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1031 BASICS

If you are thinking of selling an investment property and you’ve heard that you can delay paying income tax on the gains by buying another investment property, this article is for you. This is called a 1031 exchange. In years past, you could only sell and then buy “similar” properties. For example, if you were selling a single-family home that you were renting out, you had to buy another single-family home, not a condo, or commercial building. But now the rules have been expanded so that as long as you are selling some kind of investment property and buying another type of investment property, it’s probably OK.

 

There are rules to this that must be followed. Most importantly, you have to set up the exchange BEFORE you close escrow on the first property. This means selecting a Qualified Intermediary who will step in take title of the property you are buying, so they receive the proceeds of the sale, and then they will purchase the next property for you, and then that property is put back into your name.  This way you never have what’s called “constructive receipt”’ of any of the proceeds.

 

From the time the escrow closes on the first property, you will have 45 calendar days to identify the replacement property (you can even identify more than one property in case there is a problem). Then you will have up to 180 days to close escrow on the replacement property(ies). It can be less than 180 days if you sell the first property late in the year.

 

There are other rules about the amount of debt you have on each and there is even a situation where you can buy first, and then sell, called a reverse exchange.

 

I AM NOT A TAX EXPERT OR 1031 EXPERT SO CONSULT ONE FOR YOUR SITUATION. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). #1 for Brentwood listings sold multiple years. To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty.

WILL HOME AUTOMATION INCREASE VALUE?

One of my relatives was an auto mechanic before he retired, and he said he went from turning wrenches to having to deal with computer control systems in cars all day. Homes may be headed that way due the plethora of home automation options coming down the pike.

 

Lighting control systems let you set what lights come on and when. You can lock and unlock doors from your smartphone. We are all familiar with a programmable thermostat for your HVAC system, but they have new ones that can detect WHO enters the home by the smartphone they are carrying, and adjust the HVAC based on that person’s preferences (they can set priority when more than one person is home). They even have a refrigerator that detects when you are out of milk and places an order for it to be delivered to your home.

 

Neat stuff, but will it raise the value of your home? I believe it does, but usually much less than the cost of the system itself. So if YOU want all these gadgets in your home and you will enjoy them and can afford them, go for it. But if you spend $20K on all these systems but then need to sell your home right after, you will probably not get $20K more for the home when you sell. It’s possible you’ll find a buyer that was planning to do all these things anyways and is willing to pay a pretty penny for it, but I would say that will be the rare situation. At least for now. Once the majority of homes have these systems and they are expected, then you’ll get more for them. (More accurately, if your home doesn’t have them, you’ll get less for it.)

CLEANING TIPS—PART II

Last week I gave you some general cleaning tips prior to putting your house on the market. A little time spent cleaning can lead to big bucks for you. This week I’ll cover some of the “problem areas.”

 

Windows can be difficult, but are worth doing correctly. There are new microfiber cloths that make the job much easier, with less streaking (search Amazon.com for “microfiber glass cleaning cloth”). The key is not cleaning your windows when they are in the direct sun. For the outside, use Windex Outdoor. This attaches to your hose, and works even through screens. If your water isn’t too hard, it will even dry without streaking. Test one window first to see if you will need to squeegee. Make sure to do the window tracts, as well.

 

Before you attack blinds and drapes, dust and/or vacuum the valance and frame first. Shut the blinds and wipe with a duster or microfiber mitt. There is also a mini-blind vac attachment you can find online. If your blinds and drapes are too dirty, hire a professional.

 

If your bathroom grout is stained, ordinary cleaners may not be enough. There is a popular product called “Black Diamond Ultimate Grout Cleaner” you can find on Amazon.com plus some special grout cleaning brushes. If this doesn’t work, there are companies that can come in and re-do just your grout for much less than replacing all your tile. There are also some great new products out there you can spray on your shower after each use to keep it clean, but you usually have to start with a clean shower. If your caulking is too badly stained, there is a great little tool now you can buy at most hardware stores called “Caulk-Rite” that makes caulk removal and installation easy.

CLEANING TIPS

To maximize the value of your home, it needs to be “super-clean,” especially now that we are competing with all the new homes again. I have some tips I’ve learned over the years that might help. Let’s start in the kitchen:

Sink– Fill the sink with very hot water; add one cup of regular bleach, and soak for an hour. Drain and rinse. Scrub with baking soda which acts as a natural cleaning agent and odor neutralizer. Rinse. Shine with glass cleaner then dry thoroughly. If you have any chips in the sink, there are sink touch-up paint kits you can find online (but you may still have to disclose this to your buyer as a “defect”).

Garbage disposal–White vinegar is an all-natural deodorizer. To get rid of odors, make vinegar ice cubes and feed them down the garbage disposal. Simply run cold water through the drain after grinding. You can then use lemon afterwards, which will leave your disposal smelling lemony-fresh.

Microwave–Fill a coffee mug with water and a few slices of lemon; put it in the middle of the microwave’s tray. Cook on high for about 3 minutes; then leave the mug inside for another few minutes. The steam will soften food spills, and the lemon will get rid of odors. Wipe down the walls with warm, soapy water to remove excess residue and food.

Stainless-steel appliances–A streak-free stainless appliance is the gold standard of a clean kitchen. Be sure to wipe with the grain, which usually runs vertically on refrigerators, and horizontally on smaller appliances. Wash surfaces with hot, soapy water. Dry with a towel. Apply a layer of stainless-steel polish, like Sheila Shine, or 3M also makes a great stainless steel cleaner/polish combo product. Buff the polish into the surface with a towel, going along the grain.

QUARTZ IS “HOT”

Seems like not too long ago white tile counters were the norm, and granite counters were only found in high-end custom homes. Over the past 15-20 years, granite has become VERY popular and still is. Some builders include granite as a standard item because so many buyers request it. But the tide may be turning where buyers may start preferring quartz counters. There are several good reasons for it’s popularity.

 

Quartz is actually harder and longer-lasting than granite. This means it’s harder to scratch and burn it and less chance for staining. Some people are surprised when they spill certain oils or wines on granite which can permanently stain. Quartz is also more non-porous, meaning less chance for mold and bacteria to grow. This also means less maintenance than granite, which should be sealed every year. Granite should also be cleaned with bacteria-preventing soaps. This is less important with quartz which can be cleaned with regular soap and water, so daily and yearly maintenance is less.

 

Since granite is a natural product, there are variations even from slab to slab. If you are really picky you have to go pick out each individual slab to get exactly what you want. There are more choices and more control with quartz since it’s an engineered product. This also means it doesn’t need to be quarried in some far-off country and shipped in. Basic granite can be cheaper than quartz, but the exotic granites are often more expensive.

 

Quartz is better for large surfaces. If you are doing a large kitchen island, you’ll likely need two slabs of granite, which means you’ll see a seam. With quartz, the slabs can be made in such a way that the seam is much less noticeable.

CREDITS OR FIX?

My normal rule of thumb is to spend as little as possible fixing the house up, but still get the job done. You don’t want to spend money on items where you won’t get your money back. For example, it’s not worth putting a pool in just to sell the home. However, I will suggest my clients paint or put in new carpet when warranted. That’s ESPECIALLY true right now since we are competing against all the bright and shiny new homes again!

 

Sometimes my clients will say, “Let’s just offer them a credit for the carpet (or paint, or whatever). I’m sure the buyer can look past it. Besides, what if they don’t like what I put in? Isn’t it better to let them pick their own color, type, style?” While logically, this makes sense, it assumes that buyers buy based on logic. They don’t! They buy based on emotion, but justify with logic. Many buyers make split-second decisions based on how the home “feels” to them the moment they walk in. The assumption that buyers will want to put in their own carpet (or whatever) is wrong, because they are never going to buy the house in the first place! I’ve found that very few buyers can “look past” things that need fixing, even when they say they can.

 

It is better to either fix the condition, or reduce the price to compensate for it. However, if you reduce the price, a buyer might still expect a price reduction later to compensate for the issue. This is why it is usually better to just fix it, whatever “it” is. If you are considering selling your home and you aren’t sure if you should fix something, let me know and I can stop by and give you my opinion.

INSURABILITY CHALLENGES

I’ve noticed that homebuyers often put off ordering their homeowner’s insurance policy until the week before closing. It is wise to investigate the insurability of both the home and the buyer as early as possible. That’s right, both the home AND the buyer need to be approved by the insurance company before they will issue a policy. If they feel that either the home OR the buyer is highly likely to result in expensive claims, they many not offer a policy. Without an insurance policy, the lender won’t lend the money and the deal falls apart. This is very rare, but it’s something to be aware of and you should do your homework ahead of time.

 

For the home, the insurance company is especially concerned about homes with prior water leaks or a history of claims. In regard to the buyer, the insurance company will be reviewing their credit history and also their history of claims in their prior residences, even if they were renting. There is something called a CLUE (Comprehensive Loss Underwriting Exchange) report that can be ordered on the home and the potential buyer ahead of time. If you are a buyer, talk to your insurance agent. If you are a seller, talk to your listing agent and they can help you order one.

 

Another reason to start early with the CLUE report is that by law, an insurance company can cancel your policy up to 60 days after you apply for the coverage. Here is the worst-case scenario: You buy a home and close escrow but then two weeks later you get a cancellation notice on your insurance because the home has a history of water damage. This means that you’ll have to get insurance from a company that specializes in high-risk homes, and their premiums can be very expensive.

SOLAR NEWS

Two items came to my attention recently in regards to solar power for your home that I thought you should be aware of.

The first is that the federal tax credit that was set to expire at the end of 2016 was just extended for five more years. I’ve heard VERY little mention of this in the news so I’m guessing this will be news to most of you. I’m still hearing some ads for solar that tell you to “hurry up” before the federal tax credit expires, but I’m sure they’ll update their ads soon. (FYI: The California tax credit is long gone.)

Here is a quote from a website called The Simple Dollar, “The extension means a 30% federal tax credit offered by the EPA and Department of Energy to encourage Americans to use solar power for the next five years. If you install Energy Star-approved solar power systems, the credit allows you to claim 30% of the cost as a tax credit for the year you installed it. That amount is taken directly off your tax payment, rather than as a deduction from your taxable income.”

The other item is that you can now buy solar power through PG&E. You can choose to have either 50 or 100% of your power come from solar. The catch is that you aren’t saving money with this program, but the argument is that it’s better for the environment. There are no panels required, nothing to buy, no long-term leases to sign, etc. So this may be a good option for people or businesses who are renting, or their building doesn’t allow for a good solar system installation due to the size or direction of the roof, but you still want to go solar for environmental reasons. You can find out more at pge.com/solarchoice.

A SIMPLE WAY TO TEST YOUR GFCIS

“What the heck is a GFCI?” GFCI stands for ground fault circuit interrupter. This is the type of electrical outlet that you should have wherever a water source is close to your outlet. For example, in your kitchen, bathrooms, laundry, etc. They are designed to prevent electrocution in the event that you were to drop your running hair dryer into a sink full of water (for example). The GFCI will detect the interruption in the flow and shut off the current.

 

However, some GFCIs (even in new homes) are defective, and it’s a common problem. Seems like we see defective GFCIs come up in many home inspections reports, and this is a potentially dangerous situation. There is an inexpensive device you can buy at a hardware store to test them, but here is an even easier way.

 

You can locate the GFCI by two small buttons on the face of the outlet. One is labeled “test” and the other is labeled “reset.” Press the “reset” button to make sure that the unit is ready. Then plug a nightlight, or any other portable appliance, into the outlet and turn it on. Push the “test” button and the nightlight should turn off. Press the “reset” button again and the nightlight should come back on. If the nightlight doesn’t go out, then the GFCI isn’t working properly. You should have a licensed electrician come out and check all of your GFCI’s.

 

Not every outlet that is GFCI protected will have the two buttons on them. There will be one with buttons on it that will often protect several other outlets close by. On a new home there will be a little white sticker on the protected outlets, but it often falls off with use.

SHOULD WE MAKE OUR PAYMENT?

This is a very common question that my clients ask when we are approaching the close of escrow on the sale of their home. This is especially true when we are closing in the second week of the month. Most mortgage payments are due on the first of the month, so this often creates confusion as to whether or not they should make that payment. They often mistakenly think that if they don’t make that payment, they are “saving” that money.

 

You will pay interest on your mortgage up until the day your lender receives the payoff check from the title company. No more, no less. It doesn’t matter if you make your scheduled monthly payment or not. Here is why, and I’ll use VERY round numbers for this example:

 

Let’s say the payoff on your loan is $300,000, and that number is good through the 10th of the month, and your payment is $2,000. If you go ahead and send your payment on the 1st, your payoff now drops to $298,000. So you can see that not sending your payment wouldn’t “save” you that money. Either way you are paying $300,000. In one scenario you pay $300,000, in the other you pay $2,000, and then $298,000 a few days later.

 

You’ll want to double-check when your payment is considered “late” so that you don’t incur a late charge. If your escrow is scheduled to close about the same day as your late charge starts, then go ahead and make the payment. But make it early, and advise your escrow officer. That way they can make sure to get an updated payoff from your lender to make sure you get credit for that payment. [NOTE: Some FHA loans require interest to be paid through the end of the month no matter what day you close.]

 

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