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Wednesday, December 31, 2008My Home isn't Selling - Should I Rent it Out?
This is a question many home sellers are asking themselves, as winter drags on and their home remains unsold. Having someone else cover the mortgage payment for a vacant house sounds attractive, but most home owners have no experience as a landlord. Are you prepared for all of the challenges you may face in managing your own rental?
Here is a partial list of the tasks involved in renting your home:
1) Advertise your rental – do you know what ad sources are most effective at finding good tenants?
2) Screening tenants – do you know how to collect appropriate information from tenants, then run a background check to examine criminal and credit history?
3) Lease – do you have a lease that goes beyond the minimum legal “boilerplate” to protect your interests as a property owner?
4) Maintenance issues – are you prepared to take calls from tenants and arrange for repairs as needed?
5) Collecting rent – are you prepared to pursue tenants for rent when necessary and deal with the possibility of evicting a tenant who doesn't pay?
6) Security deposits – are you aware of state laws governing how security deposits are handled?
7) Setting rent price – do you know how to determine a rent price that is appropriate for the market?
A professional property management company is able to handle all of these tasks for you, and more. A property management company such as REI Property Management handles all of the issues of being a landlord. Property owners are freed from the burdens of learning laws, creating documents and developing procedures, but instead can pay a professional to handle these issues with expertise.
If you'd like to begin a discussion about how a property management company can help you succeed in renting out your home, call Steve Rajavuori, president of REI Property Management, at 952-469-5880, or visit us at http://www.REIPropertyManagement.com.
Posted By: Ryan O'Neill @ 9:00:39 PM
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Monday, December 29, 2008What You Should Know About Mortgage Interest and Refinancing Your Home
Interest Deductions
Interest paid on a home mortgage is deductible within certain limits, Depending on whether it is home acquisition debt, home equity debt, or grandfathered debt. Interest on the refinanced mortgage will be deductible if it falls into one of these categories, as explained below.
· Home acquisition debt is a mortgage you took out after October 13, 1987; to buy, build, or substantially improve your main or second home; and secured by that home.
o Interest on home acquisition debt is deductible, but total home acquisition debt cannot exceed $1 million ($500,000 if married filing separately).
· Home equity debt is any debt secured by your first or second home, other than hoe acquisition debt, or grandfathered debt.
o Includes mortgage loans taken out for reasons other than to buy, build or substantially improve your home and mortgage debt in excess of the home acquisition debt limit.
o Interest is deductible on up to $100,000 of home equity debt ($50,000 if married filing separately).
o CAUTION: For Alternative Minimum Tax (AMT), interest on home equity debt not used to buy, build or substantially improve the home is not deductible.
· Grandfathered debt is mortgage debt secured by your first or second home that was taken out before Oct. 14 1987; no matter how you used the proceeds.
o All of the interest you pay on grandfathered debt is fully deductible.
· Refinancing. If the old mortgage that you are refinancing is home acquisition debt your new mortgage will also be home acquisition debt, up to the principal balance of the old mortgage just before it was refinanced.
o The interest on this portion of the new mortgage will be deductible.
o Any debt in excess of this limit won’t be home acquisition debt, but it may qualify as home equity debt, subject to the $100,000/$50,000 limit.
o If you are refinancing grandfathered (pre-Oct 14, 1987) debt for an amount that isn’t more than the remaining debt principal, the refinanced debt will still be grandfathered debt. If the new debt exceeds the mortgage principal on the old debt, the excess will be treated as home acquisition or home equity debt.
o Grandfathered debt that was refinanced is treated as grandfathered debt only for the period that remained on the old debt that was refinanced. Once that period ends, you must treat the debt as home acquisition debt or home equity debt, based on how the debt proceeds are used. There’s an exception that allows a longer period of deduction for balloon notes that are refinanced after Oct. 13 1887.
POINTS
In general, taxpayers can deduct a portion of the points each year over the life of the loan.
· To figure your deduction for points, divide the total points by the number of payments to be made over the life of the loan. Then, multiply thus result by the number of payments you made in the tax year.
o For example, if you paid $3,000 in points and you will make 360 payments on a 30-year mortgage, you can deduct $8.33 per monthly payment. For a year in which you make 12 payments, you can deduct a total of $99.96 ($8.33 x 12)
· However, you may be entitled to a larger first-year deduction for points if you used part of the proceeds of the refinancing to improve your home and you meet certain other requirements. In that case, the points associated with the home improvements may be fully deductible in the year they were paid.
o For example, say that you refinanced a high-rate mortgage that has an outstanding balance of $80,000 with a new lower-rate loan for $100,000. You use the proceeds of the new mortgage loan to pay off the old loan and to pay for $20,000 of improvements to your home. Since 20% of the new loan was incurred to pay for the improvements, 20% of the points you paid can be deducted in the year of the refinancing.
· If you are refinancing your mortgage for the second time, the portion of the points on the first refinanced mortgage that you have not yet deducted may be deductible at the time of the second refinancing.
· Points paid on a mortgage for a second home are amortized over the life of the loan.
· Points paid on a mortgage for Rental Real Estate are deducted over the life of the loan.
OTHER ITEMS:
· A prepayment penalty that you pay to terminate your old mortgage is deductible as interest in the year of payment.
· Mortgage Insurance Premiums paid in connection with acquisition indebtedness are deductible as interest expense through December 31, 2010 (subject to limitations).
Circular 230 notice: IRS regulations require us to advise you that, unless otherwise specifically noted, any federal tax advice in this communication (including any attachments, enclosures, or other accompanying materials) was not intended or written to be used, by any taxpayer for the purpose of avoiding tax-related penalties imposed under the U.S. Internal Revenue Code or any other applicable state or local tax law provision; furthermore, this communication was not intended or written to support the promoting, marketing or recommending of any of the transactions or matters it addresses.
Compliments of Greg Nelson, Olsen Thielen CPA
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Tuesday, December 16, 2008Should You Transfer the Title of Your Investment Property into Your LLC?
In a perfect world, banks and/or lenders would lend money to new LLC’s with no income or credit history, thus allowing you to purchase your investment property in the name of your LLC.
Should you transfer the title of your investment property into your LLC? You could probably ask 10 different people for their position on this issue, and receive 10 different answers. My position is that I do not like to transfer title from the individual to the LLC - for a couple of reasons. First, transferring the title when the mortgage is still in your name triggers a due on sale clause within the mortgage/note. Second, if you ever go to refinance, you will have to transfer title back out of your LLC to you individually, creating a strange series of transactions for your lender and/or title company to sort through.
My position rests on the assumption that you have properly formed your LLC, complying with all of the statutory corporate formalities including organizational minutes, bylaws, appointing the Board of Governors, Managers, Membership Units, etc. In addition, all of your business dealings are done in the name of the LLC - your lease with the tenant will be between the tenant and the LLC, the tenant should pay the LLC, and the LLC has a separate bank account and accounting records.
From a legal standpoint, the tenant's contract is with the LLC, not with the investor as an individual. If something goes wrong, they should sue the LLC, not the individual. That is not to say that someone couldn’t try suing the individual – it is not uncommon for a litigious person to throw everything against the wall to see what sticks. Even if your strategy was to transfer title from your personal name to the LLC in order to "tie" the property to the LLC, the mortgage would still be in your name anyway, thus leaving the same issue for that litigious person to throw against the wall. In addition, if you completed all of the other steps to adequately form and operate your LLC, the argument to be made is that it would be bad policy if a court ruled that in order to receive liability protection from your LLC, that you should have violated the due on sale clause in your mortgage/note.
Again, every new business must start the ball rolling somewhere. Every new business is started with the capital or credit of the owner. Eventually when you have built your portfolio, built your LLC’s credit history and property equity, you will no longer need to purchase properties with your own credit and in your individual name. Your goal will be to get loans through the LLC and thus title in the name of the LLC.
Remember, most banks do not make loans to brand new LLC's, therefore you must start the ball rolling by purchasing your property personally. Perhaps the bank/lender will allow the LLC to purchase the property with the individual’s personal guarantee or co-signature on the note. If the bank will not accept the personal guarantee, there are several other options to consider. Some strategies could include the individual leasing the property to the LLC, which would then lease the property to the tenant. Alternatively, there could be a written agreement between the individual and his LLC whereby the individual pledges and confers upon the LLC the right to possession of the investment property. All of these alternatives should be documented through company minutes of the LLC that acknowledge and authorize the LLC’s use of the investment property. Having these added formalities can only strengthen the liability shield created by the LLC.
Please feel free to contact me at the number below if you need assistance, have questions or concerns with respect to properly forming your LLC or incorporating additional investment property ownership strategies to strengthen the liability shield created by the LLC.
Matthew A. Engel, Esq.
Aase, Engel & Kirscher, PLLC
180 East 5th Street, Suite 255
St. Paul, MN 55101
651-209-6884
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Show All » 2008 » November
Tuesday, December 02, 2008We are all in this together
Have you ever noticed that when times are tough, people work harder and form partnerships to accomplish their goals? That’s what I have noticed especially during this last year.
I have witnessed many partnerships among businesses and real estate professionals as the market has slowed. For example, I know of an agent who is partnering with a company whose sole purpose is to negotiate with banks on purchase agreements for short sales and foreclosures. He is making selling homes in short sale situations and foreclosure his niche.
Since more than 80% of buyers start looking for a home on the internet many agents are coordinating with multiple web sites to cross market their listings. It is not unusual to be able to find a property for sale on ten or more unique websites. We are all strategizing about allocating our business resources in the most effective ways to meet our goals. All financial outlays are being scrutinized for their effectiveness and value toward achieving a home sale.
Agents and sellers are working more closely than ever before to find the perfect balance between home value, market conditions and price. Negotiating, when an offer is presented, is also more of a challenge. Agents are improving and sharpening these skills so buyers and sellers are brought together, and kept together from offer to close.
Brokers and agents are creating different ways to highlight listings, motivate buyers and have some fun at the same time. One major broker had a 10 day sales event to generate interest in their clients’ homes. And agents are renting busses to take their clients on a tour of potential investment properties. Whether it is at the corporate level or individual agent level business professionals are using innovation and creativity to get the job done.
Mortgage companies search to find the products that serve their current clients needs and alert past clients of rate changes. Real estate agents and mortgage companies are partnering with each other to hold free seminars that teach people how to invest in real estate whether they are neophytes or market savvy. These are just a few of the ways that demonstrate the deep commitment of the professionals in the real estate and mortgage industry and their dedication to their clients.
Set To Show has also found a niche in this market. We help sellers and realtors sell more creatively with our free home staging a home management program. Right now we are looking for “Neat Freaks” to live in and care for our properties. Home managers live in a home while it is on the market, pay less than market rate rent, keep the home in great showing condition and maintain the yard for the seller. We have homes available right now. Click on Set To Show in the preferred partners section of the MN Real Estate Show website to the properties that are available. It is easy to live in a great home at a great price.
As we hear each week on the MN Real Estate Show we need to have a more balanced market. As the Twin Cities continues to head toward that balance point of roughly 23,000 homes for sale, the professionals who work in the real estate industry will continue to find new ways to accomplish the same goal, to make your home buying and selling a success.
For more information on free staging with Home Managers contact Lisa Atkinson at www.settoshowhomes.com.
Posted By: Ryan O'Neill @ 8:46:53 PM
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Tuesday, November 11, 2008Winterizing Vacant Homes
Winter is coming and the excitement of the first snowfall at my house is almost always paired with me running around (in the snow) picking up forgotten toys, storing outdoor furniture and disconnecting very cold and partially frozen water hoses and sprinklers. Nothing like ice cold dripping water on your mittens and shoes to get you ready for the season! Winter in Minnesota is hard on homes and especially on vacant homes. Many sellers of vacant properties have their home professionally winterized to protect it from potential damage. Winterizing is the process of preparing a home for winter and removing all opportunities for water to damage a home should the heating system fail. (I know Blogs are supposed to be informational but I suggest a professional if you need to have a home winterized. I did see some detailed directions on the web for do-it-yourselfers if you are handy.) Sellers also often lower the temperature in the home to save on heating costs. Both winterizing and lowering the thermostat make sense when the home is vacant. But neither one is necessary when there is a qualified Home Manager living in the home. Home Managers are temporary caregivers of vacant homes. They live in the home while it is on the market, pay the utilities while they live there and keep the home in great showing condition. They also take care of outside yard care like raking leaves and shoveling snow! So there is no need to winterize or lower the thermostat! (Also, if by some chance, the heating system does develop a cough or hiccup the home manager will alert Set To Show and potentially costly damage can be averted.) Sellers, now there is another option for your vacant home this winter. Keep it protected, save on utility costs and have it staged for free. For more information on free staging with Home Managers contact Lisa Atkinson at www.settoshowhomes.com.
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Show All » 2008 » November
Friday, November 07, 2008MN Withholding Tax on Individual Construction Contractors
Provided by Greg Nelson, Olsen-Thielen CPAs
The Law
Beginning January 1, 2009, a construction contractor who makes payments to an individual construction contractor carrying on a trade or business as a sole proprietorship must deduct and withhold 2% of the payment(s) as Minnesota income tax withholding. Payments are subject to 2% withholding only if the work was performed in the state of Minnesota and the total payments during the year exceed $600.
Refer to Minnesota Statute Section 290.92, Subd 31
What is the difference between a construction contractor and an individual construction contractor?
- A construction contractor(payer) is any individual or business entity carrying on a trade or business described in industry code numbers 23 through 238990 of the North American Industry Classification System (NAICS).
- An individual construction contractor(payee) is any individual carrying on a trade or business as a sole proprietorship described in industry code numbers 23 through 238990 of the NAICS. A single member Limited Liability Company (LLC) is not a sole proprietorship for purpose of this law.
What trades are covered by this law?
All construction trades described in North American Industry Classification System(NAICS) codes 23 through 238990 are subject to 2% withholding.
Examples of construction trades covered by this law include:
- Residential and commercial building construction
- Residential remodeling
- Framing and finish carpentry
- Masonry
- Roofing and siding
- Electrical contracting
- Plumbing and HVAC
- Drywall and insulation
- Painting and wall covering
- Flooring
- Other specialty trades
The list above is not all inclusive. For a complete listing of applicable construction trades, go to www.naics.com/naics23.htm
What is meant by "Carrying on a trade or a business"?
The term "carrying on a trade or business" generally includes any activity conducted for the production of income from selling goods or performing services. Carrying on a trade or business includes both primary business activity and secondary business activity.
When do I withhold 2% Minnesota tax?
A construction contractor (payer) is required to withhold 2% of the total payment(s) made to an individual construction contractor (payee) when payments to that individual construction contractor exceed $600 in a calendar year. If the payments exceed $600, all of the payments, even the first $600, are subject to withholding.
What are total payments?
Total payments are gross payments to the individual construction contractor including the cost of materials, subcontracted labor and the personal services of the individual construction contractor.
Note: In the three examples below the word "you" is defined as construction contractor.
Examples
- In February 2009, you contract with an individual construction contractor to install a stained glass window in a house you are remodeling. The total payment for the installation is $500. Since you are not aware of any future business with this individual construction contractor, you are not required to withhold 2% because the payment is less than $600.
- In August 2009, you contract with the same individual construction contractor who installed the stained glass window in Feb 2009. This time the total payment for the installation is $400. Because the total you will pay the individual contractor for the calendar year is over $600, you are required to withhold 2% of the total payments, or $18.00 ($900 x 2% (.02)).
- In May 2009, you contract with an individual construction contractor to perform carpentry work on homes in a small housing development. The contract specifies that the individual construction contractor will return in July 2009 to perform additional work. The contract states you will pay the company twice, $500 in May and $1,00 in July. You must withhold 2% on both payments starting at dollar one.
- In March 2009, you contract with an individual construction contractor who is a resident of Iowa to install sheetrock in a building located in Minnesota. The contract specifies that the work must be completed by the end of May, 2009. The total payment for the installation is $6,000 and will be paid in two separate payments of $3,000 each. Tax must be withheld even though the total amount paid is less than the Minnesota individual income tax filing threshold. Because the payment will be more than $600, you must withhold 2% on the entire amount of each payment.
What information does a construction contractor need to retain?
A construction contractor must retain a:
- Name of each individual construction contractor paid
- Address of each individual construction contractor paid
- Social security number of each individual construction contractor paid
- Amount paid to each individual construction contractor
- Amount withheld for each individual construction contractor
- Federal Form W-9 for each individual construction contractor*
Federal Form W-9 allows the payee to provide an FEIN in lieu of a social security number. However, you are required to furnish a social security number for the purpose of this law.
Do I issue a Form W-2 or Form 1099-MISC to the individual construction contractor?
Issue a Form 1099-MISC to report payments of $600 or more to an individual construction contractor. enter the payee's social security number in the box labeled "RECIPEINT'S identification number." Enter the 2% withholding tax in the box labeled "State Tax Withheld."
Forms 1099-MISC with Minnesota withholding tax are required to be sent to the Minnesota Department of Revenue by February 28. See Fact Sheet 2a for the Minnesota specifications for submitting Forms W-2 and 1099.
Am I required to register for a Minnesota tax identification (ID) number?
You must register for a seven digit MN tax ID number if you are required to withhold MN tax. To received a MN tax ID number within minutes, apply on-line at https://www.mndor.state.mn.us/er/ctrl/welcomecontroller or call 651-282-5225.
Where do I get information regarding the Independent Contractor Exemption Certificate (ICEC)?
A new state law effective Jan 1, 2009, requires individuals (not corporations, LLCs or partnerships) who work as independent contractors in the building construction industry to obtain form the Department of Labor and Industry an Independent Contractor Exemption Certificate (ICEC). For more information go to http://www.doli.state.mn.us/ic.html
Posted By: Ryan O'Neill @ 8:09:19 PM
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Wednesday, November 05, 2008What came first the chicken or the egg?
As my esteemed colleague Ryan has stated in previous blogs….. “Staging is good”! If you are like me you look forward to his next blog entries with great eagerness and are ready to marvel as that Notre Dame education flows onto the screen. The question that we are always asking ourselves in the real estate business or as I like to call it the BIZ. What should come first staging or pricing? The short answer is they are equally as important and one without the other will leave sellers wondering why the offers aren’t coming. Quick example: We sold 2 homes last week that had been on the market with other agents for more than 6 months. In both cases we lowered the price and staged the homes. The price reduction were relatively minor but did get the homes into a new search criteria. The homes sold within 2 weeks and one went to multiple offers. It is my firm belief that without the staging the price reductions would have been futile and staging the homes without the price reductions would have been equally ineffective. You can find our home stagers at mnrealestateshow.com. Stage’m, drop’m, sell ‘m!
by Scott Wollmering
Posted By: Ryan O'Neill @ 7:11:46 PMTop
Show All » 2008 » November
Monday, November 03, 2008Does Home Staging Really Help?
Staging is the act of getting a home ready for sale. For each home it is a different process. Some homes need a quick tweaking like removing a few extra pieces of furniture, clearing off the countertops and cleaning out the garage. Other homes need more extensive preparation including new paint, carpet, furniture or more. Whatever your home needs, staging puts your home’s best foot forward. In a more robust market, staged homes sold significantly faster than their un-staged counterparts. In today’s market, even staged homes can take longer to sell. The benefit of staging is that more buyers see your home’s potential immediately. Buyers decide within seconds if the home they are looking at is one that they would consider making an offer on. You can think of staging as one more tool to help your home sell.
For more information on how staging can get your home sold in today's real estate market, contact Lisa Atkinson at www.SetToShowHomes.com
Posted By: Ryan O'Neill @ 5:54:07 PM
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Show All » 2008 » October
Friday, October 31, 2008Our Blog
Welcome to The Minnesota Real Estate Show's Blog! This will be an outstanding forum for you to get information on our local real estate and mortgage marketplace.
We will posting thoughts and comments from all of our preferred partners (see Blogroll on the right), as well as comments directly from Scott Wollmering, Alec Grebis, Rob Bonahoom, and Ronny Loew!
Feel free to email us questions and or comments! Any discussion topics for our show? Or anything at all really!
Thanks again for stopping to check out our new Blog!
Posted By: Ryan O'Neill @ 2:41:03 PMTop
Show All » 2008 » October
Saturday, October 25, 2008The Minnesota Real Estate Show
Very excited about today's radio show here this afternoon! If you have not caught our real estate radio show live before, it is on air every Saturday from 3 - 5 PM, on 100.3 KTLK, FM.
Today, we are going to be having Ronny Loew from The Minnesota Home Loan Partners join us. With so many changes taking place almost daily in regards to financing, it will be great to hear what the latest updates may be from his end.
As always, we always welcome your phone calls and email questions throughout the show as well. If you think of it and get the chance, shoot us a question regarding anything mortgage/ real estate related! Our teams are always here to help out however we can.
Only a little bit longer until this election is behind us. Once this takes place, I'm guessing we see the markets stabilize a bit and various home buyers who have been "waiting" will get back into the market. Once this does happen, this will be very positive to for our market!
Feel free to stop by our blog as often as you would like. And post comments and questions that you may have!
Posted By: Ryan O'Neill @ 12:57:05 PMTop
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