may slow the sale of property.
One of the most common surprises new homeowners and sellers confront is asbestos in older structures. Indeed, asbestos containing materials (ACMs) are now banned for use in the United States but many older buildings still contain these products, which are generally safe, but homeowners should be aware of where they are and when they become hazardous.
Asbestos was included in thousands of construction products and still exists in nearly 80% of homes built prior to 1978. Common asbestos materials include attic insulation, ceiling tiles, and pipe lining. Asbestos was particularly adept at insulation and prevention of temperature transfer and was used extensively until adverse health effects began to manifest in those who worked with the material frequently.
It is only when asbestos containing materials are compromised or very old that they become hazardous. Asbestos products under these conditions are rendered “friable.” Home inspection companies should be able to identify these circumstances and advise you on a course of action. When asbestos material is friable, asbestos fibers can be released into the air, potentially endangering those in the area.
Inhaled asbestos fibers lodge in the body’s inner tissue and have been conclusively linked to the rare cancer, mesothelioma, commonly referred to as asbestos cancer, in addition to many other respiratory disorders. There are few options for mesothelioma treatment or curative therapies for other conditions caused by sustained asbestos exposures. Homeowners need to be aware of potential hazards that may exist so they may be able to avoid potentially harmful effects of hazardous asbestos.
Again, most asbestos containing materials will not pose an immediate hazard and an informed buyer will not be turned off by their presence if they’re reassured of their safety by a professional opinion. These simple precautions can be taken to assure that both sides know that they and their families will be happy and healthy in their new home.

I would like to thank Brian Turner for this article. To learn more please goto http://www.mesothelioma.com.

Landlording 101: Plumbing (Soldering v.s. Push Connecting)

There are two ways in which to connect two pipes together: Soldering or Push Connecting. I highly recommend the push connecting method because then you can always take them apart when needed with a small tool instead of cutting them if they were soldered. Push connecting also alows you to connect two pipes together in small spaces where soldering is very hard to perform. This is nice because then you dont have to cut the wall up just to put in a new piece of pipe!

1. Push Connecting pipes







2. Soldering Copper Pipes







NEXT: Great Real Estate Web Sites!

Government Home Credit

For those who were wondering about the new home tax credit that the government is going to give you, just follow the link. What is interesting is that they are not going to give you a check, just a credit. Also, it is only good from january 1, 2009 until december 1, 2009.

http://www.google.com/reader/m/view/user%2F13253587740808739040%2Fstate%2Fcom.google%2Freading-list?hl=en&i=4011916774900239185&c=CKqVvc6v25kC&n=1

NEXT: Landlording 101: Plumbing (Soldering v.s. Push Connecting)

What to do Before Buying Your First Investment Property

There are many things to do before purchasing your first investment property.

First, READ! READ! READ! Read as many books as possible on the subject. This will help you understand how to manage it before you buy one. It will also help you decide what are good properties and which ones are bad. Advertising, tenant management, accounting, leases, laws and regulations are all covered in theses readings. Please refer to my blog "Good Real Estate Books" (http://johnraymondproperties.blogspot.com/2009/04/good-real-estate-books.html).

Second, get familiar with a lease and all of its terms. This is crucial in case you have to defend it in court someday. New York State is a tenant friendly state. This means that the lease originator has to defend their lease terms in court against a claim made by a tenant.

Third, go to the NYS tenant rights web site (http://moc.springstreet.com/common/rdmo.jhtml?rdpath=http://www.landlord.com/legalmain.htm&frameset=true) to become familiar with the law of what do's and don't's you can do. An example of this is a forced eviction. You can legally throw the tenants stuff out of the apartment for only a $50.00 fine. Each offense doubles.

Fourth, type out all forms and leases so you don't have to worry about it when you acquire a property. I suggest purchasing "The Landlords Kit" - Jeffrey Taylor (ISBN: 0793158737). This will save a lot of time and hassle when things break and there is no time. Make sure you download a pamphlet for lead based paint called "Protect Your Family From Lead in Your Home" (http://www.pueblo.gsa.gov/cic_text/housing/finlead/finlead.pdf). You can also just get some pamphlets from the local paint store, lowes or homes depot. You have to hand these out by law to your new tenants along with a lead based paint rider disclosure form (http://www.eriebar.org/files/committees/LBP_rider.pdf).

Lastly, get pre-approved for your loan. In this market your going to need 20% down on an investment property. Also, pick out a good lawyer and home inspector. Learn how to evaluate an investment property using what is called "The Stack". This is a basic formula used to figure out cash flow of the property. The formula is below:


The Stack

Potential Gross Income (PGI)
- Vacancy and Collection Loss (v)
+ Other Income (OI)
--------------------------------
= Effective Gross Income (EGI)
----------------------------------
- Operating Expenses (oe)
-------------------------------
= Net Operating Income (NOI)
--------------------------------
- Annual Debt Service (ads)
------------------------------
= Before Tax Cash Flow BTCF
--------------------------------
- Depreciation (d)
- Federal Income Tax (FIT)
-------------------------------
= After Tax Cash Flow ATCF




NEXT: Government Home Credit

Good Real Estate Books

I posted this because many people ask me what books to read before I start buying investment properties. If anyone is interested in real estate, here are some real estate books to read (They are not in any perticular order)! These books are a mix between technical and motivational.

1. "How to Buy & Manage Rental Properties" - Irean and Mike Milan (ISBN: 0671644238)
2. "Profit by Investing in Real Estate Tax Liens" - Larry Loftis (ISBN: 0793195179)
3. "Why we want you to be rich" - Donald Trump and Robert Kiyosaki (ISBN: 1933914025)
4. "Trump Style Negotiation" - George Ross (ISBN: 0470045868)
5. "Give and Take: The complete guide of negotiating strategies and tatics" - Chester Karrass (ISBN: 0887306063)
6. "The Landlords Kit" - Jeffrey Taylor (ISBN: 0793158737)
7. "Mastering Real Estate Investments" - Frank Gallinelli (ISBN: 9780981813806)
8. "Real Estate Finance" - John Wiedemer (ISBN: 0324142900)
9. "Nolo's Quick LLC" - Anthony Mancuso (ISBN: 1413305652)
10. "Analyzing Investment Properties" - Andrew Tompos (ISBN: 0324143850)

MEXT: What to do Before Buying Your First Investment Property

Why Buy Investment Property in Niagara Falls, NY?

Why should you buy investment property in Niagara Falls, NY? Investing in Niagara Falls can be very profitable. First, There are lots of tenants on section 8. Theses tenants are great because most of their rent is subsidized by the government. You can charge top dollar for your apartments because of this. Secondly, housing values are really low. This is great because it will increase profits. Lastly, when the economy tanks, you will continue to receive section 8 monies.
There are some down sides to investing in Niagara Falls. First, your investment might now appreciate as much as an investment in another city or state. Appreciation is only between 2%-3% a year in niagara falls. Secondly, if you wanted to sell, you might not be able to unload it right away. This market is very slow.

NEXT: Good Real Estate Books!

What is this Blog All About?

This blog was created for either someone thinking about investing in real estate or just that curious investor wanting new tips. This blog will update about twice a week and will have various topics about real estate investing to property maintenance. Please feel free to email me about future topics! Please leave comments about published topics! Enjoy!

NEXT: Why Buy Investment Property in Niagara Falls, NY?