The Hogue Group, part of Keller Williams Louisville East

So you feel like you want to invest but you are not sure where to start. I work with quite a few investors and all of them are buying now. the market may not be at the bottom so having several methods of investing will serve you the best. For the most part purchasing higher cost properties for flips may be the type investment you may have to hold for a while (12- 18 months) in order to reap the highest return. Also any flip should be worked from middle of the road to upper end on finishes, when it comes to getting the most for your money in returns.

Some of the investment properties on the market now should be considered as hands off, especially if you check for liens on them from city and state. Coming into Spring the prices will fall fast on empty investments as the city will be more apt to put someone out to mow the grass or board up windows and then put a lien on the property,

I found that two of my properties that I had listed were on what is known as Administrative Demolition. This comes about after countless times of the city or county fining the owner and not having any contact with them. In that instance the government came approach a property and level it to the ground and you still owe the fines!! Those properties have been taken off the list, but if you are working with out of town owners you need to check to be sure there are no problems with the property they want to list.

From 2005 to 2008 the boom got quite a few people into the investment market most paying the highest prices for property ever, or buying a what was thought to be really great deal with much higher tax assessments. The problem with this theory is that the investors depended on the market continuing to increase and leveraged their purchase price by borrowing on the properties to the point that the lender would allow them to. Sometimes allowing the investor to purchase 1 property and leverage to buy 3 more. Some of these investors did this to the point that every time they bought one of these properties they leveraged it multiple times. Not only that but some of the investors who were renting as is were not investing any of this capital back into the properties to make them better places to live. So now in 2011 many of those properties have gone into deterioration and are at points of major refurbishing required. Imagine the 10′s of thousands of homes that this has happened to across the nation. Imagine those homes that were abandoned that were broken into for the copper to be stolen so someone could make a few dollars and the continued demise of the properties comes about due to water damage or fire from copper pipe fittings on gas etc. Tack on the fact that the government has put out new rules on handling lead based paint, Radon, disposal of asbestos materials and so on.

Now in comes the new investor of 2010 and 11, wanting to invest and make lots of money. I can honestly say to you, “Move slowly grasshopper, buy slowly and sell quickly.” Have multiple plans for moving your property. Rental, Rent to own, lease option, or flip. I have one client that is purchasing a very much less than perfect duplex for about 8500. His plan is to renovate with new roofs, central air, furnaces, hot water heaters, kitchens, bathrooms, paint, soffets, windows, about 20k in repairs. Seems like lots of money for a low end property, but think of it this way on cash flow, each unit is a 3 bedroom 1 or 2 bath unit. Each will rent for 700 per month. That is equal to 16800.00 per year and say that you put one fourth of that back each year for repairs. That would mean that within 27 months you have cash flowed the cost out of the unit. This makes this a wise decision and one you would definetly want to go ahead with. Where else can you have cashflow on that investment in less than that?

Be cautious on your investments, do not over-extend yourself, keep your investments to no more than you can afford to loose.

Next month I will talk about getting the best deals on contractors, appliances and much more.

For all of your needs whether investing, buying a new home, selling and moving up, The Hogue Group with Keller Williams Louisville East can aid you in your quest.

Rick Hogue REALTOR
The Hogue Group
A Place to Hang Your Hat and Call Home
http://www.louisvillekyhomefinder.com

I remember watching George Jetson when I was younger and seeing the flying cars and paperless environment.

With the company wide adoption of eEdge, Keller Williams has put a mighty foot forward in telling the world that we care about the environment. In the months to come Keller Williams associates will be using Ipads and Droids, and Mobile Windows Pads to build documents, show them to clients and from start to finish have no paperwork for a transaction.

Imagine, in Kentucky there is a 7 page document called a sales contract that is normally printed on one side of the paper, a 3 page sellers disclosure (also one sided), an agency agreement form, an equal housing form, a two page what is agency acknowledgment, an affiliated supplier form, various addendums, HUD forms, Short Sale addendums, Foreclosure forms, Lease option forms, Land contracts, commercial sales form, commercial lease form, financial reports, closing papers, and on and on.

Imagine 200 pieces of paper for each transaction, times 81000 agents, times an average of 25 transactions per year. Can you imagine how many trees it would take to make 405 million pieces of paper in one year? 1 tree makes 16.67 reams of copy paper or 8,333.3 sheets. That is a minimum of 4360 trees saved per year. It is also approximately 71.47 acres of trees. Now that does not include the thousands of emails that are printed each month by agents or the special presentations and flyers. In addition there are over 600,000 total licensed Realtors in the United States and Canada. That brings that acreage up to 529.6 acres. In less than ten years of paperless Real Estate transactions we would save enough trees to completely cover the District of Columbia (Washington) with each tree 12 feet apart from each other. In all there are over 1.3 million real estate agents according to several sources, with the difference being those that are members of the NAR being the 600k and the balance as non-members who can not use the title Realtor. So just think about it, assuming every licensed and non-licensed agent in the country going paperless  would mean we could plant enough trees to cover the largest state Texas with trees in 131399 years. That may seem a long time but think about it, this is just one industry and Keller Williams is leading the way in making this become a reality.

So the next time you see your Keller Williams agent, Save a Tree, Hug a Keller Williams Realtor.

Rick Hogue REALTOR
The Hogue Group
A Place to Hang Your Hat and Call Home
http://www.louisvillekyhomefinder.com

Ask a roomful of homeowners what’s so great about owning versus renting, and you’ll hear them holler in unison: “the tax deductions!” And it’s true – homeowners who itemize their taxes are able to deduct 100% of their mortgage interest and property taxes from their income tax returns.

That means that if you’re in a 28% tax bracket, Uncle Sam effectively subsidizes about a third of your borrowing costs or more, making your home more affordable or allowing you to buy a larger home than you could have otherwise. Also, big chunks of your closing costs are tax deductible, and hundreds of thousands of dollars of any profit (or capital gains) that you realize when you sell your home are exempt from income taxes.

At tax time, it’s critical to know what you’re entitled to, so you can claim it. So, here are five essential need-to-knows about home-related income tax tips to help you get the most tax-reducing bang out of your home-owning buck – and to avoid hefty home ownership-related tax traps.

1. You Have to Itemize Your Return to Claim Your Deductions

During the recent debate on Capitol Hill about whether the mortgage interest deduction should be eliminated (it won’t be, not anytime soon), it came out that nearly 40% of homeowners lose out on their major tax advantages every year when they fail to itemize their income taxes. If you own a home and otherwise have a fairly simple return, it might be tempting just to take the standard deduction – and if your mortgage, property taxes and income are low enough, the standard deduction might outweigh your homeowners’ deductions. But you’ll never know if you’re losing out on the tax advantages of itemizing unless you try; before you grab a pen and start filling in that 1040-EZ grab those forms from your mortgage company and answer the questions on tax software like TurboTax, which will automatically do the math on whether itemizing or taking the standard deduction will result in the lowest tax bill – or the highest tax refund – for you.

2. Plan Ahead and Be Strategic When Taking a Home Office Deduction

According to the Small Business Administration, the average home office deduction is $3,686 – multiply that by your tax bracket – 15%, 20%, 30% or whatever it is, and that’s what you’ll save on your taxes by writing off your home office. Know, though, that the space you designate as your home office cannot be exempted from capital gains tax when you sell your home later. The $250,000 (single)/ $500,000 (married filing jointly) income tax exemption for capital gains is only good on your personal residence, after all – not including any space in your home you’ve claimed as your tax-advantaged office. If you foresee selling your home for much more than you bought it in the future, near or far, discuss this with your tax preparer to see if the few hundred bucks you save is worth the capital gains complication later.

3. Tax Relief for Loan Modifications, Short Sales and Foreclosures Is Only Around Through 2012

While the long-term housing outlook is beginning to look up, 2011 is projected to be the peak year for foreclosures during this market cycle. Distressed homeowners who are on the brink of a short sale, loan modification or foreclosure should be aware that normally, any mortgage balance that is wiped out by one of these outcomes is taxed as what the IRS calls Cancellation of Debt Income, or CODI.

Under the Mortgage Debt Forgiveness Relief Act of 2007, the IRS is currently not charging income taxes on CODI incurred through a loan mod, short sale or foreclosure on most primary residences through 2012. But right now, banks are taking many months, or even years, to work out mortgages in all of these ways; the average foreclosure in New York state right now occurs only after 22 months of missed mortgage payments. If you foresee any of these outcomes in your future, don’t put things off. Do what you can to get to closure on your distressed home and loan, ASAP, while you won’t have income taxes to add as the insult on top of your significant housing injury.

4. Project the Income Tax Consequences of a Refinance or Property Tax Appeal

Homeowners everywhere are working on applying for a lower property tax bill on the basis of the last few years’ decline in their home’s value. Those who have equity have flocked en masse to refinance their 7% home loans into the 4% to 5% rates of the last few months. These strategies offer some of the heftiest household savings out there for the corresponding investment in time and money they take. But here’s a caveat for savvy homeowners who slash these costs: remember that property taxes and mortgage interest, the very costs you’re minimizing, are also the basis for the major tax benefits of being a homeowner. So plan ahead for your income tax deductions to go down along with your taxes and interest.

5. Don’t Forget Those Closing Costs

If you bought or refinanced your home in 2010, you may be so focused on your mortgage interest and property tax deductions that you forget all about your closing costs. Any origination fees or discount points that were paid to your mortgage lender at closing are tax deductible on your 2010 return, get this – even if the seller paid your closing costs. If you can’t figure out exactly what you paid, look for your HUD-1 settlement statement, that legal sized paper full of line item credits and debits that you should have received from your escrow provider or title attorney at, or just after, closing. Can’t find it? Drop your real estate agent or mortgage broker an email; they can usually get a copy to you quickly.

Note: This post first appeared on WalletPop.com on 2.28.2011.

Inman News™
March 04, 2011

Every year, thousands of real estate professionals pay more tax than they need to because they fail to take all the deductions to which they are legally entitled.

The Internal Revenue Service will never complain if you don’t claim all the deductions you can. It’s up to you and your tax preparer to figure out what you can deduct, keep proper records, and claim deductions on your return.

Every dollar in deductions you fail to take can cost you 40-50 cents in extra taxes — money the IRS is happy to keep.

Two of the most often overlooked deductible expenses arise from doing business from your home.

Home-office deduction

Probably the No. 1 deduction real estate pros miss is the home-office deduction.

Many erroneously believe they don’t or can’t qualify for this deduction.

Untrue. Almost any real estate agent or broker who works as an independent contractor can qualify for the home-office deduction.

This is the case even if you work out of an outside sales office and/or spend most of your time on the road and at the properties you’re trying to sell.

In addition, many real estate pros are afraid to take this deduction because they have heard that it is a red flag for an IRS audit. The IRS says this isn’t the case.

The home-office deduction may have been an IRS audit flag over a decade ago, when the rules for claiming it were more restrictive than they are now. But there is no reason to believe that claiming it today significantly increases your chances for an audit.

It’s important to understand that you don’t have to spend all of your work time in your home office or even perform your most important business activities there to qualify for the home-office deduction.

You can qualify for this deduction if you have a home office that you use exclusively and regularly for administrative or management activities for your real estate business, and you have no other fixed location where you regularly perform such activities.

Administrative and management activities can include, but are not limited

to:

* keeping books and records;

* setting up appointments;

* paying bills;

* maintaining client databases or contact lists;

* reviewing real estate publications; or

* engaging in real estate continuing-education activities.

This means that you can qualify for the home-office deduction even though your home office is not where you generate most of your income. It’s sufficient that you regularly use it for the administrative and management activities you regularly perform for your real estate business.

As long as you have no other fixed location where you regularly do these activities — for example, a desk you use at your brokerage office — you’ll get the deduction. Moreover, you can qualify for the deduction even if you could conduct administrative or management activities at an outside office but choose to use your home office for those activities instead.

The home-office deduction is particularly valuable for renters because it allows you to deduct a portion of your rent. The amount you can deduct is based on the percentage of your home that is used for your home office.

If you own your home, you have the option of deducting the home-office percentage of your mortgage interest and property tax payments as part of your home-office deduction. Since this is a business deduction, not a personal deduction, it reduces the amount of your business income subject to self-employment taxes, as well as reducing your income taxes.

The self-employment tax is 15.3 percent, so you can save $153 in self-employment taxes for every $1,000 in mortgage interest and property taxes you deduct as part of your home-office deduction. If you do this, you may not deduct this amount on your Schedule A (you can’t deduct the same item twice).

You can also deduct the home-office percentage you pay for utilities, home maintenance, insurance, and condo association fees.

There is one catch to the home-office deduction: You cannot deduct more than the net profit you earn from your business. If your real estate business earns very little or loses money, this limitation could prevent you from deducting part or even all of your home-office expenses in the current year.

If your deductions exceed your profits, you can deduct the excess in the following year and in each succeeding year until you deduct the entire amount.

There is no limit on how far into the future you can deduct these expenses; you can claim them, even if you no longer live in the home where they were incurred. So, whether or not your real estate business is making money, you should keep track of your home-office expenses and claim the deduction on your tax return.

Office expenses in the home

Many real estate pros believe that they can’t deduct any expenses they incur while working at home unless they qualify for the home-office deduction.

This is a myth that has cost many real estate pros valuable deductions.

Even if you don’t qualify for or take the home-office deduction, you can still take tax deductions for expenses you incur while doing business at home. These are expenses that arise from the fact that you are doing business, not from the use of the home itself. These include:

Telephone expenses. You can’t deduct the basic cost of a single telephone line into your home, but you can deduct the cost of long-distance business calls and special phone services that you use for your business (such as call waiting or a message center). You can also deduct the entire cost of a second phone line that you use just for business, including a mobile phone.

Business equipment and furniture. The cost of office furniture, copiers, fax machines, and other personal property you use for your business and keep at home is deductible, whether or not you qualify for the home-office deduction.

If you purchase these items specifically for your real estate business, you can expense them (deduct them in one year) under Internal Revenue Code Section 179, or depreciate them over several years.

If you use the property for both business and personal reasons, the IRS requires you to keep records showing when the item was used for business or personal reasons — for example, a diary or log with the dates, times and reasons the item was used.

Supplies. Supplies for your real estate business are currently deductible as an operating expense if they have a useful life of less than one year.

Otherwise, you must depreciate them or expense them under Section 179.