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Matusich & Raich Real Estate Services

  • 01/15/2014

    So You Bought a Rental Property and Now You’re a Landlord. How Hard Can It Be?


    January 2014


    So You Bought a Rental Property and Now Youre a Landlord.

    How Hard Can It Be?

    BY SANDY ADAMS

    PRESIDENT, RENTAL HOUSING NETWORK

    A while back I was talking to a newlandlord who had justpurchased a six unitbuilding. I remember him saying, “Allyou need is common sense. Thats it, really? There are many good property managers who wish that were the case.

    Here are some of the things you mightwant to consider before youtake on the task of managing your ownproperty. Do you know what the staterequirements are for smoke detectors and carbon monoxide detectors?

    Do you know your stateand local codes for such things as outlets and entry locks? Do you know how to market your rental to get qualified applicants?

    Are you familiar with regulationson lead and asbestos abatement? Have you set qualifying guidelines for prospectivetenants?

    Do you have the ability torun a credit report? Do youknow how to read the credit report?

    Are you familiar with the FairHousing laws, both state and federal? Are yourforms up-to-date with all the clauses required in California? Do you know how toproperly fill out& serve your notices?

    Is your property under rent control?

    Does your city require any disclosures to tenants?

    Do you know what would make your property “uninhabitable?” Do youknow what would be considerednormal wear and tear? What do youdo if the tenant breaks the lease?

    What do youdo if the tenant withholds rent?

    Do you know the difference between a service animal and an emotional support animal? Do youknow the difference between a modification and an accommodation?

    Under what circumstances can you enter the property? How do you terminate the tenancy?

    How do youevict a tenant?

    What are the regulations for barbeques,wood burning fireplaces, signs, etc.? Can youmanage a property owned by someone else?

     

    Theseare just a few of the questions youwill need to answer while managingyour rental properties. Let’sreview some real scenario’s you couldface.

    Thetenant reports he is feeling sick with textbook symptoms (right off the internet) resulting from the mold on the

    window sill in his bedroom.

    Thetenant reports water intrusionin their unit caused from a flood in the condo above which is owned by another

    individual. The owner of the unit above is non-responsiveto yourrequest for assistance.

    The tenant has informed youthat he is withholding his rentbecause he occasionally gets brown watercoming from his shower. Further, he makes it difficult (not a good time) for your plumberto schedule an appointment to investigate the problemhe’s reporting.

    Eventhough the previous tenant had no pet, the week after the new tenant moves in he calls you ranting that thefamily room smells like cat urine.He demands that you send someone out immediately to replace the carpet becausehe is suffering with headaches from the unbearable odor. In the meantimeone of your vendors, who had been working in the house,finds this humorous because he saw twocats running down the hall after the new tenantmoved in.

    You are contactedby FairHousing notifying you of a discrimination claim based on responses you gave to different individuals who called on your rental ad. The assumed incident took place 10 months before you were notified of a violation.

     

    In addition to yourwork day amusement, there arethe after-hours or last minute emergency calls. Here area few of those.

     

    It’sthe day before Thanksgiving and the tenant reports the oven isn’t working.It hadn’t worked in two weeks. They didn’t report it becausethey didn’t want to bother you, buttomorrow is Thanksgiving and they would like to use their oven.

    It’sSunday afternoon and you receivean emergency call. Thetenant is using the emergency number to report that the rod in her closet has fallen down. I guess her clothes were getting wrinkled which could be considered an emergency for some people.

    It’smidnight and you’re awakened with a call from your tenant letting you know thatone of his toilets is clogged.The property has three toiletsbut only one is clogged.

    It’s late Fridaynight when you receive an emergency call from yourtenant. The tenant says the poweris off on the entire streetand you need to call the electric company.

     

  • 10/16/2013


    TAX BREAK REPORT: BUY PARENTS HOME AND RENT IT BACK TO THEM
     Do you have parents that live in a home that has appreaciated in value (This is like an endangered species but it really does exist!), but they no longer benefit from home ownership tax breaks during their retirement years ? Perhaps the mortgage is paid off or the payments represent mostly principal at this point and thus they do not have a mortgage write off. Or they are in a low tax bracket during retirement and don't need the benefits of the mortgage interest deduction. Most retirees take the standard deduction rather than itemize on their returns.
    A sale/leaseback option may be the route you should consider. Why ? It could be a win/win situation for you both. If you pruchase your parents' house, they gain instant access to the equity (without the hassle of moving) and you would pick up some generous new tax deductions. 
    Why should your parents opt into this ? First, it puts cash in their pockets without having to refinance or dip into home equity line of credit. Second, it allows them to put their money into safer investments than the real estate market. To avoid gift tax implications, make sure you pay a fair price for the home. Important: Support the purchase price with a qualified independent appraisal.
    When the purchase transfer is complete, the next step would be to enter into a lease at fair rental value.
    Courts have said that landlords can reduce their fair market rent by 20% when renting to relatives. The lower rent takes into consideration that your relatives will take better care of maintenace of the property than an outside tenant and thus reduce mnagement costs. (L.A. Bindseil, TC Memo 1983-411)
    Be careful not to set the rent too low or the IRS will argue that the home is really for your personal use and would treat the property as a vacation home for tax purposes.
    Once you own the property, you are entitled to take the benefits of owning rental property. You can write off all the operating expenses such as utilities, maintenance, insurance, repairs, property tax, etc. You can also claim depreciation deductions for the home. The operating costs will be used to offset the rental income from your parents. Add the depreciation into the mix and you should generate a book loss for tax purposes which can be used to offset passive income activities. (Keep in mind that you can take up to 25k in loss against your ordinary income if your adjusted gross income is under $100,000. After that, the amount of loss you can take during the tax year will phase out between $100,000-$150,000. The suspended loss will carry forward until you can use it against other passive income or until you sell the property.)
    If you have any questions regarding this article, please feel free to E-mail us at info@matusichraich.com.