What tax impact will disasters have for Houston rental property owners?

Once it’s finished, 2017 will be remembered as one of the toughest years in recent memory especially thanks to Hurricane Harvey which formed on August 17th, carving a path of destruction in Houston and along the Gulf Coast until it dissipated on September 3rd.

What Tax Impact Will Natural Disasters Have For Property Owners In Houston?

When a major disaster occurs, the IRS normally tries to help the victims out by extending tax deadlines. After all, no one wants to have to worry about making tax payments or filing returns while their property is underwater or destroyed by a fire. For example, victims of Hurricanes Harvey, Irma, and Maria will not be required to make most types of tax payments and filings until January 31, 2018.

The IRS automatically identifies taxpayers located in a covered disaster area and applies the extended deadlines. Thus, to benefit from the extended deadlines, your rental property simply has to be located in a federally declared major disaster area. There is no need to ask the IRS for a deadline extension. You can determine if an area has been declared a disaster area by checking the FEMA website.

Deducting Losses from a Disaster

Insurance is always the first line of financial defense when disasters occur. However, not all rental properties are fully covered for losses due to natural disasters. Some types of losses may not be covered at all. For example, losses due to floods, hurricanes, and earthquakes may not be covered unless the property owner has obtained a supplemental policy. Even if a loss is covered, the property owner may still have to pay for part of the cost of repairing or replacing the rental property.

Fortunately, any uninsured casualty losses are deductible by rental property owners, subject to certain limitations. A “casualty” is damage, destruction, or loss of property due to an event that is sudden, unexpected, or unusual. Deductible casualty losses can result from many different causes, including (but not limited to):

  • Earthquakes
  • Fires
  • Floods
  • Government-ordered demolition or relocation of a building that is unsafe to use because of a disaster
  • Landslides
  • Sonic booms
  • Storms, including hurricanes and tornadoes
  • Terrorist attacks
  • Vandalism, including vandalism to rental properties by tenants
  • Volcanic eruptions

One thing that all of the events in the above list have in common is that they are sudden—they happen quickly. Suddenness is the hallmark of a casualty loss. Thus, loss of property due to slow, progressive deterioration is not deductible as a casualty loss. For example, the steady weakening or deterioration of a rental building due to normal wind and weather conditions is not a deductible casualty loss.

The Role of Insurance After a Disaster

A rental property owner may take a deduction for casualty losses only to the extent that the loss is not covered by insurance. If the loss is fully covered, there is no deduction. A property owner can’t avoid this rule by not filing an insurance claim. Indeed, a timely insurance claim must be filed, even if it will result in cancellation of the property owner’s policy or an increase in premiums.

The amount of the claimed casualty loss must be reduced by any insurance recovery received, or reasonably expected to be received if it hasn’t yet been paid. If it later turns out that the property owner receives less insurance than expected, the owner can deduct the amount the following year. If the owner receives more insurance payments than expected, the extra amount is included as income for the year in which it is received.

Amount of Casualty Loss Deduction

How much a rental property owner may deduct depends on whether the property was completely or partially destroyed.

If the property is completely destroyed (or stolen), the deduction is calculated as follows:

Adjusted basis – salvage value– insurance proceeds = Deductible loss

Adjusted basis is the property’s original cost, plus the value of any improvements, minus any deductions taken for depreciation or Section 179 expensing. The adjusted basis for rental buildings, land improvements, and landscaping are each determined separately. Adjusted basis should be easily found from a rental property’s depreciation schedules and/or tax returns filed for the property. Salvage value is the value of whatever remains after the property 
is destroyed; in cases of total destruction, this is often nothing.

If the rental property is not completely destroyed, the amount of the casualty loss is the lesser of 1. The property’s adjusted basis or 2. The decrease in the fair market value of the property due to the casualty, minus any salvage value and insurance proceeds.

An appraisal can be used to determine the reduction in fair market value of partly damaged property, as well as salvage value. Alternatively, the cost of cleaning up or making repairs after a casualty can be used as a measure of the decrease in fair market value if all of the following conditions are met:

  • The repairs are actually made
  • The repairs are necessary to bring the property back to the condition it was in before the casualty
  • The amount spent for repairs is not excessive
  • 
The repairs are for the damage only
  • 
The value of the property after the repairs is not greater than its value before the casualty

The amount of a casualty loss to rental property must be calculated separately for each item that is damaged or destroyed. This may include a rental building, landscaping, and other land improvements apart from the building. However, it is not necessary to separately deduct personal items inside a rental property, such as appliances.

Example of Casualty Losses

John’s rental building suffered wind damage due to a hurricane. The hurricane not only damaged the building, but damaged his landscaping—trees and shrubs—as well. John must separately calculate his casualty loss for the building and
 the landscaping. The adjusted basis of the building is $566,000. The trees and shrubs have an adjusted basis of $10,000. John hires an appraiser who determines that the fair market value of the building immediately before the hurricane was $700,000, and was $650,000 immediately afterwards. The fair market value of the trees and shrubs immediately before the casualty was $4000, and afterwards was $500. John’s insurance did not cover hurricane wind damage, so he expects to receive no insurance proceeds.

John calculates his casualty loss for the building as follows:

  • Adjusted basis of rental building before hurricane: $566,000
  • Fair market value before hurricane: $700,000
  • Fair market value after hurricane: 
$650,000
  • Decrease in fair market value: $50,000
  • Amount of loss (line 1 or line 4, whichever is less): $50,000
  • Insurance reimbursement: 
0
  • Deductible casualty loss = $50,000

John separately calculates his loss for the landscaping as follows:

  • Adjusted basis of landscaping before hurricane: $10,000
  • Fair market value before hurricane: $4,000
  • Fair market value after hurricane: 
$500
  • Decrease in fair market value: $3,500
  • Amount of loss (line 1 or line 4, whichever is less): $3,500
  • Insurance reimbursement: 0
  • Deductible casualty loss 
= $3,500

Deducting Losses in Federal Disaster Areas from Prior Year Taxes

Casualty losses are generally deductible in the year in which the casualty occurs. However, if a deductible casualty loss occurs in an area that is declared a federal disaster by the president, the property owner may elect to deduct the loss for the previous year. This will provide a quick tax refund, since the owner will get back part of the tax paid for the prior year. If the owner already filed the tax return for the prior year, an amended return for the year must be filed.

Casualty Gains

It’s quite common for a rental property owner to have a casualty gain rather than a loss. This occurs when the insurance reimbursement an owner receives exceeds the adjusted basis of a property that has been completely destroyed.

Example of Casualty Gains: Part 1

Sheila owns a rental building with a fair market value of $500,000. After years of depreciation deductions, its adjusted basis is $250,000. The building is totally destroyed in a fire. Sheila receives $480,000 in insurance proceeds. She has a $230,000 casualty gain.

A casualty gain is taxable income. However, the property owner need not pay tax on the gain the year it is received if the owner replaces the destroyed property and the cost exceeds the insurance recovery. Instead, the gain is postponed until the replacement property is ultimately sold or otherwise disposed of. The basis of the replacement property is reduced by the amount of this postponed gain.

To qualify as replacement property, the new property must be similar or related in service or use to the property it replaces. However, the rules are more liberal if the destroyed property was located in a federally declared disaster area. In this event, any replacement property acquired for use in any business is treated as replacement property. Moreover, the replacement property doesn’t have to be located in the federally declared disaster area.

To avoid paying tax on a casualty gain, the property must replaced within two years after the close of the first tax year in which insurance proceeds are received. However, if the property is located in a federally declared disaster are, this period is increased to four years.

The property owner doesn’t have to use the insurance proceeds to acquire the replacement property. Rather, the owner has the option of spending the money they receive from the insurance company for other purposes, and borrowing money to buy replacement property.

Example of Casualty Gains: Part 2

Assume that Sheila uses her $480,000 insurance proceeds to construct a new rental building. The new building cost $600,000. Sheila need not pay any tax on her $230,000 casualty gain since she reinvested her entire gain in replacement property. However, the basis of the new building is reduced by $230,000 to $370,000. This way, tax on the gain will have to be paid when Sheila ultimately disposes of the replacement property.

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Property Management Tips – Is It A Bad Thing To Own Too Many Rentals?

Are you thinking about buying rentals to add to your portfolio and are wondering if it can be a bad thing to own too many? The answer to this question is both yes and no.

Yes, it can be a bad thing to own too many rental properties unless you hire a professional property management company to manage those rentals for you.

If you’ve been “on the fence” debating if you should hire a property management company or not to professionally manage your rental properties, this article will provide you with reasons to hire a property manager.

Rent Collection

One of the biggest problems most property owners who own homes or multi-family properties have is collecting rent from their tenants each month especially when their tenants fall behind on paying.

Thankfully when you hire Vestpro Residential Services to manage your Houston Texas Rental Properties you can have confidence that your rentals will be professionally managed and rent will be collected from your tenants on time each month eliminating the need for you to contact tenants or start collections against them if they don’t pay.

Maintenance

Another big problem for some owners has been the issue of maintenance because, it’s not always easy to handle maintenance issues if you own multiple properties.

With Vestpro on your side you will have peace of mind in knowing that your tenants will call us when they have maintenance issues and this will also help you keep tenants as well because, your tenants will know that the can depend on the property management company to solve problems when they occur instead of hearing making empty promises.

Customer Service

Last of all, but most important is customer service.

Many property owners offer customer service and poor support so that whenever there is an issue at one or more of their properties it will go unresolved for weeks or months.

At Vestpro we take pride in offering great customer service so that if your tenants call in with an issue they will be served by true customer service professionals every time.

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To learn more about how Houston Texas Property Management will make your life easier contact Vestpro Residential Services today by calling us at (832) 971-1841 or click here to contact us online.

 

Need property management? Call us at 832-971-1841 or connect with us through our website.

 

 

Houston Texas Rental Market – Reasons to Have Renters Insurance

By Vestpro Residential Services

HOUSTON, TX. – Do you own rentals on the Houston Texas Rental Market? If so, there’s no denying that Hurricane Harvey was one of the worst natural disasters that we’ve ever seen and a prime example of why your tenants should have renter’s insurance.

How Should Houston Renters Get Started With Renters Insurance?

Thankfully it’s very easy to get started with renter’s insurance thanks to the Internet, any Houston renter can search online and get quotes for a renter’s insurance policy in as little as 10 minutes.

A typical renter’s insurance policy will cost a renter about $30 per month and the average deductible will be about $500.

Property owners in Houston should require their tenants to have renter’s insurance because, not only does the renters insurance policy protect the tenant if their personal belongings are damaged or destroyed due to fire or some other act of God, the renter’s insurance policy also acts as a liability policy by protecting the tenant if one of their guests is injured and needs medical attention while they are in the tenant’s rental property.

Besides covering the medical costs and expenses, the renter’s insurance policy will also cover the tenant’s legal costs as well.

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For professional property management contact Vestpro Residential Services today by calling us at (832) 971-1841 or click here to connect with us online.

Houston Texas Rental Market

Pool Safety Tips To Start Using Now

The “dog days” of summer are officially here and for the coming months we can expect temperatures in the Houston area to reach the triple digits.

If you own a rental property with a pool or spa area it’s more important than ever for you to be enforcing pool safety rules because not only will this protect your tenants, it will also protect your best interests as well and avoid any accidents, injuries or lawsuits at your swimming pool.

Pool Safety Tips You Should Start Using Now

  1. Install anti-entrapment drain covers. Make sure that your drain covers are compliant with the Virginia Graeme Baker Pool & Spa Safety Act of 2007. Virginia was the 6-year-old granddaughter of former Secretary of State James Baker. She was killed in 2003 when the suction from a hot tub drain caused her to drown. The federal law was named in her memory. Between 2012 and 2016, 17 people were trapped by drains, 14 of whom were younger than 15 years old. 2 of those victims drowned, both in residential spas.

  2. Use safety vacuum release systems with pool pumps. If the pump detects a change in vacuum pressure that could be caused by a person’s body, the pump will either shut off, or the system will inject air into the pump. This will free the person from the suction, thereby preventing drowning.

  3. Educate parents on community pool safety tips, including keeping children away from pool drains.

  4. Train staff on first-aid and lifesaving techniques. Have a Red Cross employee train your staff and any interested residents on community pool safety.

  5. Child-proof pool enclosures. Fencing around your pool area should be at least 4 feet high. Check for areas where older children could sneak through. Make sure that gates are self-closing and self-latching, with latches out of reach of very small children.

  6. Post community pool safety rules in a prominent location. In writing these rules, residential managers must balance community pool safety with the danger of discriminatory language. A blanket rule such as “No children under age 13” may not pass legal muster. This is particularly true in California, where we have at least two precedents: Iniestra v. Cliff Warren Investments, Inc. and Llanos v. Estate of Coelho. Both cases found that rules restricting children from using pool facilities without an adult, or keeping them away from adult-only areas, were overly restrictive and constituted prima facie discrimination. For more on this topic, check out our post Watch Your Language: What Can We Learn from Recent HUD Enforcement Actions?

  7. Enforce no-alcohol rules in your pool area. Give your security guards the authority to remove residents or guests who are disregarding community pool safety or abusing pool privileges.

  8. Don’t allow plugged-in devices anywhere near the pool deck or hot tub. You can also disable electrical outlets that are in close proximity.

  9. Prohibit glass containers in the pool area. One shattered glass endangers a lot of bare feet.

  10. Get a staff member certified in pool maintenance. Even if you subcontract pool maintenance out, it’s a good idea to have someone on staff educated in chlorination, sanitation procedures, and what it takes to maintain a busy swimming pool. Here’s a list of certified pool operator training programs from the Center for Disease Control and the National Swimming Pool Foundation.

  11. Check chlorine and pH levels at least twice a day with pool test strips. The Center for Disease Control recommends that you check for free chlorine (2-4 ppm) and bromine (4-6 ppm). The pH level should be between 7.2 and 7.8. This will prevent outbreaks of Legionnaire’s Disease, which can be caused by pathogens that develop in insufficiently sanitized water, and can spread via water vapor or droplets.

  12. Inspect pool equipment annually, such as pumps, drains, and heaters. Keep a logbook to track inspections.

  13. Inventory lifesaving supplies. Check to make sure that no one has stolen, vandalized, or lost your pool rings and rescue poles.

  14. Consider hiring a lifeguard. Outsourcing this to a lifeguard service may make sense from a liability perspective. Ensure that your vendor is insured and bonded. If your budget is tight, you can potentially hire a pool attendant rather than a trained lifeguard. You can learn about the differences between pool attendants and lifeguards on Guard for Life.

  15. Hire a pool management company. Again, a properly licensed, bonded, and insured pool management company can take the day-to-day load of pool maintenance off of your staff. It also relieves you of the hassle of storing large amounts of HAZMAT materials on-site. Furthermore, since they carry their own errors and omissions insurance as well as general liability coverage, their insurers will absorb any liability that may arise from pool-related incidents. A professional pool maintenance firm will also keep up with community pool safety-related federal, state, and local laws—something that your staff may not have time to do.

  16. Consider installing CCTV cameras to surveil your pool area. These systems are much less expensive than they used to be even a few years ago. They can feed directly to your security shed at night and help you to prevent after-hours incidents and lawsuits.

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For professional property management contact Vestpro Residential Services by calling us at (832) 498-0016 or click here to connect with us online.

 

Other People’s Money – Learn more about how this Real Estate investing principle works

Consider the goal of funding a child’s college education in the future. If “other people’s money” in the form of a scholarship is not a possibility, there still may be another way to use some “other people’s money.”

The Power Of Other People’s Money

A $25,000 investment into a mutual fund paying 5% would earn $1,250 in the first year. Alternatively, the $25,000 as a 20% down payment to purchase a $125,000 rental home appreciating 3% a year would have gone up by $3,750 or three times that of the mutual fund in the first year.

The mutual fund’s growth depends on the value of the money invested. Rental real estate benefits because a 20% down payment controls a much larger asset because you’re using “other people’s money.” Leverage allows the investor to profit not only from the amount of cash invested but from the value of the investment.

How Other People’s Money Pays Off 

With a 20% down payment and current interest rates, a typical rental would have a positive cash flow. In ten years, the equity could be $75,000. On the other hand, the $25,000 initial investment in a mutual fund earning 5% annually would only grow to about $40,000 in the same 10 years. It would require an additional $2,700 each year to reach the same $75,000 value.

Leverage is just one of the many benefits that make rental real estate the IDEAL investment. Whether you are saving for higher education, retirement or wealth accumulation, consider rental real estate. Using single-family homes as investments are attractive because homeowners have a better understanding than many other investments and self-management is a possibility.

Get Property Management Here

For professional property management contact Vestpro Residential Services by calling us at (832) 498-0016 or click here to connect with us online.

How often should your Houston TX rental property be inspected?

If you’re like most owners you’ve probably wondered how often should you have your Houston TX rental property inspected.

Should you have it inspected every three months, six months or one year? In this blog post we will answer this question and provide you with more property management tips.

How Often Do I Need a Rental Home Inspection?

So how often should you schedule a rental home inspection? It depends upon several factors:

If you have crawlspaces or a basement, you might want to invest in a rental home inspection every 2-3 years, or each time your property comes up for re-rental. You may also want to inspect this more frequently if you have older plumbing or wiring, or if your home is in an area with a lot of moisture, an extreme climate, or both.

If your home is newer and was professionally inspected when you bought it, and you don’t have major weather extremes, you can probably get away with a longer inspection cycle.

If your home has never been professionally inspected since you’ve owned it, do it now.

Another reason to have a rental home inspection is if you are planning a major renovation project anyway. Why? You don’t want to have already committed thousands of dollars to a bathroom remodel only to discover that you need to replace your furnace. Conduct a reconnaissance before you march.

Get Houston Texas Property Management Here

For affordable and professional Houston Texas property management contact Vestpro Residential Services by calling us at (832) 498-0016 or click here to connect with us online.

 

 

 

 

Tenant Screening – Changes You Need To Know

There’s no doubt that tenant screening can be one of the most complicated aspects of owning rental properties because you have to follow the requirements of the Fair Housing Act and not offend anyone. 

In 2017 tenant screening has gotten a little more complicated for owners thanks to recent policy updates from the Department of Housing And Urban Development.

HUD rolled out a 10-page policy update last year advising all landlords and property managers that using criminal history for the purpose of tenant screening may actually be discriminatory. HUD notes that nearly one-third of the U.S. population (or 100 million U.S. adults) have a criminal record of some sort, and the misuse of background checks during the tenant screening process can hinder their ability to find safe, secure, and affordable housing—a key aspect of rehabilitation. Sometimes, even those who have been arrested but not convicted have difficulty securing housing based upon their prior arrest.

Black and Latino Americans are disproportionately affected, the memo notes, as they are incarcerated at rates disproportionate to their share of the general population. Black and Latino individuals comprise an estimated 58% of the U.S. prison population, despite accounting for only 25% of the total U.S. population.

Consequently, the memo states:

Criminal records-based barriers to housing are likely to have a disproportionate impact on minority home seekers. While having a criminal record is not a protected characteristic under the Fair Housing Act, criminal history-based restrictions on housing opportunities violate the Act if, without justification, their burden falls more often on renters or other housing market participants of one race or national origin over another (i.e., discriminatory effects liability). Additionally, intentional discrimination in violation of the Act occurs if a housing provider treats individuals with comparable criminal history differently because of their race, national origin, or other protected characteristic (i.e., disparate treatment liability).

This does not mean that criminal history cannot be considered at all during the tenant screening process. Instead, HUD is basically telling landlords and property managers:

You cannot institute a blanket ban on all applicants with a criminal history.

You cannot reject a tenant based upon an arrest that did not result in conviction.

You must treat comparable criminal histories similarly without consideration of race, national origin, or other protected classes.

Because Black and Latino Americans are incarcerated at higher rates than their peers, any blanket policy for tenant screening that bans applicants with a criminal history would inadvertently discriminate against minorities. HUD cites a Supreme Court decision in reminding us that simply being arrested often has little probative value in showing that someone has actually engaged in misconduct—which is why arrests without convictions should not be used as the basis for denying a tenant.

Convictions are treated differently. Landlords and property managers may reject an applicant whose background check reveals that he/she has been convicted of a crime. There’s one big caveat: The landlord or property manager must show that excluding a person with a conviction achieves a “substantial, legitimate, nondiscriminatory purpose.” To put it simply, you have to distinguish between criminal activity that creates a demonstrable risk to resident safety and/or property, and criminal conduct that does not.

Given the new HUD guidelines, landlords and property managers should consider the following questions when reviewing a person’s criminal history:

Was the applicant convicted of a crime, or were they just arrested?

What was the severity of the crime?

How long ago was the crime committed?

Has the person reoffended since their original conviction?

Was it a drug-related crime? (HUD allows a blanket ban on those who have been convicted of illegal drug manufacturing or distribution.)

New Guidelines for Tenant Screening

HUD’s new policy memo has the downside of making the tenant screening process more complicated than it already is. It muddies the waters in terms of how landlords and property managers evaluate criminal history, as there is no guidance on which crimes should generally considered acceptable and which are not. Landlords and property managers are asked to use their discretion, with the memo acknowledging the need to look at circumstances on a case-by-case basis.

Here are a few tips to help you to comply with the new guidelines:

Screen tenants based on their financial and other qualifications first. Only conduct a background check if a person appears to be otherwise qualified. This will protect you from denying a tenant based upon another qualification, and having the tenant argue that they were denied based upon their criminal background.

If a background check reveals a criminal history, evaluate the nature of the crime (see questions above). If you plan to deny a person based upon this information, put a note in your internal file explaining why you felt a denial was appropriate (e.g. how this protects you, other tenants, and the property). Sign and date the note. This will protect you if the applicant ever alleges discrimination.

Review all existing rental policies and applicant screening procedures. Some landlords or companies may be facing a complete overhaul given the new HUD guidelines. Be sure that all members of your team clearly understand the new policies so they can be implemented uniformly by all.

Get Property Management Here

For affordable and professional property management contact Vestpro Residential today by calling us at (832) 971-1841 or click here to connect with us online.

 

 

tenant screening

Are turnkey rental properties a smart investment for you to make?

On television, turnkey rental properties are highly touted because, many people like the idea of purchasing a rental property without having to do any work to get it ready for rent but the BIG question is are these rental properties a smart investment to make? 

About Turnkey Rental Properties

When we use the term “turnkey rental properties,” we are referring to the loosely defined investment strategy of buying, rehabbing, and managing a property through a third party. The process of working with a turnkey real estate provider typically looks something like this:

  1. Finding a property: Based on your personal investment goals, the company will help you to identify and build a portfolio of properties. Most claim to have a pre-vetted database of turnkey investment properties for you to consider. Some also have proprietary software to evaluate which properties are likely to produce the greatest returns.
  2. Funding the investment: Unlike experienced investors, most turnkey buyers are unfamiliar with the various ways to finance rental properties (e.g. various loan products, 401K, 1031 exchange). The turnkey provider will help you to evaluate a range of financing alternatives depending on your individual circumstances and goals.
  3. Acquiring the property: Once you’ve identified the property you’d like to purchase, the turnkey provider will assist you with all of the paperwork, home inspections, appraisals, loan documents, and more. They provide end-to-end service, much like a real estate agent would, but they specialize in working with long-distance buyers who want to take a hands-off approach.
  4. Renovating the property: Depending on the situation, some turnkey rental properties will be in need of major renovations, while others may simply need minor repairs to bring the property up to code. The turnkey provider will manage all renovations and maintenance for you.
  5. Managing the property: The primary reason that people buy turnkey rental properties is because someone else pledges to manage the property on a day-to-day basis. This includes finding tenants as well as responding to any tenant needs (e.g. fixing a leaky sink). It ostensibly creates a stress-free investment opportunity—all that’s left for the buyer to do is deposit those rent checks!

Generally speaking, most turnkey firms will charge around a 3% fee for property acquisition, and then anywhere from 7 to 10% for ongoing management of turnkey rental properties.

That said, it’s important to know that there are hundreds of turnkey firms across the U.S., and no two are exactly alike. Some will buy, rehab, rent, and THEN sell a property to you (the investor). Others specialize in helping you to find cheap properties (for as little as $20,000!) that need major renovations—and the turnkey company will take on all of those renovations for you. The range of services can vary greatly, so be sure to thoroughly research several turnkey providers before you commit to anything.

The Growing Popularity of Turnkey Rental Properties

Turnkey rental properties have proven a great fit for people like Yang Guo, a 30-year-old data scientist who lives and works for a tech company in San Francisco. Even though he earns a good salary, he’s been priced out of the Bay Area. Nonetheless, Guo still wanted to add real estate to his investment portfolio.

Guo ultimately purchased two properties: A small home in the suburbs of Birmingham, AL and another outside of Columbia, SC. He worked with HomeUnion, a turnkey real estate provider based in Irvine, CA. HomeUnion helped Guo to purchase the two properties for a total of $60,000—quite the bargain in comparison with the Bay Area, where the median home price is over $675,000. HomeUnion, a 3-year-old startup, handled all of the necessary renovations, and they now manage the property for Guo. He’s never actually seen the properties or met the tenants—but he collects a rent check each month from 2000 miles away.

“There’s too much risk with buying property in the Bay Area,” Guo says. “As long as the cash flow is coming and hitting my bank account, I basically don’t care about seeing them in person.”

Novice real estate investors like Guo are attracted to turnkey rental properties because they’re lower-cost and less time-intensive to manage. The average turnkey investment property sells for between $50,000 and $150,000. Most are located in markets that were hit hard by the housing crisis. For example, Florida, North Carolina, Tennessee, Georgia, and Ohio have experienced an explosion of turnkey rental properties. In Florida, for instance, an estimated 12% of landlords are from out-of-state. Turnkey investors tend to come from high-priced markets and want to buy in states with low home prices and relatively strong rents.

However, long-distance real estate investors tend to lack local market knowledge. “You see these people coming from California and what I like to call ‘yuppie-ing up a place,’ but they don’t realize it’s not in the best area because they didn’t do their homework,” says Tony Kazanas, a Cleveland area real estate agent. There are all sorts of miscellaneous things that novice real estate investors don’t consider, like local vacancy rates or the need to obtain hurricane or other specialty insurance. Turnkey companies fill these important gaps by providing local market expertise.

The Dangers of Turnkey Rental Properties

Based on our overview so far, turnkey real estate investment might seem like a no-brainer! Not so fast: Turnkey providers often target uneducated buyers and sell the promise of a stress-free, cash flow-generating investment opportunity. Unfortunately, too many buyers forget to do their due diligence. They fall for a compelling pitch and slick marketing materials, only to regret the investment down the road.

See, there has been an explosion of turnkey providers since the downturn of the housing market. Many of these companies are run by young adults in their early 20s who have little experience in real estate. They bank on the fact that most out-of-state buyers won’t come to see the properties they’re selling in person, which often haven’t been upgraded to turnkey standards. Some are pitching portfolios of turnkey rental properties that look like they’re straight out of the foreclosure process, where upgrades haven’t even begun. This isn’t a red flag for someone who intends to spend money on renovating the homes; but many turnkey investment providers sell people on the fact that the homes have already been renovated when that isn’t actually the case.

As it turns out, many of these turnkey providers are expert internet marketers, not expert real estate professionals. Many are less than capable of managing the properties that they’re selling to you.

Here are some key warning signs that a turnkey real estate company may not be as legitimate as they seem on the surface:

  • Inexperienced operators: Find out how long the company has been in business, where they’ve invested in real estate, and how many buyers they’ve worked with. Don’t be shy about calling references. If you’re going to be getting into business with someone, you have the right to do your due diligence before signing on the dotted line.

  • Lack of direct investments: Has the company invested in its own portfolio of turnkey rental properties? If so, what types of returns are they getting? It’s a major red flag if the company doesn’t own and manage its own properties—how else will they know how to look after yours?

  • Weak support structure: Is the person who’s selling you on the investment the same person responsible for property acquisition, renovation, tenanting, and maintenance? If so, that’s an indication that there’s a weak support structure in place. Legitimate turnkey firms typically have a deep bench with professionals of varying expertise. If someone promises you that they can do it all alone, how much individual attention will your properties really be getting?

  • Shoddy renovations: Before going into business with a turnkey company, take the time to tour a few of the other properties that they manage. What condition is the property in, and have the renovations been done properly? If the company claims that thorough renovations have already been completed on the property you’re considering, an inspection is worth every penny. Otherwise, you could get stuck with costly repairs down the road.

  • Rental guarantees: Experienced real estate investors know that there is no such thing as a “rental guarantee.” A property may be more or less likely to rent quickly, but there’s no guarantee that it will be rented at the price the turnkey operator has stated. Spend some time doing your own market research to understand what rent prices are like in the area where you’re looking to purchase.

  • Overpriced properties: Similarly, spend some time researching the local market. Turnkey providers are notorious for selling overpriced homes to out-of-state investors who are used to expensive real estate markets. A home that sells for $200,000 might seem like a bargain compared to where you live—but if local comps are selling for half that, then there’s a good chance you’re being duped.

Get Property Management Help Here

For affordable and professional property management contact Vestpro Residential Services today by calling us at (832) 971-1841 or CLICK HERE to connect with us online.

 

5 Tips for Filling Vacancies at Your Houston Texas Rental Property

By VestPro Residential Services

HOUSTON, TX. – Do you own a Houston Texas Rental Property that’s not attracting the attention of renters and you can’t figure out why? Although this is frustrating when it happens the reality is that there could be one or more reasons why renters are showing a lack of interest in your rental property and the following steps will help you to get to the bottom of the problem and fix it.

Step #1 – Check Your Rent

Although every landlord wants to rent their Houston Texas Rental Property for the most money possible the reality is that some people may be listing their rentals for more than they should.

To figure out what you should be renting your property for you should do a comparable analysis of similar rentals in your area to determine if you should consider lowering your rent a little in order to attract more tenants.

Step #2 – Improve Your Rental Ads

Let’s face it, advertising is the lifeblood of our business because it’s what helps renters find our Houston Texas Rental Properties.

Sadly, many landlords are running poor advertisements that are turning away potential renters rather than attracting them.

Before running another rental ad you should first take better pictures and video of your rental property then take a look at your ad copy, rewrite the headline, and revise the body copy so that your advertisement talks about all of the benefits, features, and amenities that your rental offers prospective tenants.

Houston Texas Rental Property

Step #3 – Bring Your Houston Texas Rental Property Up To Date

If the last time you updated your Houston Texas Rental Property was before the start of the millennium, you should start making some updates now because new flooring, window coverings, appliances and fixtures in a rental property can go the extra mile with making a rental feel fresh, new, and updated.

Step #4 – Think About Allowing Pets

In 2017 there are more renters out there than ever before who are searching for rental properties that will allow pets. If you don’t allow pets at your Houston Texas Rental Property you should consider changing your pet policy because you will open up your rental to a larger pool of prospective tenants, just make sure to update your lease agreement before renting to someone with a pet.

Step #5 – Ask Your Current Tenants for Referrals

Last of all, but most important, if you have tenants living in your other rental properties you should consider asking them for referrals because the chances are that they might know someone who is looking for a rental and this will save you the time/money and hassle of having to advertise your Houston Rental Property.

Get Houston Texas Property Management

For affordable and reliable property management for your Houston Texas Rental Property contact VestPro Residential Services by calling us at (832) 971-1841 or click here to connect with us online.

Should you buy rentals in Houston? Even if you’re out of the area?

Thanks to the booming real estate market in the last 12 months there are more condos, town homes and apartment buildings available for purchase and rent than ever before but the big question is should you buy rentals in Houston even if you’re out of the area? The answer to this question is yes!

Pros of Buying Long-Distance Real Estate

  • The ability to buy in more affordable markets. Property values in second- and third-tier markets don’t command the premium of real estate in primary markets and there’s lower competition. That said, depending on the market, rents can still be very strong. Buying in one of these markets is a way to get your foot in the door, realize positive cash flow and build equity.

  • Real estate as a long-term strategy. Some investors decide to buy real estate in an area that they don’t currently live in, but think they might want to someday. For instance, I’d consider buying a home closer to my parents if there’s a chance I’ll want to live closer to them someday. Many investors use a similar mindset when considering real estate in vacation and retirement markets, like the Carolinas and Florida. These houses can be rented now and held in case an investor wants to live there someday, too.

  • Tax benefits. Say what you want about Trump, but when the New York Times released a copy of his 1995 tax returns it shed light on a stark reality: real estate investors are able to use the tax code to their advantage. The ability to write off interest paid on a mortgage and depreciation makes buying investment property highly attractive. The provision Trump took advantage of is no different than the loopholes that everyday investors use, too.

Get Houston Texas Property Management Here!

For affordable Houston Texas Property Management contact Vestpro Residential Services today by calling us at (832) 971-1841 or click here to connect with us online.

 

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