Investing Your IRA

This article was written by the CMPS Institute www.CMPSInstitute.org

 

Real estate investors and vacation home buyers represented 35-40% of all residential property purchases in the years before the market downturn. Yet, many of these same investors are now experiencing serious negative equity and cash flow issues, and they are wondering if and when they will start seeing some relief.

“Although the economic stimulus and housing rescue plans have not been specifically targeted at investors, there are three strategies that can be built around all these new laws that benefit real estate investors,” said Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers.

1. Reverse Mortgage for Purchase Transactions. “Until the end of 2009, an investor who is age 62 or older can purchase a 1-4 unit property worth up to $625,500 with a 30% - 35% down payment, live in one of the units, generate income by renting out the other units, and never have to make a mortgage payment for the rest of their entire life,” Nicholas said. “This opens up a lot of options for seniors and investors who are wondering how to supplement their retirement income now that their house values and retirement accounts have taken such a huge hit.”

The reverse mortgage for home purchase transactions became available on January 1, 2009, and the higher loan limit of $625,500 became available a few months ago as part of the 2009 economic stimulus plan. Investors who are trying to sell their duplexes, triplexes, or four-unit properties can utilize this strategy in their marketing as a way of stimulating potential buyers. “This strategy has been lost in all the noise of the last few months and very few people are aware that it can be done,” Nicholas said. “The $625,500 higher loan limit really opens up a lot of options, but it expires at the end of the year so you need to take action now.”

2. First Time Home Buyer Tax Credit. “The $8,000 first-time home buyer tax credit can also be utilized on one to four family properties,” Nicholas said. “The greatest thing is that not all buyers need to be first time home buyers. This means that an individual who qualifies for the credit can get their parents to co-sign on the loan and/or contribute to the down payment, and this would not disqualify the individual from taking the credit. A group of friends, relatives or investors could get together and buy a duplex, triplex, or four-unit property, and the credit can be claimed by any one or more of the investors as long as the individual(s) claiming the credit live in one of the units as their primary home for at least three years. They could claim the credit even though they are generating income by renting out one or more of the other units.”

The maximum FHA loan-limit on four-unit properties ranges from $521,250 in low cost housing markets up to $1,403,400 in the highest cost markets of the country. An investor who is trying to sell their one to four family unit property can also utilize this strategy to stimulate potential buyers. “This strategy just became a whole lot easier now that the FHA is allowing the credit to be utilized as part of the buyer’s down payment,” Nicholas said. “As of May 29, buyers are now allowed to borrow against the credit or sell it to their lender or another 3rd party as way of helping with their down payment.”

3. Rent-to-Own or Sale-Leaseback Opportunities. “There are a large number of distressed homeowners who will not qualify for the mortgage modification plans announced by the government,” Nicholas said. “These homeowners still need a place to live, and many will not be able to qualify for conventional or government mortgage financing for at least another three to five years.”

A rent-to-own strategy is where an investor or Realtor takes a potential home buyer house shopping even though the buyer can’t qualify for traditional financing. The investor buys the house, rents it to the tenant who picked out the house and wants to live there, and gives the tenant the right to buy the home at a pre-determined price at some point in the future. A sale-leaseback strategy is where a homeowner sells their current property to an investor and then pays the investor rent, with the option to buy back the home at a pre-determined price at some point in the future.

“While most real estate investors are scrambling to find tenants for their vacant properties, savvy investors could utilize either a rent-to-own or a sale-leaseback strategy to find tenants before they commit their investment dollars to a specific property,” Nicholas said. “This is a fantastic opportunity for investors to work with the large population of people who won’t qualify for the government foreclosure prevention plans.”

Even so, there are a few potential landmines to avoid. “If the tenant defaults on their rent or walks away from the deal, the investor could be left holding the bag,” Nicholas said. “Also, if the investor defaults on the mortgage and goes into foreclosure, the tenant may be evicted by the new owner,” said Nicholas. The new federal housing law provides two minimum guidelines that protect tenants in these and other situations:

- Tenants are now allowed to occupy the property until the end of their lease term (even after the landlord goes through foreclosure) as long as the new buyer does not intend to occupy the new home as their own primary residence.
- If the new buyer intends to occupy the home as their own primary residence, the tenant must be given a 90 day notice before being forced to leave.

This article is by Eric Tyson, MBA, one of the nation’s best-selling personal finance book authors and has penned five national bestsellers and by Robert S. Griswold, MSBA, is a successful real estate investor and hands-on property manager with a large portfolio of residential and commercial rental properties.

 

There’s no question that America is in a tight spot. Every day seems to bring a new wave of recession-related bad news. But stop panicking for a second, tune out the negative chatter, and listen closely. The recent financial and housing crises have actually led to some serious opportunities for level-headed investors who want to get rich the right way rather than get rich quickly.

“The grand irony is that the financial and housing collapses actually create a favorable environment for real estate investing,” says Tyson, coauthor along with Griswold of Real Estate Investing For Dummies®, 2nd Edition. “Interest rates are down, property values are depressed in many parts of the country, and real estate is still a great long-term investment. That hasn’t changed. “It’s not for everyone, but if you’re in the right place financially and can afford to invest in real estate, there are plenty of opportunities out there,” he adds.

“Our core advice is as true today as it was before the recession,” says Tyson. “The fact is, there’s a right way and a wrong way to invest in real estate. The wrong way led to the recent real estate crisis. The right way can lead to great financial gains for long-term investors.”

Here, excerpted from Real Estate Investing For Dummies, are 10 methods for pursuing a real estate fortune the get-rich-right way:All real estate investors need a nest egg. That means even as you develop additional sources of income, you should hold steady on or preferably even cut current expenses in order to build up your savings. Even if you can find properties where the seller provides all the financing, you can’t escape certain out-of-pocket expenses or the opportunity cost of lost income as you expend your time and energy tracking down properties and performing due diligence.
2. Get your credit sparkling clean. The best opportunities and the most options are available to the real estate investors who have both cash and good credit. Sellers and lenders aren’t going to provide financing to a buyer with a poor credit history. Because the purchase of real estate virtually always necessitates the borrowing of funds, make sure that your credit report is as accurate and as favorable as possible.
3. Buy property in the path of progress. It’s usually a good idea to buy in areas that will continue to improve through new investment and economic activity. After you locate the best cities or neighborhoods, look for two types of underachieving real estate assets: Income properties that are tired and worn and have deferred maintenance, or those that are physically sound but poorly managed.
4. Buy the right property at the best price possible. Sounds like a no-brainer, especially in the current environment, right? Unfortunately, it’s often easier said than done. To be successful, you’ll have to follow certain guidelines. Get-rich-right investors rarely buy new or fully renovated properties unless they’re in the path of progress or a prime location. Why? Because the value-added or appreciation has already been taken by the current owner.
5. Don’t fall into the do-it-yourself trap if the “time” factor doesn’t make sense. Yes, doing the work yourself may be cheaper if you know what you’re doing. But it makes no sense to have a rental property off the market for three weeks while you spend evenings and weekends painting in a misguided attempt to save the $1,000 that a contractor would charge for painting that would take two days.
6. Keep abreast of market rents. One of the biggest challenges for most rental property owners is determining the proper rent to charge tenants for newly renovated rental units. But finding the right rental rate simply requires some homework and research. The best indications of the market value of your renovated property can be found through a market survey of comparable properties.
7. Recover renovation dollars through refinancing. A key element of the get-rich-right strategy is to keep your capital working and use leverage reasonably while maintaining sufficient equity to weather the ups and downs of local real estate cycles. Acquiring and renovating your rental property required cash, but you also have increased the income, which has created additional value. You can now use this increased value to refinance the property to cover your initial costs. While you should avoid borrowing too much and overleveraging your investments, you also don’t want to be too conservative and underestimate your cash needs. Borrow extra money or have an untapped line of credit available to allow for reserves.
8. Reposition property with better tenants. One of the best ways to increase the income and value of your newly renovated real estate investment is to reposition the property with new, more financially qualified tenants. Look to upgrade your tenants by marketing to a new target tenant profile and re-leasing the property. After all, the current tenants may be the reason that the previous owner sold the property.
9. Refinance or sell and defer again. Notwithstanding the decline in property values in most areas in the late-2000s, long-term rental property owners find that they have a considerable amount of equity tied up in their property because of the appreciation that has occurred over the decades throughout much of the country. Having some equity in the property is good and keeps you from faltering should the local real estate economics take a hit, but too much equity just sitting in a property lowers your overall returns.
10. Consolidate holdings into larger properties. Most long-term real estate investors find that they reach the point where their management responsibilities and duties no longer conform to the lifestyle that they can afford. They decide to simplify their lives and hire professional property managers to deal with tenants, turnover, toilets, and trash. But finding and paying for a qualified property manager for a diversified portfolio of small rental properties isn’t easy or cost-effective.

1. Save, save, save.

“In our experience, successful real estate investors tend to be savvy, hard working, conscientious individuals who enthusiastically perform comprehensive due diligence before buying a property,” says Tyson. “They don’t reinvent the wheel with each deal, because they know their market niche, personal skills, and available resources. They have a vision and use their tried-and-true game plan for each property. “If you develop these skills, you can uncover unique properties with value-added potential that are often missed by others,” he concludes. “So, take advantage of today’s buyer’s market, and get started now.”

Remodeled Victorian

• 1,194 sq. ft., 1 bath, 3 bdrm 2 story - MLS® $209,000

Central City, Gilpin County  -  Beautifully remodeled Victorian in the heart of Central City. All appliances are included as is the existing furniture. Hardwood floors and oak trim and wainscoting are everywhere. Lounge by the beautiful bay window in the living room and keep warm by the wood burning stove in the cool evenings. the views of the mountains and valley are spectacular. Perfect for year round living or as a summer getaway.

Property information

This article is by Christine Karpinski who is the author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment andProfit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment

 

You’d love to buy a vacation home, but (let’s be honest) the recession and the not-so-dim memory of the housing bubble have you a bit skittish. If only you could see what the future holds. But since a reliable crystal ball has yet to be invented, you must resort to less mystical indicators.

According to Christine Karpinski, the National Association of Realtors® (NAR) 2009 Investment and Vacation Home Buyers Survey suggests that the iron is sizzling hot-and if you’re going to strike, the time is now.

“A few years ago when prices were escalating rapidly, people were kicking themselves for not having bought earlier when real estate was far more reasonable,” notes Karpinski, director of Owner Community for HomeAway.com and author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment. “Well, in 2012 or so, people will look back on 2009 as another missed opportunity.”

While all home sales were down significantly in 2008 (as one would expect)-and vacation property sales were down some 30%-so were real estate prices. That, of course, makes for an extremely favorable buyer’s market. It’s not surprising at all, therefore, that the NAR report found that 80% of vacation property and investment property owners surveyed believe that now is a great time to purchase real estate.

These sentiments echo those of Walter Molony, spokesman for NAR, who said in a recent CNBC article that the second home market is “fundamentally healthy.”

“The long-term underlying demand is favorable for vacation homes because of the large number of middle-age, middle income Americans [who are the primary buyers of such properties],” Molony was quoted as saying. “In recent years, this market has been driven by the Baby Boomers, but there are two even larger population groups coming up right behind them. Those younger segments will continue to fuel this market for the next 10 years.”

Karpinski says the NAR 2009 survey results, in conjunction with a proprietary Special Report done for HomeAway, constitute clear evidence that now is an ideal time to buy a vacation home.

She offers the following insights:

- Home prices are way, way down. The National Association of Realtors survey showed that the median sales price of the typical vacation home was $150,000-down 23.1% from 2007’s median price of $195,000. (To put this in perspective, consider that when NAR started conducting this survey, the median vacation home price in 2003 was $190,000 and reached a high in 2004 of $204,100.) When combined with the rock bottom interest rates, says Karpinski, all signs point to the likelihood that we’re now at the picture perfect time to buy.

“Anecdotally, I can tell you that people who would never have purchased a detached single home on the coast are now seriously considering it,” she notes. “Homes that would have once cost $3 million have now fallen to $1.5 million. And these buyers know that the price won’t stay down long, and will never be this low again.”

- It’s never been more obvious that real estate is a sound long-term investment. The NAR survey results revealed that the share of speculator sales is down from 29% to 16%. Combined with the fact that 34% of buyers are purchasing properties within 100 miles or less of their primary residence-which suggests they intend to use it themselves-this trend indicates that more and more people are embracing a “buy and hold” strategy. Plus, Karpinski says she constantly sees evidence that people are beginning to see the long-term benefits of real estate investing earlier in life. (The median age of vacation property buyers in 2008 was a relatively young 47.)

- The vacation home rental market is booming. While 89% of vacation property owners surveyed cited “to use for vacations or as a family retreat” as a reason for purchasing their second place answer is telling, indeed. Twenty-seven percent of respondents said they were purchasing their home “to rent to others.” While this number is up from the 25% cited in last year’s survey, Karpinski predicts next year’s survey will really tell the tale. As recession-crunched homeowners pursue new income streams-and as it becomes ever more evident that the vacation rental market is booming-2009 will prove to be a huge turning point in the renting out of second homes.

- People are more in touch with “rental realities” than they once were. In the past, says Karpinski, a first-time vacation homeowner might have expected to rent out their property an unrealistic number of weeks (say, 50 weeks out of the year). But NAR’s Special Report for HomeAway shows that 44% of respondents said they plan to rent anywhere between 9-26 weeks.

- Renting by owner has become mainstream. The NAR Special Report for HomeAway reveals that 54% of respondents plan to market their homes themselves. This do-it-yourself attitude reflects not only a burgeoning confidence index among vacation property owners, but also the wealth of support resources available to those who want to rent out their homes themselves.

Everything has changed. The truth is it’s gotten so easy and so affordable that there’s no valid reason not to do it yourself.” Need one more reason to take the plunge? Consider the fact that last month Fannie Mae rescinded its four-property limit for investors. If you’re financially secure and can come up with the requisite 20% down, chances are good you’re going to easily qualify for a mortgage.

“Of course there are always risks when buying any kind of real estate,” Karpinski acknowledges. “But investors who are comfortable with risk have to realize that conditions are ripe right now for a ‘perfect storm’ of success. Even if housing prices do go lower, interest rates surely will not. And once the turnaround comes, selection won’t be nearly as good as it is right now.

“Naturally, you should be cautious and do your homework before you buy any property-but don’t be so cautious that you miss this window of opportunity,” Karpinski adds. “These windows do have a way of slamming shut, and you don’t want to be stuck on the other side wistfully looking in a few years down the road.”

HomeVestors® of America, Inc., the company famous for its “We Buy Ugly Houses”® billboards and America’s #1 Home Buyer, has named the top 10 markets for real estate investing in the fourth quarter and 2008.

The fourth quarter rankings are as follows:

1. Dallas, Texas
2. Houston, Texas
3. Milwaukee, Wisconsin
4. Philadelphia, Pennsylvania
5. Fort Worth, Texas
6. Minneapolis, Minnesota
7. Atlanta, Georgia
8. San Antonio, Texas
9. Tulsa, Oklahoma
10. Denver, Colorado

HomeVestors, which has bought more than 37,000 homes for cash in the U.S. over the last 12 years, based the findings on the number of houses bought in each market by the franchise network in the fourth quarter of 2008.

The rankings for 2008 are as follows:

1. Dallas, Texas
2. Houston, Texas
3. Atlanta, Georgia
4. Fort Worth, Texas
5. St. Louis, Missouri
6. Denver, Colorado
7. San Antonio, Texas
8. Philadelphia, Pennsylvania
9. Milwaukee, Wisconsin
10. Minneapolis, Minnesota

“Last year was an ugly year for residential real estate, and created record-setting demand for a trusted national home buyer,” said John Hayes, president and CEO of HomeVestors. “Moving into 2009, HomeVestors franchisees continue to pay cash for houses, an increasingly attractive solution for thousands of homeowners also addressing one of the worst credit crises in our nation’s history.”

This article is by Alfred and Emily Glossbrenner who are experienced vacation-rental owners and the authors of How to Make Your Vacation Property Work for You!: The Quick & Easy Guide to Advertising, Renting, Managing, and Making Money from Your Second Home. They also own and operate FullyBookedRentals, a membership website devoted to helping other vacation-rental owners offer their properties effectively and profitably.

 

It’s often said that “the Internet changes everything.” Certainly it has changed the traditional relationship between vacation-rental owners and their property managers. At the very least, it has introduced a spectrum of possibilities. For some brave souls, the Internet has made it possible to take on everything: marketing, managing, advertising, maintenance-you name it.

But what if you don’t have the time (or inclination) to screen renters, handle inquiries, maintain an availability calendar, send out rental agreements, and collect payments? What if you just don’t want to do it all yourself?

If you’re not forced to maximize the income your property generates, if your current goal is to simply cover most of your expenses, then going the property-manager route might very well make sense.

But here’s the problem: The really good property managers handle dozens (even hundreds) of vacation rentals. They tend to market them all in the identical way, with a listing on their company’s website. And their goal is to generate as many bookings as possible for their company, rather than for your specific property.

So what can you do to make sure your place stands out from the crowd and gets its fair share of the bookings? How can you help your property manager do the best possible job for you?

Here are some suggestions:

1. Write your own property description. It’s unlikely that your property manager knows anywhere near as much as you do about the joys and pleasures of your place. You can set yourself apart from the competition by creating your own write-up and providing it to your property manager. Put your personality into it. Explain what you love about the place. And be frank. If there’s an ocean view, but you have to crane your neck to see it, go ahead and say so. Then make the point that for a full ocean view, the price would be considerably higher.

2. Take charge of your photos. Unless your property manager is a terrific photographer or has one on retainer, we recommend that you provide your own photos. Enlist the help of a friend (or hire a professional photographer for $200-$300) if you’re not comfortable with a digital camera. Be sure to “dress” the set, pay attention to lighting, and use a wide-angle lens for your interior shots.

3. Augment your management company’s online listings with your own. Most property management companies have their own websites with pictures and descriptions of the properties they manage. But when it comes to getting noticed by the search engines, more is often better. So boost your property’s “search footprint” by listing on several leading sites and directing all inquiries to your property manager.

4. Spread the word with business cards for your property. For less than $25, some sites, such as VistaPrint and OvernightPrints allow you to design your own business card, including a picture of your property and the address of one of your online listings. Plan to order a supply of 100-250 cards to keep on hand. Offer them to friends and business acquaintances who ask about your property.

There really are many ways to get what you want and need from a vacation rental. And the Internet is a big help, regardless of the path you choose. The key thing is to take the reins and use the Internet tools at your disposal to help your property manager keep your place fully booked.

This article is by Curtis Seltzer who is a land consultant who works with buyers and investors. He is author of How To Be a DIRT-SMART Buyer of Country Property at www.curtis-seltzer.com. He contributes to www.landthink.com.

 I’m sure there are three people in America who figured the stock market just right this year and are swimming in money like Donald’s Uncle Scrooge. I am not among them. And neither are millions of others who didn’t duck out.The value of the stocks in my Roth IRA is where it was about 15 years ago. I am tail-gating 63. This is not good.

An Individual Retirement Account (IRA) is a retirement-savings plan that’s funded by smiling, hopeful nitwits like me. Officially, we are called, beneficiaries.

About 47 million U.S. families have at least one IRA. In 2007, IRAs totaled about $4.2 trillion. I’d guess it’s less than $2.5 trillion today.

Several types of IRAs are available. The most used is the traditional IRA, which a taxpayer funds with a tax-deductible contribution of pre-tax income. The tax hit falls on all dollars withdrawn, both those contributed originally and those earned from investment.

With a Roth IRA, the contribution is taxed going in, but withdrawals, including gains, are not. The Roth should be a better deal, except, of course, when your account loses over time.

When deciding between a Roth and a traditional IRA, we nitwits must project future tax rates for the time we plan on withdrawing money. If we bet that future rates will be high and current rates are low, then Roth is the way to go. But if current rates are high and we think that future rates will be low, then the traditional IRA has more appeal. The federal government could eliminate this crystal-ball aspect of retirement planning by establishing a future tax rate that applies to IRAs.

Federal rules govern each IRA type. “The taxpayer must follow every rule to the letter–in setting up these accounts, administering them and making contributions and withdrawals,” said Thomas D. Arbogast, tax expert at the Pittsburgh law firm of Schnader Harrison Segal Lewis, LLP. “Otherwise, taxes and even the loss of the IRA account can be imposed.”

You cannot, for example, contribute to a Roth IRA if your adjusted gross income exceeds $110,000 for an individual and $160,000 for a married couple, filing jointly. The maximum annual contribution is $5,000 for those under 50 and $6,000 for those over.

The good news is that this restriction ends in 2010 and the account holder will be able to move from a traditional IRA to a Roth regardless of income while spreading the tax hit over two years.

IRAs mostly help middle-income taxpayers who can squeeze out an annual contribution and get their account started early in life. Rich folks don’t need IRAs, and poor folks can’t fund them.

IRA plans use custodians to administer the accounts. Most IRAs are parked with custodians like banks, stock brokers and funds. It follows that most IRA money is invested in stocks, funds, bonds and interest-earning paper.

I’ve had an IRA invested in stocks for 30 years. I’ve watched its value go up, down and end up not far from where it started.

Enough! I would have done better putting my retirement money into land held through a real-estate Roth IRA.

A real-estate IRA can buy land, houses, commercial property, mortgage notes and rental units, among other investments.

The IRA can also finance a purchase through a nonrecourse loan (security limited to the IRA-purchased property) or a private loan. The IRA itself cannot collateralize a purchase.

Money in the IRA from contributions, interest and earnings needs to cover a property’s carrying costs-property taxes, repairs, insurance and improvements.

The IRA owner can’t use the IRA-owned property as a personal residence or place of business. But the IRA can buy its owner-beneficiary a retirement home that’s rented until the owner retires, takes a distribution of the asset and moves in. Rental income goes into the IRA, not the owner’s pocket.

The IRA owner can direct real-estate investments but is prohibited from managing IRA properties. The IRA account holder can hire a property manager to take care of IRA properties, paid from IRA monies.

Rural land — and particularly, timberland — lends itself to a retirement investment. Woodland is an easy IRA keeper. It requires little management almost all of the time.

It appreciates long-term and generates timber-sale income every so often. Risk of loss is low. Timber sales can be arranged by a consulting forester and timed to catch a rising market. Small IRA accounts can afford 10 to 15 acres, which is a good investment for young adults.

If the IRA property has no mortgage, the IRA account need not pay taxes on income the property produces. If the IRA property carries a mortgage, the IRA account must pay the Unrelated Business Income Tax (UBIT), which is levied on income left after property expenses are deducted. If an IRA buys $100,000 of real estate with a $40,000 mortgage, the UBIT would only fall on 40% of the rental income. The first $1,000 of net income is spared the UBIT.

When an IRA property is sold, the gain is subject to the UBIT tax if it’s mortgaged. If it’s not mortgaged, the taxable gain is either deferred under a traditional IRA or exempt under a Roth IRA.

The UBIT applies to any trade or business carried on by the IRA. Other types of income are free of it, including dividends, interest, royalties, annuities, most real-estate rents and gains from sales other than trade-or-business property.

The real-estate IRA can also be used to originate mortgage money to borrowers and purchase existing mortgage-based promissory notes. And less obvious investments are also allowed, such as options on real estate, tax-sale certificates and foreclosures.

Certain types of transactions are prohibited. Your IRA cannot work investments with a “disqualified person,” including your immediate family, your IRA custodian and those providing services to your IRA, such as a broker. Your IRA can, however, invest with your siblings, in-laws, aunts, uncles and cousins. It cannot lend money to business entities when 50% or more of the stock is owned by you or a disqualified person,

An IRA cannot be used to buy life insurance and most collectibles, such as art, antiques, rugs, metals (with the exception of certain U.S.-minted bullion coins), gems, stamps and alcoholic beverages.

A very useful primer is Patrick W. Rice’s, IRA Wealth: Revolutionary IRA Strategies for Real Estate Investment, 2nd ed. (Square One, 2007, $17.95). Rice helps clients find investments and matches them with custodians. (www.iraresource.com.)

Real-estate IRA custodians can be found through an Internet search. Custodians review the investments, do the paperwork and hold the IRA money and property titles. Investments can be found through the taxpayer’s own network, consultants and real-estate brokers.

In light of the unpleasant fact that most Americans are not able to fund their own retirements under the current system, the federal government might consider expanding the definition of assets that can be contributed, raising the cap on annual contributions and making it easier tax-wise for more Americans to help their own retirements.

If I was in my 30s or 40s, I’d set up a real-estate Roth IRA and buy timberland. But readers should be warned: I was the guy who bought Pan American World Airways stock just before it flew into that dark night from which nothing good emerges.

This article is by Rob Massey, Jr., CPM, founder of RentalHouses.com and a consultant for Rentals.com

 

In most parts of the country, it is customary to not provide lawn services when renting out a house on an annual basis. But what grounds services make sense to provide irrespective of the customs in your market? What really is in the owner’s best interest to include and not include in the business of renting out houses?

Common sense tells us that if most landlords do not include a particular service for a specified rent then others should do the same or adjust the rent to compensate for the difference. Despite customs to the contrary, I have represented owners who have insisted that they keep the responsibility for grass-cutting, leaf removal and lawn fertilization in order to be assured that the exterior of their house is well kept and doesn’t appear as a “rental” in the neighborhood. When deviating from the norm, it is imperative that the advertising reflect the added services or the listing may appear to be overpriced.

The responsibility for certain services, such as tree trimming and gutter cleanout, should always be handled by the owner since the residents do not likely have the proper tools; nor should they be taking the risks associated with these tasks. Although not as critical as the aforementioned, I have always included shrubbery trimming as an owner service to make sure that it gets properly done and as frequently as it should. I never add any additional rent for including this work.

Should you decide to include additional grounds services beyond the norm in your lease, the fairest method for including them in the rent is by simply taking the annual cost and dividing it by 12 to determine the add-on monthly rent.

However, since the owner’s costs are really not evenly spread out over the year, unless you also have that arrangement with your contractor, you may want to have a schedule of costs written in your lease to be levied against the resident in the event of early termination of lease. Otherwise, the owner may be disproportionately charged and not properly credited for this expense up to the point of termination.

In any case, making informed decisions about lawn and grounds care requires a bit of forethought to arrive at the best arrangement for the owner. Consider your market conditions, the location of the property, the amount of work, and cost required to keep the property looking top-notch prior to deciding the best course of action for you or your owner.