2011 Change for Landlords
Earlier this year Congress passed H.R.5297 which expanded reporting requirements for owners receiving rental income beginning in 2011. Specifically, Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” This change will now require any person who receives rental income to file a Form 1099 for payments of $600 or more in a given year for each service provider. The new requirement does not include purchases of goods. Prior to this legislation, only real estate professionals such as those working in property management were considered to be in the “trade or business of renting property,” and thus required to file 1099 forms with the IRS for these types of payments.

Exemptions were included in the legislation for military/intelligence personnel, those whose rental income is no more than a “minimal amount”, and for those who would experience a “hardship”. The second two exceptions have yet to be properly defined by the IRS.

2012 Change for Property Managers
Earlier this year Congress passed H.R.3590 which is a health care bill that has nothing to do with property managers and business, other than the fact that they slipped in these new reporting requirements for small businesses.  This bill expanded reporting requirements for all businesses beginning in 2012. Specifically, it requires the filing of Form 1099 for any business (including independent contractors and those who are self-employed) that makes a payment of $600 or more in a given year to any payee for goods and services. A separate Form 1099 will need to be filed for each payee. Payments to tax-exempt organizations are not included in this new requirement.

There have been several attempts to repeal this 1099 requirement but so far none have been successful. It’s unclear if there will be any further repeal attempts before the end of 2010. Click here for more information from Bloomberg Businessweek on recent repeal attempts.

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A lot of property managers and landlords disagree with these laws as they create an undue paperwork burden and unnecessary work on behalf of private landlords and managers.  Some resources are provided below on how to assist in repealing these costly laws.

Additional Resources
National Association of REALTORS®: IRS Form 1099 Issue Brief
National Council of Nonprofits: 1099 Information Page
American Society of Association Executives: Prepare for New 1099 Requirements
U.S. Chamber of Commerce: Letter to Congress Urging Repeal of 1099 Provision

There are 3 primary reasons and by taking a few critical steps you can cut your vacancy rates in half or more.  Read on if you are a property manager or landlord and don’t want to fall into the trap so many other property managers have in today’s declining real-estate market.

1. We’re in a recession. Despite our government telling us it was over in 2009; it’s not for most of us, especially those in the real-estate or property management business.  Because times are tight right now owners are skimping on maintenance such as putting off the new paint job or new carpet until next year when times are better.  That line of thinking will ensure that next year will be no better.  The maintenance has to be done eventually anyways, and if the money to do it can be scraped up to repair the problem today, the outlook for tomorrow will be much better because your vacancy rates are going to go down.  Fact is, tenants do shop and it is more of a tenant’s market today than ever, so if there is a better house available (that doesn’t need new carpet for instance), you are going to lose that tenant.  If you manage your own properties make the decision to keep up the maintenance, and if you manage somebody elses properties, provide them this compelling data so they will.  Pay specific attention to these items, in order of importance:  Exterior paint, front yard landscaping, front door and entryway, living area & kitchen.
    
2. Who is your customer? Running a property management software service we hear from a lot of property managers, owners, as well as tenants.  What is the #1 gripe from tenants these days we’re hearing?  “We’re not treated with respect”.  Property managers often forget that their customer is the tenant.  It can be easy for us to get wound up in the screening process and be so strict, for the protection of the property, that we reduce our friendliness to the prospective tenant.  Make your customer love you and they will not go somewhere else!  This starts with the application process, showing the property, and the continued relationship.  One huge mistake in this process we see time and time again is making the tenant wait on your schedule to see a property.  If a property cannot be shown until tomorrow and they can see a property today from your competitor you just lost a customer and have done a disservice to your client, the property owner, by further increasing their vacancy rate.  I feel it’s important to have the staffing available to bend over backwards for tenants and treat them as equals, or better yet, in the same way you would treat a property owner looking for a manager, in the utmost respect and courtesy.
    
3. Do it better. Great property managers and landlords today are providing services to their tenants to make their lives easier.  Make your tenants fall in love with you by providing them something that makes their lives easier and most importantly, something they won’t get if they move away.  Be creative, every market is different; however, here are a few examples that work in almost every market. 
    

   Offer automated ACH. Automated ACH not only makes your tenant’s life easier because the rent happens automatically, but it also increases your retention rate and level of importance for a tenants monthly expenses.  It’s also been observed that an automated payment isn’t as emotionally stressful to a tenant as if they have to write a check each month for what is often their largest monthly bill.
   
   Offer a tenant portal. 80%+ of your tenants today have online access and that number steadily grows every year.  Tenants check their bank balances online, pay their bills online, and merchants have embraced online tools to save them time and money along with providing an extra convenience to their customers.  These same tools are available to landlords now, and if you aren’t providing them and your competitors are, guess who’s making their tenants more happy which is equating to longer term tenants and lower vacancy rates.
   
   Keep up on maintenance. Even when occupied it’s important to inspect and maintain a property.  More often than not your tenants are not cleaning the carpets or painting the walls.  If the home gets run-down, even if it is the fault of the tenant, they will feel less happy with the home and always be eying a fresh new place to live that is being kept up.  There’s an emotional factor to a clean, maintained home that keeps tenants longer.

Vacancy Data Source:  http://www.census.gov/hhes/www/housing/hvs/historic/files/histtab1.xls

If you are currently renting, how can you find out if your landlord is in trouble?  It’s easier than you might think.  In most cases, in about 5 minutes you can find out, without leaving your comfy chair.  My favorite foreclosure listing search is published by First American Title at http://www.realquest.com.  They have a flashy site which lets you type in your address and see a map of your neighborhood.   If you have a yellow flag posted on your property that means your landlord has been defaulting on payments and the bank is soon to take it back, usually within the next 90 days.  A green flag means the bank already took it, and a orange flag means there could be just a few days before you’ll be seeing your notice.

Realquest covers most of the US, but not all of it.  Everywhere has foreclosures, so if you don’t see any flags in your neighborhood, I would recommend backing up your search with a trip down to the courthouse to see if any foreclosure notices have been filed and keep an eye in the local paper since they have to post them there as well.  Also, calling your landlord and asking if there’s any risk of them losing the house could work too as a last ditch effort.

If nothing else, I hope these tips help one person find out early and be able to secure a new residence before having to deal with an extremely short notice from a bank.

Landlords – It’s incomprehensible to let this happen.  So many property owners don’t even know if their rental property is delivering a profit, or even breaking even.  You can use free property management software to accurately track if your properties are breaking even and avoid this mess in the first place.

If you are a landlord, it’s actually quite easy.  The FCRA allows “tenant screening” as a permissible purpose for running certain background checks, including full criminal background screens, bankruptsy, eviction, and judgement checks.  You just need a reliable provider.  This can be obtained easy enough by googling ‘tenant screening’.  Which ones are reliable though?

What I’ve found is most tenant screening companies are using extremely limited databases.  None of them actually disclose what data they are using, or how they got it, or how complete it is.  With that, it’s more or less just a guess as to if they have valid data.  Most tenant screening companies suggest you use one of their packages which include a “nationwide” search of some sorts.  I’ve found these less than accurate as well because their nationwide results tend to only have results if they specifically have already scanned for that particular record.  What are the chances?  Pretty slim indeed.  It often equates to a substantial investment in invalid results.  I’ve even heard that some landlords use multiple screening companies paying two to three times what they should as a result.

Because of the guesswork, and game of chance out there, and since we have lots of landlords using Rentec Direct for it’s property management software capabilities, we’ve worked out a partnership with a premier data screening wholesaler to be able to provide tenant screening services directly to our customers.  The quality of the data is second to none.

One might ask, “how is it different than the rest”?  Great question!  While we offer similar nationwide and statewide searches, most of our nationwide and statewide databases are updated extremely frequently with complete records from that state.  This differs from many screening companies.  Additionally, and this is a major difference, we offer an intelligent search (Intellisearch) feature which at no cost to you scans the entire previous address history of your prospective tenant.  It then recommends the specific local products designed to give you the most accurate results for this tenant.  After all, why spend 4 times as much out there on a broad nationwide search when you can learn the specific locations this tenant has lived and run state and county level searches which produce up to date, and flawless results for as little as $6.  By the way, our comprehensive nationwide criminal, which includes the nationwide sex offender database, is only $9.95 for Rentec members.

We’re currently offering a 2 month FREE trial to Rentec Pro which includes a 30% discount on all screening products.

First and foremost it’s absolutely vital you know the criminal history of your new tenants.  Do you want the liability of renting to a convicted felon in your property?   A proper background screen will give you address history for your new tenant, which is good for verifying the legitimacy of their application as well as knowing just where to run criminal background reports on.  Did you know the typical “nationwide” criminal report is simply a compilation of that particular screening agencies information?  More often than not it seems, those nationwide reports do not include any records.  That’s why you see “no data for subject” so often when running them.  For this reason it is absolutely vital to run the background reports based on the address history of the subject.

The second thing I want to know is has this tenant ever had any judgments, liens, or bankruptcies.  If they rented in the past and defaulted or caused a hardship on a previous landlord they most likely have a judgment against them if the landlord turned them into any form of collection.  If bankruptcies or liens show up in the tenant history it also gives a good example of how responsible they have been with their bills in the past as well.

There are a couple really cheap supplemental reports which are optional, but often a good idea.  Performing a SSN validation usually only costs a couple dollars and confirms this person is who they say they are.  A good SSN validation will also include complete address history.   You can also search the federal government maintained terrorist database if you are so inclined.

Running a credit report used to be on my list of must have reports; however, rules have recently changed which prevent private landlords from running credit reports.  If you have the ability, I find verifying a tenant’s current bills, including their new rent payment, vs their income is useful to see if they can afford to rent.

So why is it that 90% of landlords aren’t properly screening their tenants?  It usually boils down to choosing the wrong screening vendor, or product.   From my research, most landlords run what is usually referred to as a “nationwide criminal” report because it sounds like it searches the whole country, and usually is fairly cheap.   The unfortunate part is, these reports often do not do an exhaustive search of every state’s records and therefore do not have complete or accurate results.   They more often than not are very old databases as well.  It is vital to know your tenant’s address history so you can choose the correct databases to search.

The second important thing to know is if the records you received valid.  If you receive a hit on a statewide search, it is absolutely critical to check with the county in which the record originated to ensure validity.   In fact, a landlords use of non-public information is dependant on this step.  You must verify a record with the county prior to using the information as a basis for rejecting an application.   Your screening agent should be able to do this for you.

Finally, one last critical point to address.  Run background reports on every applicant.  This includes husband, wife, roommates, co-signers and anyone over the age of 18 who is going to be living in the household.  Most landlord charge an application fee per-person to cover these expenses.  It is completely expected nowadays.

Rentec Direct now offers complete tenant screening integrated into our already popular property management software!   We provide you by default our Intellisearch query which, at no cost to you, searches your prospective tenant’s address history and tells you which reports you need to run to get accurate results.  We back it up with statwide criminal comprehensive searches, county level queries, judgement and liens searches, as well as an array of important supplimental searches.  We also are offering 30% off regular pricing which makes Rentec Direct’s tenant screening the most economical choice available!

We designed Rentec for individual property owners and investors who own and manage their own properties. Rentec direct is designed for you, the investor who may do property investing full time or part time and you own from one to one hundred properties.  The owners and designers of Rentec Direct are landlords too and we know what it is like to manage a handful of properties without the need or expense of paying a property management company.  We found the need to create Rentec Direct because there was no software application available that fit our needs fully as landlords.  As a current or potential landlord yourself, you may have experienced the same.

Rentec is built from the ground up to meet the needs of landlords managing typically between 1 to 100 properties.  Very rarely do we see a landlord or small team managing a larger set of properties, so we are able to fine tune the software to work best for this niche.

Another driving factor for us in offering Rentec for free is that generally we feel life has treated us pretty darn good.  I personally have the best family one could ask for, great friends, and live in beautiful Southern Oregon.  All this came from a lot of hard work, the help and support of our community and country, and perhaps a little luck.  One of our goals with Rentec is to give something back.  There’s thousands or more man-hours put into developing Rentec Direct, and we give away most of that for free.  It’s our way of contributing back to the landlord and investor community and saying Thank You in general.

Rentec Direct is FREE for individual landlords.  There’s no risk to try it out, so take it for a spin today.

There are many advantages to investing in real estate that you cannot get from investing in the stock market or other typical investment vehicles.

1. Real Estate as a Wealth Creator Appreciation on houses has been throughout history (yes even through the depression and our current economic crisis) on average a 10% gain which equates to doubling in value every 10 years.  This is not a bad ROI (Return on investment) particularly when you consider some of the other benefits of investing in real estate which I have listed below.
2. Real Estate as a Money maker Positive cash flow is a key ingredient to any successful real estate investor whether it is $20 or $2,000, be sure that your investment pencils because you don’t want to end up in a negative cash flow situation.  This income is passive income and is not subject to Social Security and Medicare withholding and is “un-taxed” in other ways such as seen in #4 Tax Advantages.
3. Intelligent Leveraging Multiply your buying power and earning capability by up to 90% by using the banks money.  This is a huge advantage over other investment types, leveraging +appreciation=exponential growth capabilities.
4. Tax Advantages You can reduce your tax burden tremendously from depreciating the structures you own, passive losses, and through rolling over profits into another investment through a 1031 tax deferred exchange.  You can write-off business expenses and if you’re a real estate professional (spend more than 50% of your time investing in real estate) there are even greater tax benefits.
5. Less Risk The risks of investing in real estate can be mitigated through legal strategies, insurance, and other means that are relatively inexpensive and simple to understand and incorporate.  The stock market however can be unpredictable and volatile while real estate on the other hand is fairly predictable if you know what you’re looking for.

The housing prices have fallen and the deal of a lifetime is waiting around every corner so start looking today!

I’d say this is completely ridiculous.  The foreclosures are caused by two groups of buyers.  The widely publicized primary residence homeowners who were convinced to sign into an adjustable rate mortgage, and the lesser heard of builders who secured construction loans for building their projects, and then converted them to investment loans once the project was complete.

I truly feel for the first classification of folks.  To be booted out of your primary residence because the bank increased your rate is absolutely a shame.  Some may say shame on the buyer, and yes, that is somewhat true.  They should have read those 85 pages of small print text provided at closing.  But I say shame on the banks, and more importantly the brokers who sold these loans.

Now the builders, therein lies the true catalyst to this problem.  Construction loans are often short-term and high rate.  Builders across the nation over the past few years have over-built, and now so many brand new homes sit vacant.  The builders converted the loans to residential non-owner occupied loans, and those are the loans they are defaulting on because they can’t sell their houses.  For those of us who actually use residential non-owner occupied conventional financing for true investment properties, we are penalized.  Because such a high percentage of converted construction loans are defaulting, not only are the banks increasing restrictions on non-owner occupied loans, but so are the mortgage insurance companies.

There’s a few ways around this new guideline.

• If your already at 4 or greater properties, consider your wife, husband, or significant other.  If their credit report shows them on less than 4 real-estate loans, they may qualify.
• Most portfolio lenders do not use this guideline, you’ll pay around 3/8 to 1/2 percent point higher rate, but they look at the property and your management rather than a strict rulebook.  If you work with a mortgage broker, ask them to talk to their portfolio lenders.  If they don’t have any, find a different broker.
• Most all credit unions have a private financing department.  Loans which are fulfilled in house and not sold on the secondary market.  Ask them if they have in-house financing available for real-estate.  I find most credit unions have about the same rates as portfolio lenders.
• Private money is the final option I’ll suggest.  Contrary to popular belief, private money is available to qualified investors.  It takes some work to procure though.  The REI Brain (a real-estate blog) has excellent information and resources about private money.

Regardless if you do qualify for conventional financing, or need to seek out a portfolio lender your going to need impeccable records.  Lenders want to know they are lending to a sound person or organization who maintains positive cashflow on their properties.  The best way to keep your records organized is to use property management software specifically designed for the purpose.

What does it take to get those properties though.  That’s where so many investors are running into trouble.  Conventional lending is shot.  Let’s face it, although every man and woman in the US just donated roughly $7.000 to finance the “mortgage bailout”, all the banks have done is buy up other banks with that money and it has not loosened up lending restrictions.  Quite the contrary really.  Lending restrictions are tighter now than I’ve ever seen.  A+ credit is no longer 720+.  You need 760+, and in some cases 780+ to get a lenders best rate.  While the richest people get a little richer, the average investor’s life becomes a little harder.

Aside from the tips everyone knows about (don’t pay late, etc); here’s some tips to improve your credit, and maintain it.

• Make sure your credit cards are increased to their maximum level.  Your credit line with the major banks should equal 25% – 35% of your annual gross income.  If your limit is not there, call them and ask for a credit increase.  The most compelling line I give is:  “I’d like to see my credit line increased.  Frankly, some other banks have given me larger lines and so I carry their cards in my wallet so I’m prepared for a large purchase.  Your card only offers me $x and therefore it’s not as valuable to me”.  I’ve yet to be turned down for a credit line increase with that reasoning.  If you don’t have a credit card with a higher balance than the one your asking for an increase on, come up with another reason, don’t fib.
• Use your high limit cards, even if it’s for smaller purchases.  Cycle the card in your wallet every month or find another way to cycle them.  The reason for this is banks, even the larger ones, are reducing credit lines automatically.  Amex has recently sent out thousands of letters to consumers stating their credit line is being reduced because they believe the consumer does not need that high of a line.  If this happens to you, your credit score will take an immediate dive because your ratios of used credit to available credit will go down.
• Pay down your revolving lines.  If you have any home equity or 2nds that are considered a revolving line, I suggest paying them down as quickly as you can.  Get them below the 50% level so they are not negatively impacting your score.  Your conventional loans don’t matter.  A 30yr conventional loan, regardless the balance, will typically improve your score.

Aside from these items, keep your expenses low and income consistent.  A good way to reduce your expenses immediately is to begin managing properties yourself.  Also use a free property management software to manage those properties with minimal effort and time.  A lot of people predict tough times ahead and it is best to prepare now.  For those prepared, there will be abundant opportunities for property owners and the like to do very well.

• Product Updates
• New Features
• General Landlord Information and Resources
• Links and Reviews of the Competition
• Other relevant articles and topics for Property Owners
• Maybe a little humor now and then

Stay tuned for some great upcoming articles.  We already have a few in the queue which will release shortly.