American Apartment Owners Association

Kansas City considering fee-based inspections to uncover dangerous rental properties

Thu, 06/01/2017 - 9:06am

A sweep of bug spray was supposed to blunt Sara Bay’s cockroach problem, but all it did was rile up a swarm that came pouring up from the basement walls.

The 21-year-old pregnant woman had been in her new rental house in Kansas City less than a week, she said, and health hazards she hadn’t known to look for were bursting on her like shrapnel.

Mold. Mice feces. Poor electrical wiring. These are the things her grandmother, Laura De Rosa, says she found when she rushed to the house after taking Bay’s hysterical phone call earlier this spring.

To protect neighborhoods from such health hazards, Kansas City’s Health Department wants to begin regular inspections of rental properties — funded by fees on landlords.

The city is working on a draft ordinance that could put the question before voters in November. The ordinance proposes a fee starting at $90 for a single-family home that would be good for three years.

Independence has enacted a new inspections ordinance, also funded by fees, that takes effect Thursday.

Proposals for inspection programs percolating in these and other cities are spurring heavy debate.

It’s “governmental arrogance,” said Robert Wise, a Kansas City attorney who represents landlords.

Wise said fees would come down on good landlords in the pursuit of the “nuisance houses” that cities have other ways to catch. Landlords also see potential constitutional violations of tenants’ rights against unreasonable search and seizure.

This spring in the Missouri legislature, House Bill 1189, which would prohibit cities from any periodic interior inspections of rental property without the tenant’s consent, failed to make it through the session.

Landlords expect to see another shot in 2018.

“I have to ask why the city would want to make life tougher on the landlord,” Kim Tucker, the executive director of the Mid-America Association of Real Estate Investors, wrote on the organization’s blog, “when they want anyone and everyone to buy and fix up their vacant rental properties.”

City officials drafting Kansas City’s ordinance recognize that an inspection process will need to strike an effective balance, said Kansas City Mayor Pro Tem Scott Wagner.

“We don’t want to be overly intrusive,” Wagner said. “But we want to assure living conditions are safe without undue burden to landlords.”

The ordinance remains in flux and hasn’t gone before the City Council yet. Ultimately, voters would decide if an inspection program happens in Kansas City.

Some of the issues inspectors might be looking for would be chipping or flaking lead-based paint, or dangerous mold or exposed wiring, Wagner said.

“We’re looking for a minimum level of safety for rental properties throughout the city,” he said.

The conditions that De Rosa discovered in her granddaughter’s rental home may be extreme, but situations like those do exist, said De Rosa, who went to the Center for Conflict Resolution in Kansas City to try to get help.

“Oh my God,” De Rosa said, recalling her reaction after seeing the house. “I called the landlord-tenant court. I called the Health Department.” The city’s code enforcement officer who came to the house said the city already was investigating a case against the property.

The vulnerability Bay described cuts both ways in the debate over inspections and fees on landlords.

She was desperate to find a cheaper space, she said, when roommates in a shared house dispersed, leaving her having to pay the whole $800 rent. She rushed into a deal for the $650 rental home she found on Craigslist because it was something available she could afford.

Then, rather than pursue her complaint in court, she took a partial refund of her rent and downpayment from her new landlord because she didn’t think she could wait through a legal process that might not rule in her favor.

Landlords opposing the fees and inspections say it would add costs that they would have to add to rents, which would hurt renters like Bay who often are already paying more than they can afford.

But proponents of inspections say the powers landlords hold over many low- and middle-income tenants inhibits many from complaining of unsafe conditions for fear of eviction. And some residents simply don’t know they can complain to their health department.

“What cities have found is that residents won’t make those complaints,” said Richard Sheets, deputy director of the Missouri Municipal League in Jefferson City.

Many bigger cities are beginning to explore regular rental inspections, he said, because “they’re trying to get a handle on substandard housing.”

Hazards in one house can affect not just the health and safety of the tenants but the surrounding neighborhood, he said. Vermin and insects breed and spread, he said. “And it is the role of municipalities to protect health and safety.”

Independence is prepared to begin inspections Thursday at a cost of $50 per inspection to landlords every two years. The city has accumulated a list of approved private inspectors landlords can choose from to do the inspections.

Independence’s City Council has been wrangling over its ordinance since the fall, making adjustments, including reducing the number of items the ordinance requires to be covered in inspections.

“There has been a lot of work, a lot of discussion,” Independence Mayor Eileen Weir said. At public hearings, almost everyone who came to speak were landlords opposing it. But Weir said she and council members have long been hearing from residents and neighborhood groups about problem properties.

“For every one of us on the council,” Weir said, “this is an issue they tell us they are concerned about.”

While landlords don’t want the ordinance and fees, Kansas City properties owner Stephen Summers says tenants won’t want them, either.

He stood recently on a Northeast Kansas City block with Brian Winberry, each of them landlords with 30 to 40 properties each. A tidy home on the corner of the block was one of Summers’ first properties that he bought 30 years ago.

These neighborhoods just north of Truman Road thrived when Sears and Montgomery Ward were strong, Winberry said, “but now it’s a low-income area, and this is what they (the residents) can afford.”

Winberry’s already including language in leases, he said, that says any city inspection fees that arise would be added to the rent.

“There is a tremendous amount of low-income housing in Kansas City,” Summers said. The fees and repair costs brought on by inspections is bound to raise rents, he said, “and displace a huge number of people.”

All of this will be part of the discussions going forward, Wagner said. The Health Department wants to be able to effectively protect people and neighborhoods, he said. But the public and the City Council will get a chance to be heard on the ordinance.

“That,” Wagner said, “is why it has ‘DRAFT’ written all over it.”


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How Multifamily Owners Can Maximize Revenue before Peak Leasing Season

Thu, 06/01/2017 - 9:01am

Before peak leasing season is in full swing, there are several steps that multifamily property owners and managers must take to ensure that they make the most out of the busy time. Owners who invest the time and effort now will drive strong net operating income and stable cash flow for their properties year-round.

With the busy season starting in early summer, now is the time to implement low-cost changes that will generate a high return on investment and impress new and prospective residents.

As a property management firm that manages 171 apartment communities totaling 23,645 units, we’ve identified several key strategies to implement prior to peak leasing season in order to maximize property value, attract new tenants and drive long-term revenue.

Invest in capital improvements

First and foremost, multifamily owners should utilize this time wisely to invest in capital improvements that will add long-term value to their apartment communities. By addressing deferred maintenance items and upgrading the common areas, owners can ensure that their properties are leased at maximum capacity by the end of the summer.

So which capital expenditures will generate the highest return on investment? Investing in communal gathering areas and indoor/outdoor amenity spaces can help establish a sense of community at your property, thereby driving resident retention and minimizing turnover. Some of the most sought-after amenities that build this sense of community include larger clubhouses, BBQ areas and on-site movie theaters, among others.

Upgrading and modernizing interior features of empty units is another way that owners and investors can not only increase revenue, but also reduce maintenance costs in time for the peak leasing season.

For example, installing vinyl flooring can enhance the overall quality of a unit, and benefits property owners in the long term by providing an opportunity for higher rental rates and increased revenue. While vinyl flooring does require an initial capital investment, the lower maintenance required will result in a greater return on investment in the long run.

Ensure superior staff training

Providing memorable customer service is another way that property owners can attract and retain tenants, especially during the crucial peak leasing season. Owners should look to property managers to ensure that their on-site staff is well-trained and prepared ahead of these busier months.

When hiring new staff for the peak leasing season, property managers should evaluate any training programs already in place and see what needs to be changed or improved. Hosting workshops for existing employees, with a special focus on sharing experiences and dealing with high-pressure situations with tenants, can also improve quality of service, which in turn translates to higher resident satisfaction, retention and overall occupancies.

By providing superior staff training, property managers can streamline operational efficiencies and improve the overall performance of a multifamily community. Well-trained staff members will be better prepared to handle resident requests and address challenges that may arise.

When it comes to successfully leasing an apartment community, investing in the right staff can be just as important as investing in property-level improvements.

Leverage new technology and digital platforms

By the start of peak leasing season, multifamily owners should also ensure that the most current asset management platforms are being used to optimize efficiency.

In keeping up with the digital age, property owners must evolve with changes in technology and harness new digital platforms to improve their bottom line profitability. By staying up-to-date with the latest technology, owners and managers will be better positioned to minimize operating expenses and maximize long-term revenue.

For example, one asset management platform that Western National Property Management is utilizing is InfoTycoon, which allows property managers to leverage and consolidate data in real time, thereby increasing net operating income and portfolio value.

This platform allows property managers to customize forms for in-unit inspections, document deferred maintenance items and generate comprehensive reports to track the financial performance of a property. By utilizing this program, property managers can reduce the inspection time by half, enabling them to streamline the move-in, move-out process for residents during the busy season.

Start today

The key to strong asset performance is to implement the above strategies before peak leasing season is fully underway in order to maximize revenue.

By investing in capital improvements, providing superior staff training and leveraging new technology, property owners can maximize occupancies and minimize turnover, resulting in strong net operating income that boosts the bottom line.



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Sharing economy: Before you rent that room, brush up on tax pointers

Thu, 06/01/2017 - 8:57am

So you have a house to rent — or maybe just a room. Or perhaps you’d like to pick up passengers in your car working for Uber or Lyft.

Pursuing these types of business activities can be great sources of additional income. But there are drawbacks too, including those involving taxes.

There are several tricky tax rules to beware, especially if you want to lease your home or part of it: A guide prepared for Airbnb landlords by accounting firm Ernst & Young runs 28 pages.

Yet plenty of the more than 2.5 million people now estimated to be part of the “shared economy” aren’t familiar with the rules, especially when they involve renting out part of a home.

“Many individuals might take on these new jobs completely unaware (of the tax obligations),” said Nina Olson, the National Taxpayer Advocate, in Congressional testimony last year. The rules can be more confusing for people who pursue such activities as part-time, secondary sources of income, she said.

In a poll conducted by the National Association of the Self-Employed, roughly one-third of survey participants didn’t realize they might need to file quarterly estimated payments, and roughly one-third didn’t know what types of tax records to maintain.

Yet more people are engaging in these activities. In one recent example, Airbnb said the nearly 4,700 Phoenix-area residents who opened their homes to Spring Training guests this year and used the company’s services earned $2,350 on average over the six-week exhibition baseball season.

Here are some basic tax tips to heed, focusing on part-time or partial home rentals:

Income is generally taxable

The money you earn from shared-economy pursuits typically is taxable and must be reported, even if you’re running things as a part-time or sideline business. Income also is taxable, even if you collect the proceeds in cash and don’t receive any Form 1099s.

One exception involves income from renting your personal residence for fewer than 15 days each year — that money isn’t taxable.

Deductions are available

While the income usually is taxable, you similarly may qualify for various deductions to lower the tax bite. The list of deductible expenses can include mortgage interest, property taxes, utilities, repairs, insurance and advertising.

The website features an interactive online tool, “Is my Residential Rental Income Taxable?,” which can help determine if your income is taxable and whether you qualify for deductions.


Some housing expenses such as utilities and maintenance often can’t be fully deducted — just the business portion — so you will need to allocate these costs.

Suppose you rent a bedroom measuring 180 square feet or 10% of your home of 1,800 square feet. Suppose, also, that you lease it for 73 days of the year, or 20% of the time. If your annual air-conditioning bill is $2,000, you multiple that by 10% and then by 20%. This results in a deductible air-conditioning expense of $40 and a nondeductible portion of $1,960.

Depreciation, an expense that reflects wear and tear, is among the costs you likely would need to allocate. For various reasons, depreciation will add an extra layer of complexity to your tax record-keeping.

A rental could mess with your capital-gain exclusion

Normally, homeowners can avoid paying taxes on some or all of their housing capital gains when selling, provided they owned and occupied the property for at least two of the five years preceding the sale. This is a hefty tax break, allowing a single person to exclude up to $250,000 in gains and a married couple up to $500,000.

But this benefit can get eroded if you lease the home or part of it. “Generally, the time you rent out your main home is considered a period of nonqualified use,” said Ernst & Young in its booklet. “No exclusion of gain is allowed to the extent that the gain is associated with a period of nonqualified use.”

More specifically, any gain at the time of sale would get divided between qualified and nonqualified tax treatment, based on the amount of time used for each. The capital-gain exclusion can be used to shelter housing profits for periods of qualified use, but there’s no such exclusion for rental/nonqualified periods.

Your tax return could get more complicated

Most regular employees pay taxes on an ongoing basis, through payroll withholding. With extra shared-economy income, you might need to make estimated payments on a quarterly basis, as the Internal Revenue Service highlighted in a recent commentary.

In fact, the added income could push you into a higher tax bracket, and you might need to file a more complicated return, with added record-keeping requirements. Rental income or losses are reported on Schedule C or Schedule E, Ernst & Young noted, which means filing the longer IRS Form 1040.



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How to turn your real estate investments into profits

Thu, 06/01/2017 - 8:55am

All profitable real estate investments start out at the same place and that is where you must:

Find a Good Deal

The term “good” is such a broad term and is in the eye of the beholder. My definition of good and yours might be totally different. From the perspective of a guy who has bought and sold tens of millions of dollars of real estate let’s talk about what’s a good deal. This assumes you want to buy a fixer upper cheap and rehab the property for immediate resale. This also assumes you are going to cash out of the transaction by selling to a retail buyer who wants to live in the property.

You must buy your property at a big enough discount off its retail or repaired value to allow you to make repairs, pay holding costs, pay sales costs, and make a nice profit. The first thing needed is to know what the value of the home is after you put it in nice shape. One of my first mentors, Mr. Nick Koon, told me this “son, until you know value, you know nothing!”

We need to know what similar homes in the same area are selling for and are currently on the market for offered by other sellers. You are looking for as close to your style, size, lot size, school district, age, bedrooms and baths as possible. Does the subject property have a basement? Does it have a garage? These are the biggest factors in pulling the comparables (or comps as they are referred to in the trade).

There are many sites on the internet that will allow you to gather comparables but none will be as good as the local multiple listing service (MLS for short) that Realtors™ have at their disposal to conduct their business. Working with a real estate agent (or becoming licensed yourself) will be a huge asset to your business but make sure you don’t waste their time. I would use these other sites (Zillow, Real Estate abc, Trulia) to get a ball park and then ask my agent for their “comps”. By the way, real estate agents and brokers pay big money every month to have the best information in the marketplace so they should have the best and most up to date information.

If my prospective investment home is a 3 bedroom, 2 bath, 1,500 sq ft ranch than that is the kind of home I am looking to compare against my home. On the same street or in the same subdivision would be great but at least as close as you can get. You are looking for a range of value because no two homes, however similar, are rarely exactly the same. If I see similar homes in nice shape selling for $240,000 to $260,000 then my value will be about $250,000. You would like sold comparables to be within 60 days or sooner when possible for the most accurate snapshot of current market value.

A Simple Formula to Keep You Profitable

Determine the After Repaired Value and multiply that amount by 70% to 75% maximum. Then back out your estimated repairs. This figure will give you your maximum offer on a fixer upper. It would be nice to buy it for less than this figure but this figure is the maximum you can pay. Deviate from this formula at your own risk. This will allow you to make a nice profit on the deal. By paying more you put your profitability at risk. The “After Repaired Value” is what your property would sell for assuming it was fixed up nicely to compare with or even better than the other properties that have sold in the last 60 days.

We need to be buying this $250,000 home (depending on repairs) in the $170,000 to $190,000 range. We will first focus on bringing good prospects and leads to us so we can find a good deal as described above. We will focus on a few key ways to find good deals in this and subsequent articles but we can only scratch the surface. I would like to give you 100 best sources to consistently find good investment prospects. Please visit for a free download of the 100 ways to find great deals.

  1. The local Multiple Listing Service- This is usually only a good strategy when the overall market is very slow and there are large numbers of unsold inventory on the market. During those markets there is usually enough inventories in any good sized market to keep you busy. Most local MLS’s download to where you can access millions of listings from all over the country. When your market is hot you can expect to find very few deals on the MLS and the rare times there is a great deal listed it will most likely have multiple offers.
  2. Getting the word out that you are a serious investor and are looking for good deals in any condition.
    1. Get business cards made stating that you buy houses, in any condition, any area, and close quickly. Buy 1,000 and leave them all over and pass them out as often as possible
    2. Over-sized flyers stating the above as well as domain name for a website. May consider passing these out (services do it for cheap) or mailing to a certain geographic location if you really want to own properties in that area
    3. Good old fashioned bandit signs still work. These are usually yellow signs with permanent marker hand written on them and placed all over town. Get a service to put them up for you but check with local zoning ordinances so you don’t get fined. Add a 21st century technique to the sign and put something like text to “webuyhouses123” for a quicker response. This will get you cell phone numbers from prospects instead of just bad email addresses.
    4. Pay an ant farm to bring you deals. After you download your 100 ways to find deals find all the people on there that are around houses all day, every day and make connections with as many as possible. Tell them if they bring you a lead that ends up as a successful investment you will play them $300.00 or some figure that makes sense to both of you. You also might just pay them $10.00 per each lead sheet they bring you back filled out with the information you need to make a decision. Think of having 20 or 50 “ants” in the field bringing you solid leads. This is leverage at its finest!


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The upside and downside of becoming a landlord in retirement

Thu, 05/25/2017 - 5:27pm

I used to listen to your radio show in Atlanta when I was working. I’m now retired and I am concerned about my investments. I have no confidence in the U.S. economy.

I have roughly $1 million saved up in an investment account. I own my home free and clear and have no other debts. My wife and I are 63 years old. She has a pension and I’ll take Social Security when I turn 66.

We are thinking of buying a different house and renting ours. The rent would net us about $1,350 per month. We would then buy another house for about $250,000 and pay for that in cash. I think that having more money in real estate assets would be safer for us. What do you think?

The level of risk a person is able to take or want to take is a very personal decision. We usually don’t advise our readers on the amount of risk they should or shouldn’t take but rather highlight the potential upside and downside of their decisions.

For example, let’s say your current home is in one area of Atlanta and your other home is on the other side of the metro area, or in the mountains in northern Georgia. If the two properties aren’t near each other and your tenant needs quite a bit of hand holding, you could find it time consuming and annoying being a landlord.

Living in a home that you own is quite different than becoming a landlord of your former primary residence. For that, you need to make sure you want to be a landlord and are willing to deal with tenants, their issues and the possibility that you might not have a tenant if you can’t rent the property.

All of these issues are also “risks,” but you might have more control over the risks in vetting your tenants and by deciding how to price your home for rent. You said you have $1 million in an account. You’d have to decide how to invest that money in a diversified way to help you out into your retirement years. The purchase of real estate is not a liquid investment, but if you have a good tenant and you have good cash flow from the home, that cash flow can help supplement your retirement income far beyond what you’d get in stocks or bonds, and certainly more than you’d get in cash.

One thing for you to consider is what your home is worth and if you sold the home what you would do with that cash. If you invested the cash, what return do you think you’d get from the cash? If you leave the money in a cash account, you know you’d end up with close to zero income from that cash but you’d end up with about $16,000 per year from your tenant — assuming no big expenses are needed to your former home. In addition, you’d hopefully see some additional appreciation in your home value.

You could consider investing in more real estate, as you have the cash for it, and handling your real estate as a side business. Here again, it’s risky to put too much faith in the power of real estate. There are no assurances for anything; but given what we have lived through from before the Great Recession through today, you could see real estate and stock values plummet but then rise again. Some real estate has done better than others and some stocks have done better than others.

So while we like real estate, we encourage you to run the numbers, become knowledgeable on how to market real estate, understand how long it takes to rent homes in your area, see what might need fixing in your home and then decide whether becoming a landlord is right for you.



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Single-Family Rents Remain Strong—For Now

Thu, 05/25/2017 - 5:25pm

The business of renting single-family homes has blossomed in recent years with large players buying swaths of vacant homes and with homebuyers often sitting on the sidelines over the past few years. Fundamentals have been strong, particularly with vacancy rates at low levels.

But one hitch could be too much new rental housing development competing with existing rental stock while renters’ wages growth could potentially be slowing down.

“That will shift the balance over the next year to favor renters a bit more in contrast to the strong landlord market we’ve seen over the past five years,” says Daren Blomquist, senior vice president for ATTOM Data (formerly known as RealtyTrac).

Single-family rents have been rising quickly in recent years.

Average rents for single-family rental increased 4.5 percent 2017 compared to the year before across the 375 U.S. counties tracked by ATTOM Data.

“Renting a single-family home has become a more mainstream and viable option over the last seven years,” says John Burns, CEO of Burns Real Estate Consulting.

Burns Real Estate Consulting found a similar increase of about 4.0 percent in the markets it tracks. That’s slower than the 5.7 percent growth in average wages over the past year across those same counties.

“That is good news because over the past few years rents and home prices have far outpaced wage growth,” says Blomquist.

Very few rental houses are now vacant. Less than 5.0 percent of the rental houses operated by the large real estate investment trusts are now vacant, according to Burns. In the broader market, ATTOM Data found an average vacancy rate of 4.0 percent across 473 countries it studied. That’s up nearly half a percentage point compared to the year before. (ATTOM tracks vacancies with data from the Post Office, which can confirm whether the mail is being picked up at the houses that ATTOM as identified as being single-family rentals.)

Vacancy rates are rising the most in the places were landlords are now motivated to buy and renovate homes to offer as rental houses.

“Not surprisingly, some of the highest vacancy rates are in markets with the highest potential rental returns such as Chicago, Detroit, Indianapolis, St, Louis and Baltimore,” says Blomquist.

The inventory of single-family rental houses grew dramatically, to 12 percent of all housing units in 2015, up from 9 percent in 2006, according to Burns.

“More units are coming online thanks to this investment strategy spreading to the masses,” says Blomquist. Developers are also creating new rental apartments, which can compete with rental houses for residents.

Strong demand for rental houses has helped fill most of these new rental units. The demand for single-family rental houses is strong. “Job growth remains very solid across most top single-family rental markets—that’s good for rents,” says Rick Palacios, senior vice president and head of research for Burns. “At the same time, income growth is moving nicely higher in these markets, which bodes well for continued rent growth.”

It’s not clear that the economy and wages can continue to support the sky high rents and rapid rate of increase in rents that we’ve seen the past few years—and which some single-family rental investors are depending on, says Blomquist. Tepid wage growth is far and away the most important limit on how much landlords can raise their rents.

“We do see several bellwether markets where rents were basically flat, such as the Inland Empire of Southern California and Orlando, Fla., or even fell on average.  Rents fell 1 percent over the last year in Las Vegas.



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It Gets Stranger: How Trump’s Tax Plan Impacts Homeowners & Real Estate Investors

Thu, 05/25/2017 - 5:21pm

Sound the controversy bells! Politics, economics, and real estate ahead!

Except—wait a second. What is this odd intersection of liberal economic arguments and Trump’s tax proposal? Something strange is afoot.

The Trump tax plan would in many ways level the playing field between renters and homeowners, something that liberal economists have been pushing for decades. Of course, that’s not necessarily good news for homeowners, investors, and the real estate industry at large. Look no further than the National Association of Realtors spending $10.2 million in the first quarter this year, lobbying Congress against proposals like Trump’s. (That lobbying budget was second only to the U.S. Chamber of Commerce for a single organization.)

And what’s this about a depressive effect on home values, particularly in pricey cities like San Francisco and New York? What’s going on here?

Let’s take a deep dive into some of the weirder implications of Trump’s tax plan for homeowners and real estate investors. You may or may not like what you find, but you’ll probably be surprised by it.

25 Million Americans Will “Lose” the Mortgage Interest Deduction

The Trump plan calls for doubling the standard deduction, which means that millions more Americans will use that rather than itemizing their deductions.

In fact, that puts it lightly. Currently, 33 million U.S. households (30%) itemize their deductions, taking advantage of the mortgage interest deduction. Under Trump’s plan, Trulia estimates that number would drop to 8 million households (only 5% of taxpayers).

So, for 25 million Americans, the mortgage interest deduction becomes obsolete and irrelevant.

Mark Zandi, chief economist for Moody’s Analytics, argues that Trump’s plan “is a backdoor way of rendering the mortgage interest deduction close to worthless.”

Still, that doesn’t mean that homeowners are paying more taxes. It merely levels the playing field between the average renter and the average homeowner. But we’re getting ahead of ourselves; more on that later.

The mortgage interest deduction isn’t the only casualty of the Trump tax plan for homeowners and real estate investors.

State & Local Taxes No Longer Deductible

Under Trump’s tax plan, state and local income taxes and property taxes would no longer be tax-deductible.

That’s more bad news for itemizers, especially for residents in high-tax states. (If they haven’t fled yet, they might start considering it now!) But once again, the larger standard deduction will push more Americans to use that rather than itemizing. Thus, the loss of these deductions would only hurt those wealthiest 5% of taxpayers still itemizing their deductions—another point somehow scored for liberal economists.

So once again, most renters and homeowners would find themselves having access to the same tax benefits, simplifying tax returns and leveling the field more.

Are Simpler Tax Returns Better?

Well, there’s a trick question if I’ve ever heard one. That doesn’t mean we can’t turn it over in our hands a few times, though.

Itemizing deductions makes for much longer, more complicated tax returns. They mean more paperwork, more receipts, more work in preparing your return, a higher likelihood of making a mistake. They also mean you’re more likely to need to hire an accountant.

And, of course, there’s a lot more there to trigger an audit.

More middle-class earners could knock out their own tax returns on a Saturday morning, rather than pay an accountant to do it for them. Bad news for accountants, good news for the rest of us.

With that said, there are some good reasons why we have such a complex deduction system. They serve as incentives for behavior we want to encourage in our economy. That’s how the mortgage interest deduction came about—as an incentive to push more Americans to become homeowners.

But do we even want more homeowners?

The Macroeconomic Argument Against Homeownership

For decades, even centuries, there has been an unquestioned assumption that homeownership is better than renting. People hold these beliefs vehemently—look no further than the comments on an article about the benefits of renting over homeownership.

But more Americans are turning their backs on homeownership, with homeownership rates at 50-year lows. And there is strong scientific evidence that regionally, homeownership rates are actually linked to unemployment rates.

Why? Many reasons, which are beyond the scope of this article, but much of the argument comes down to workforce mobility and economic fluidity. On a macroeconomic level, you want to match workers and employers based on maximum skill match, not based on what happens to be available within a half-hour radius of where a person is permanently affixed.

Homeowners also tend toward a “NIMBY”—Not In My Backyard—mentality that can block more rational zoning measures and urban planning. There’s also evidence linking homeownership with longer commutes, higher congestion, and more fossil fuel usage.

Liberals also condemn the widening wealth gap between homeowners and renters (more on that momentarily).

But the point is that U.S. politics have been dominated by the view that homeownership is worth encouraging. It’s popular, it’s mainstream, and on the individual level, there are pronounced benefits.

This prevailing populist approach is how the mortgage interest deduction and the property tax deduction came about. Not everyone is so taken with them, however.

The Liberal Argument for a More Level Field

The most recent Federal Reserve data hasn’t been released yet, but economists estimate that it will show the average net worth of U.S. homeowners ($225,000) will be 45 times higher than that of renters ($5,000).

Liberals don’t like to see discrepancies like that. It makes them ask questions like, “Why do our fiscal policies offer tax advantages to already-advantaged groups like homeowners?”

And liberal economists? They hate the mortgage interest deduction. They assert that it disproportionately rewards the wealthy, providing no benefits to the poor at all.

Then there’s the tax money that liberal economists would rather see collected by the federal government. It’s estimated that the mortgage interest deduction will leave $63.6 billion in the wallets of homeowners rather than Uncle Sam this year.

So, what happens if you double the standard deduction? As outlined above, most homeowners and renters would receive the same tax deduction—except the wealthiest Americans would still see outsize benefits from the deduction. Cue the liberal outrage.

How wealthy would you have to be to benefit from the mortgage interest deduction? Under Trump’s plan, it would take a mortgage of at least $608,000. That’s nearly three times higher than the median home price in the US.

Liberals may not be happy that the deduction still exists, but they like that fewer homeowners would receive tax benefits not available to lower-income Americans.

And it gets better for them: Housing becomes more affordable.

Economists Estimate Trump’s Plan Would Cause Home Values to Drop

Moody’s Analytics have forecast a 4% drop nationwide for home values and even more in high-price cities. The National Association of Realtors is even more concerned, estimating a 10% average drop in home values.

That’s music to the ears of progressive proponents of affordable housing (at least until their own home equity drops).

For homeowners, real estate investors and the broader real estate industry? Not quite so musical. More akin to a loud belch in church.

Still, it raises some important questions about what is “normal” home pricing. Were home values “normal” after the housing crash in 2011? Are they “normal” today? Maybe at some point in between, based on some arbitrary wage/home price ratio?

You’ll get a different answer from an affordable housing activist in Queens than you will from a businesswoman on the Upper East Side. In other words, it’s more a matter of political opinion and your existing housing status than it is an easy consensus for economists.

So Wait, Are These Tax Changes Good or Bad?

Likewise, plan on different answers from, well, just about everyone.

But it’s worth mentioning that Trump’s tax “plan” reads more like a wish list—you better believe that Congress will have their own agenda and the final proposed bill will look very, very different. There are plenty of politicians across the political spectrum eager to start crossing through and replacing line items.

I believe that taxes can and should be used to sculpt behavior among a population. Governments should offer deductions and tax credits for behaviors they want citizens to do more of (e.g. charitable donations, long-term investments, sustainable energy investments, etc.). They should also tax the heck out of behaviors they want citizens to do less of: smoking, eating fast food, etc.

For policy pragmatists who share that view, the question then becomes: Is homeownership a behavior to reward or not?

That, my friends, is the trillion-dollar question.

What do you think? Should we be rewarding and encouraging homeownership? What about Trump’s tax plan do you like or dislike?



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10 top tips for finding tenants

Thu, 05/25/2017 - 5:19pm

The single biggest mistake you can make in property investment is buying the wrong property. The next one – and by far the most common – is getting the wrong tenants to live in it.

If you have the wrong tenant in your property, your life as a landlord can be hell. The right tenant, on the other hand, will look after your property like it’s their own and make your job easy. That’s why it’s so crucial to invest time and effort in your tenant choices.

Here’s my top ten tips for getting it right.

1. Don’t rush into it

So many of the landlords I work with jump into rental agreements because they’re losing money on empty rooms or empty houses – they just want to get them filled up, and get the cash flow flowing.

The thing is that the cost of the wrong tenant is far higher – and far longer term – than the temporary hit you’ll take on an empty property while you’re searching for the right person to live in it.

2. Know your strategy

You need to match your tenants to your property, and stick to your strategy.

Are you looking for long term capital growth, or a monthly income? Where is your property? Are you targeting young professionals, families, or people on benefits? How much risk is associated with your tenant type? Do you want to be hands on or hands off? The answers to these questions will affect who you rent to, how you find them, and what kind of arrangement or contract you put in place.

Using a letting agent or other third party to find your tenants is a valid strategy – but it does mean you have much less control over who’s in your property. Most landlords I work with want to retain some sort of involvement with their investment. Even if you are using an agency, you can still have some level of oversight. At the very least you should make sure you understand how your agent plans to vet applicants, and you can even meet or checkout the final candidates yourself.

3. Know the system

Bad tenants know the system – and that means you’ve got to know it too. Once someone is in, they can stop paying rent and it will take you time and effort to serve an eviction notice. Tenants can live rent free for up to 10 months while you’re jumping through legal hoops.

Make sure your contract is watertight. You don’t have to have the same or standard contract for every property – if you want to lengthen or shorten the notice period, be flexible on clauses or include a six month break clause for new tenants, get it written in up front.

Being prepared for the worst and getting the right support around you is absolutely key. You should have a great solicitor on your team from the very beginning – and if you are relying on your rental income consider taking out both Rent guarantee and Legal protection  insurance to cover you should you have to pursue an eviction.

4. Don’t dismiss tenants on benefits – but do do your research

I always warn landlords not to judge a book by it’s cover – good or bad. Tenants on benefits get a bad rap.  But renting to tenants on benefits can really work for the right property in the right area. Some of my best and most reliable tenants are vulnerable people who happen to claim benefits as part of their income – and for me as a family lawyer, renting to them is a way to give something back.

If your strategy is about long term capital growth and you want to be hands off – you might want to consider renting out to a local authority for social housing tenants. Councils can guarantee you rent for 4-6 years – no management, no maintenance, and no letting fee. I’ve done this with several properties. With the value still going up I’ve pulled the money out of them to fund other investments. Yes, I could be making more money from them renting privately, but keeping this part of my portfolio ticking along in the background suits my purposes.

It’s worth noting here, however, that the rollout of Universal Credit is going to be a game changer. It means you won’t get your rent paid directly – payments will go to your tenants first and it will then be their responsibility to budget for rent. That will add an extra layer of risk for landlords – and unfortunately another barrier to quality rental accommodation for struggling tenants.

5. Turnover can be good

Having a high turnover of tenants in your property can make for a lot of tenant-finding work for you – one of the reasons finding the right person is so important.

Sometimes, though, turnover can be a good thing. In HMOs, for example, there’s usually a higher turnover as people tend to move on with their work, studies or lives. But that means there’s often less to go wrong in terms of problem tenants – and multiple housemates tend to police each other and let you know who’s not following house rules.

What you want is to get tenants who’ll stay for 6 months rather than 6 weeks, and they key to that is making sure you’ve got the right mix of people. Don’t put an 18 year old lad in with four middle aged women!

6. Be flexible if you can

To get the most out of being a landlord you have to be flexible. Yes, keep your strategy and your end in mind, but think outside of the box about how to get there.

For instance, if you’ve got a family home and you want long term, reliable tenants, consider what you can do to be flexible for the right family. Are you prepared to allow pets, or allow them to decorate the children’s bedrooms? I’ve had the same family in one of my properties for several years – and the result is they treat it like a home. That’s absolutely great for me as a landlord, and it means I’m prepared to bend over backwards to keep them happy.

7. Telephone vet tenants first

There is no point meeting up with someone and showing them round your property if you discover they’re only looking for a very short term lease, or if they’re not familiar with the area and decide they don’t like it. You’ve wasted several hours of your time on what could have been a 20 minute conversation on the phone.

I always text potential tenants the postcode and ask them to check out the street before I’ll meet them. I have another list of questions I always ask everyone too – from how long they plan to stay to what’s really important to them – are they looking for a communal area, parking, good transport links, ensuite rooms, female only housemates?

You’d be surprised how many people you can eliminate just by having a friendly chat and deciding you don’t meet each other’s requirements. As a result, 98% of the viewings I do myself are successful – because they’re a formality rather than first contact.

8. Run references

Never, ever skip the references. I normally get bank statements and a copy of their passport and driving licence, previous addresses, employers references and parents addresses. I also ask for references from previous landlords – but I don’t rely on them. A landlord will be desperate to get rid of a bad tenant – and may gloss over any gory details to do so.

If you’re new to being a landlord, it’s well worth investing in an independent reference check too – which can start from as little as £15.  Link to Simple Tenant Referencing here.

9. Look after the good ones

Don’t underestimate the value of a good tenant. If you look after your tenants, they’ll look after your property, and they are worth their weight in gold. Keep those lines of communication open – send a Christmas card, bring over a box of chocolates when you do your inspections, and keep talking about what they need, what’s going on, and what their plans are.

10. Insure for the bad ones

Sometimes, things do go wrong with tenants. If you’re insured you can put it right with the minimal amount of fuss or personal expense. Having specialist landlord insurance is essential – and a good insurer will help you find the right balance of cover to premium for your particular properties and tenants.

Look into Rent guarantee and Legal protection, and consider taking out Malicious damage cover , which means that if your relationship with your tenants does turn sour and they take it out on the property – you can fix the damage. Always check your insurance policy to see if tenant references are part of your cover requirements – and double check you’ve got everything in place.


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California Bill Would Bar Landlords From Using Immigration Status Against Tenants

Thu, 05/25/2017 - 5:17pm

SACRAMENTO (CBS13) — A California proposed law seeks to protect undocumented immigrants from harassment, at home.

Across the state, tenants claim their landlords are threatening them with a call to immigration authorities if they don’t agree to be evicted quietly.

Now the Immigrant Tenant Protection Act, making its way to the senate floor, would make it illegal for landlords to use their tenants’ immigration status against them. If they do, landlords will be the ones paying up.

First, she was priced out. Then Sylvia Simmons was thrown out for, she says, being Hispanic.

“Just threatening to kick me out for any little reason,” she said.

A landlord has the right to evict someone proven to be a bad tenant. But AB291 law seeks to prevent a landlord from abusing that right, by protecting tenants’ right to complain about habitability issues from rat infestations to broken water heaters, without the threat of deportation.

“Immigrants are under attack in California,” said Assemblyman David Chiu (D-San Francisco).

He chairs the housing committee and in recent months has heard cries for help from immigrant tenants up and down the state.

“Their landlord says, ‘If you don’t do what I need you to do, I’ll call ICE,” said Chiu.

Chiu’s bill bars landlords from using sensitive information against them. Landlords who do intimidate or follow through on a call to immigration authorities, can be sued. The California Association of Realtors initially opposed the bill but changed its position after a revision to the amount one can sue for. A tenant claiming retaliation, would be able to sue a landlord for six months to a year of rent.

“Just ’cause they ain’t got no papers doesn’t mean that they can’t have a roof to live,” said Tony Orozco.

Tony Orozco has 20 years of experience as a maintenance man for apartment complexes housing undocumented immigrants. He’s seen foul homes in need of attention, and the fear.

“They don’t complain because have no papers but they do pay rent. These are residents you want to keep,” said Orozco.


A handful of Southern California property management companies oppose this bill. The Apartment Association, California Cities says, it’s bad news for business. They believe it would place additional burdens for landlords leasing property, and people would be afraid to apply for an apartment.



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7 Tax Tips On Short Term Rentals

Thu, 05/25/2017 - 11:27am

This summer, you may be sticking close to home or traveling out and about. Either way, if you have a vacation home, it pays to think about taxes now, long before tax time next year. I’ll bet you are used to the admonition that everything is income to the IRS. Everything has to be reported on your taxes, right?

It is true that if you rent a home to others, you usually must report the rental income on your tax return. However, you may not have to report the rent you collect if the rental period is short and if you also use the property as your home. In most cases, you can deduct your rental expenses. When you also use the rental as your home, your deduction may be limited. Here are some basic tax tips that you should know if you rent out a vacation home.

  1. Vacation Home. A vacation home can be a house, apartment, condominium, mobile home, boat or similar property.
  2. Schedule E. You usually report rental income and rental expenses on Schedule E, Supplemental Income and Loss. Your rental income may also be subject to Net Investment Income Tax.
  3. Used as a Home. If the property is “used as a home,” your rental expense deduction is limited. This means your deduction for rental expenses can’t be more than the rent you received. For more about these rules, see Publication 527, Residential Rental Property (Including Rental of Vacation Homes).
  4. Divide Expenses. If you personally use your property and also rent it to others, special rules apply. You must divide your expenses between the rental use and the personal use. To figure how to divide your costs, you must compare the number of days for each type of use with the total days of use.
  5. Personal Use. Personal use may include use by your family. It may also include use by any other property owners or their family. Use by anyone who pays less than a fair rental price is also personal use.
  6. Schedule A. Report deductible expenses for personal use on Schedule A, Itemized Deductions. These may include costs such as mortgage interest, property taxes and casualty losses.
  7. Rented Less than 15 Days. If the property is “used as a home” and you rent it out fewer than 15 days per year, you do not have to report the rental income. In this case you deduct your qualified expenses on schedule A.

If you still need to file your 2014 tax return, you can use IRS Free File to make filing easier. Free File is available until Oct. 15. If you make $60,000 or less, you can use brand-name tax software. If you earn more, you can use Free File Fillable Forms, an electronic version of IRS paper forms. Free File is available only through the website.



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West Dallas landlord has stunning change of heart on evictions

Thu, 05/25/2017 - 11:10am

After nearly a year of fighting with the city over the fate of hundreds of tenants in West Dallas, Khraish Khraish has had a stunning change of heart. Instead of evicting the residents of his small, low rent houses, he will now sell to them. The plan is scheduled to be formally announced Monday morning.

By Sunday evening, he had already signed contracts with more than a dozen former tenants to sell them the homes where they’ve been living for an average of eleven years.

“The idea is to make everybody who is still with me, and is in good standing, a homeowner,” Khraish told me.

He says 130 residents have remained current on their rent and will be offered a chance to buy their homes for a neighborhood-wide price of $65,000 per structure. He values the land the houses stand on as worth $100,000 per lot because of a wave of gentrification rolling down Singleton Boulevard from the Margaret Hunt Hill bridge. Each structure is probably worth much less than the land, but many tenants haven’t been able to find low cost rental properties in the area.

Khraish will provide 20 year mortgages at a fixed 4.75% interest rate. The new homeowners will pay about $425 per month, with an additional $150 in property tax, making their total monthly payment about $572, not too much more than what most are paying in rent alone now, he says. If a new homeowner decides to sell the home in less than ten years, Khraish will have the right of first refusal to buy it back. He says this right of first refusal is a standard proviso in Habitat for Humanity house contracts.

Last fall, Khraish announced he’d be evicting his tenants after the city strengthened Chapter 27 of the housing code, and he was faced with fines of up to $1,500 a day per structure.

He’d been adamantly opposed to selling the properties, saying the city of Dallas was conspiring with developers to rob him of his land. He credits Omar Narvaez, who’s running for the District 6 city council seat with changing his mind.

He says Narvaez came to him on several occasions. “He said ‘I believe in this community,’” Khraish recalls. “And then he told me he believed in me. And he knew I would do what was right for the community and these families.”

At the same time, Khraish as a landlord was seeing his tenants at least once a month. “So many of them would see me when they would come in to pay their rent. Or just come in, come into visit and say things like we believe in you, We trust you. And we know you will do the right thing in the end.”

At a meeting Saturday, Khraish announced his decision to sell the residents their homes. It was emotional. “I saw the joy and relief that people were exhibiting, I knew I had made the right decision.”

“I am thankful to Mr. Khraish for working with me to find a solution for these residents,” Narvaez told me. “We have more work to do to ensure that Chapter 27 is never used again to displace people from their homes.”

Although most of the properties do not meet city code, city ordinances are not as strict on homeowners as they are on landlords, meaning that new homeowners could expect some leniency in bringing their properties up to standards.

Ronnie Mestas, President of the Los Altos Neighborhood Association looks forward to changing his group into a homeowners association. He says, however, that many tenants are undocumented and may have difficulty obtaining loans. He expects everyone who can to participate.

Both the city and a group of Khraish’s tenants have legal action pending against him in the 95th District court. A hearing in those cases is scheduled for this week.


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Self-Managed Condos and HOAs: They Look Like Big Bargains, but Beware

Thu, 05/25/2017 - 11:06am

If you’re looking to buy a house or condo but are balking at the steep monthly HOA or condo fees, one budget-friendly alternative is to find a self-managed condo or HOA instead. That means rather than paying a management company to maintain common areas like lawns or a community pool, you and your neighbors take care of these tasks yourselves, thus saving money.

While statistics on the number of such homes aren’t officially tracked, I stumbled across a self-managed condo during my house hunt in Brooklyn, NY—and, after hearing how they worked, I decided to buy in and see what it was all about.

“To save money, I can put my own trash cans on the curb,” I reasoned. How hard could it be? Well, I found out that there are definitely pros and cons to this budget-saving option that all should know before they move in.

Pro: Self-managed condos and HOAs are cheaper

First, the biggie: Not having to pay for a super or maintenance means lower monthly expenditure for the building, says Susan Little, a Realtor® in Brooklyn. For the six-unit building my condo was in, the individual common fees were only $250 a month—a far cry from the $1,000-plus I was being quoted elsewhere. For me, that meant a savings of $750 a month!

Con: They’re also a lot more work

Most people are unaware of how much time and effort it takes to run a building. Some complain that self-managed condos and HOAs feel like a second job. Even with regular rotations for things like trash, snow, and leaf removal, new maintenance issues constantly cropped up. We were once issued a ticket for failing to have our fire sprinklers inspected every six months, a task nobody had realized was legally required. And when something broke, someone had to step up and figure out whom to call to fix it.

Pro: You have more control over your space

“The great things about living in a self-managed condo were that we could control what projects got done,” says Hollis Glaser, one of my former neighbors.

With six units in the building, every family got one vote on how we spent our common charge money. It was relatively easy to start projects like a community garden or a rain catchment barrel. If someone didn’t like how something was being done, all it took was a conversation to change it. For example, in my first year living there, we went from coin-operated laundry to free laundry.

Con: It’s hard to make sure everyone is doing their share

Often, people who worked from home or who were more available during the day took on more responsibility on the building maintenance front. It was difficult to ensure that everyone took equal responsibility, particularly when some people had busier schedules, sublet their units, or traveled often. Quantifying the work was also difficult. Was taking on a major regrading project equal to calling a handyman when a dryer broke? Did volunteering to plant a garden count as a task, because it wasn’t necessary? It was much more complicated than just making a chore wheel.

Pro: There are fewer rules

While condos managed by a management company and co-ops often have strict rules about things like pets, subletting, doing construction, quiet hours, and even whom you can sell your unit to, you and your neighbors in a self-managed complex make the rules. Without formalities like an elected co-op board and the common ownership structure of a co-op, any rules we did make were difficult to legally enforce.

Con: It’s tough to get stuff done and resolve disputes

“A lot of us were drawn to the condo situation because there were so few rules we had to abide by,” says Glaser. “But we thought we needed some rules and couldn’t institute them.

“Coming to a consensus on a contentious issue could be difficult,” Glaser adds. “Feelings were very passionate, and a simple ‘majority rules’ approach didn’t always cut it. Patience and compromise were all necessary components and could occasionally end up in short supply.”

Pro: There’s a sense of community

This was actually a big plus for me: Dividing up the chores to keep a building functioning meant that I met and got to know all the people in my building. Since we had to work together to maintain common spaces, clear snow, keep the laundry room functioning, and take out the trash, we built a real community.

Con: Self-managed condos and homes can be harder to sell

Since not everyone wants to live in a self-managed community, homes here can be harder to sell.

Also, according to Little, “During the due diligence process, the buyer’s attorney will ask for the last two years of financials and something that can come up is that, though self-managed buildings are required to keep financial records, many have not had them formally audited. This can hold up the process, but I have found that as long as the tax returns have been filed, the attorneys will forgo the insistence on audited financials.”

I loved the years I spent living in a self-managed condo, but would I do it again now? Probably not.

As Glaser said, “When we left Brooklyn, we looked at a condominium building, saw a bunch of notes in the garbage area about problems with people putting out their garbage in the wrong way and immediately said, ‘No thanks.’ We bought a house and are totally in charge. No more coordinating basics with our neighbors.”



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Affordable housing groups say Trump budget would be catastrophic

Thu, 05/25/2017 - 11:03am

Affordable housing groups are speaking out against President Donald Trump’s proposed budget, which would slash $6.2 billion in funding from the U.S. Department of Housing and Urban Development and eliminate several affordable housing programs.

In March, the administration released its preliminary budget proposal, which outlined the 13.2% budget cut. Now, the full budget proposalreleased Tuesday outlines which housing programs would make the cut, and which would be eliminated.

HUD announced its support of the proposal, explaining the department will continue to provide homeownership to 4.5 million households while giving a greater role to state and local governments.

Steven Mnuchin, U.S. Department of the Treasury secretary, also spoke out in support for the newly proposed plan.

Affordable housing advocates, on the other hand, are not so quick to stand behind the new plan.

“We’re not talking about marginal cuts here,” said Chris Estes, National Housing Conference president and CEO. “The budget proposes complete elimination of federal help that communities big and small rely on.”

“Homeownership investments, rental vouchers, community development investments in rural towns and urban neighborhoods—this budget would be catastrophic for all of these investments,” Estes said.

NHC explained due to already limited resources, only 25% of those who are eligible for help actually receive it.

“This will be a huge blow to local and state economies nationwide as communities struggle with housing costs for their workforce and most vulnerable residents,” Estes said.

A recent study from GOBankingRates shows even some of the most affordable metros in the U.S. still aren’t very affordable.

“These cuts are short-sighted and end up costing government and the economy more than they save,” Estes said. “Instead, we need the federal government to invest in the good-quality, stable homes that make people healthier, help kids succeed in school and keep a strong workforce in the community.”

But NHC isn’t the only advocate to speak out against the proposed budget. The Community Home Lenders Association explained the Federal Housing Agency’s $7.1 billion in projected net profits show homebuyers are being overcharged for their FHA loans. And while it supports a greater effort for new FHA technology, CHLA claims the money for that should come out of the expected profits.

“The projected $7.1 billion in net profits on new FHA loans next year shows that FHA borrowers, particularly first-time homebuyers, continue to be overcharged,” CHLA Executive Director Scott Olson said. “CHLA therefore renews its call to cut annual premiums and to end the current Life of Loan premium policy.”

“And while CHLA supports $30 million for new FHA technology, it believes this should be funded out of this large FHA surplus, instead of creating a new fee that will be passed along to homebuyers,” Olson said.

The budget proposal projects a net profit of 3.18% on each new FHA loan in 2018.


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How To Develop Your Residential Investment Strategy In The Southeast

Thu, 05/25/2017 - 10:54am

Because so much of the Atlantic South originally was suitable for farming – and the small-scale manufacturing and commerce that’s attached, it now contains a large number of middle-sized markets that serve their surrounding country-side. The migration of textile and furniture manufacturing from the North, and the subsequent loss of many of those jobs to China, didn’t change this basic structure.

The result – for investors in real estate – is that these markets largely are economically independent of each other. You can see this in the very different levels of economic growth within each state.  Some markets right now have good job growth, some have very poor growth, but your risk of investing is mainly limited to the risk of the local economy, not some state or region-wide slump.

Local Market Monitor, Inc.

Atlantic South – 2017

Another consequence of history is that most of these markets have surrounding land that’s easily available for new construction, and therefore they don’t go through sharp real estate cycles. We expect a range of home price increases over the next few years, but the danger of an over-priced market is far away – except possibly in Charleston.

Income generally is below-average in this region, and so are home prices. That makes this an easy place to invest in single-family rentals. A lot of people would like to have a single-family home, but many can’t afford to buy one.

In addition, the region is over-stocked with colleges, ideal places to have single-family rentals because the administrative staff and faculty of colleges are constantly turning over. Don’t rent to undergraduate students, though: that’s a specialty with unique risks.

A further consequence of the local-hub nature of most markets in this area is that healthcare is a large and growing sector because each market serves a wide area. Healthcare produces lots of renters who want to live close to their place of work, often in the center of the city.

One group of markets still has a large dependence on manufacturing: Lynchburg, Greensboro, Hickory, Greenville SC, and Spartanburg. In these markets, because of the risk of future job losses, you’ll want to use a higher cap rate to calculate how much you’ll pay for a property – higher by 1 percent at least.



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6 Vendors You Need to Secure for House Flipping

Thu, 05/25/2017 - 10:51am

Even though interest rates are starting to creep up, they are still near historic lows and this means that home mortgages remain relatively cheap. As such, more people are out shopping for homes. Another plus is that more people are getting into that new American pastime – flipping houses. Why do I call it a pastime? Just turn on the TV and go to any home channel and you will quickly find out why. House flipping has become a new competitive sport, one which husbands and wives can enjoy together.

Like any sport, there are winners and  losers in house flipping. However, house flipping can be painful. Not in that it hurts your body but it can put quite a dent into your bank account if not handled with care. As such, here are six vendors you will need to secure if you’re going to start flipping homes.

1) General Contractor

This may be the single most important vendor to have in your back pocket to flip houses. Not only can a good general contractor do most of the renovation work, but they will also have a stable of  roofers, landscapers, pavers, and painters to assist.

Sure, you could try to coordinate all of this  yourself but if you don’t come from the trades why should they trust you. Instead, build up a good relationship with a general contractor and continue to work with them. By doing so you will find that they will stick with you through thick and thin.

2) Electrician

Another must have vendor for house flipping is a good electrician. Not only can they help you set up a budget, but they will also make sure that your home passes inspection. Don’t take the risk – work with an electrician who will help you to install of the latest electrical devices at the lowest cost.

This will help you to maximize the value of the house you are flipping in a small amount of time. After all, success in flipping is not measured in weeks to turn a house around but days.

3) Plumber

Let’s face it, the most popular home upgrades are  the kitchen and bathroom. As such, you can’t survive the flipping game without a plumber. The plus to working with an experienced  plumber is that they will assist you in getting discounts on various fixtures you need.

Why not? Every dollar counts when flipping homes.

4) Real Estate Agent While investing in houses is easy, flipping success only comes when you sell the property. As such, you need to work with a driven real estate agent who can sell your home at the price you want no matter the market.

However, there is one thing you should know as finding a driven real estate agent is not as easy as it seems. Remember real estate agents are in the business of selling real estate and making a profit.

As such, you need seek  an agent who is willing to do what it takes to get your house sold. If not,  you will end up losing profits you need to flip your next house.

5) Moving Company

This is especially true if you are just starting out in the flipping game, as odds are that you will be staying in the house you are flipping. As such, you need a trusted moving company who can help you to move your belongings in and out of wherever it is that you are staying this week.

Don’t overlook this fact, as a good mover will not only make your life easier but you can also work with them to help ease your buyer’s move into their new home.

6) Mortgage Broker

Did you know that most home mortgages in the U.S. are originated by non-bank lenders? Working with a regular mortgage broker will help you to access the capital you need to purchase the homes you want to flip without going through weeks of delays. In this way, you can use other people’s money to find off market homes which you can flip in no time .

Bonus Vendor

Get yourself a good real estate lawyer. They will make sure that all the documentation associated with the property is in proper order. Doing so, will ensure that you won’t have any unexpected delays when it is time to sell your house.



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Is It Time to Sell Residential Real Estate Investments?

Mon, 05/22/2017 - 9:24am

Real estate investing goes through cycles. Real estate is not one big market. It’s made up of regional and local markets. Real estate isn’t like buying or selling milk and eggs. There is no stable supply and demand. In real estate, supply and demand are constantly in flux. Still, we all known the wise investor buys low and sells high. What is your crystal ball telling you today?

When Will Your Local Market Peak?

This is all food for thought. Or maybe a good discussion topic at your next investment club meeting. In the rear view mirror, you can clearly see that the time to buy was 6 or 7 years ago. Real estate was one of the best investments 7 years ago. The market was flooded with foreclosures, REO, short sales, and individuals desperate to sell. Buyers were very few and very far between. Unemployment was stretching for historical highs. Foreclosures and unpayable debt trashed people’s credit ratings by the millions. If you didn’t have cash, even a stellar credit rating probably won’t buy you a mortgage.

Fast forward those 7 years. People are fully emerging from foreclosures, bankruptcies, bad credit ratings, and are again fully employed. Home mortgages that were once underwater are now afloat. Home values have been strongly appreciating in value. Markets like San Francisco, New York City, and Los Angeles, are beyond the last bubble peak in terms of pricing. If not declining in price, these have become price stagnant. Bidding wars are dwindling in number as the result of few buyers being able to afford or willing to pay peak prices.

The major markets have shifted with Seattle leading the nation in price appreciation for multiple months. Outlying areas as far away as Tacoma are seeing steep increases in purchase prices. There may or may not be opportunities remaining in these secondary markets.

The questions to be asking yourself are for how long and how much higher will your current holdings continue rapid appreciation during this real estate cycle? It takes time to liquidate for top dollar. Before marketing any property, most investors have some maintenance, repairs, and sprucing up that needs attending to before marketing for top dollar. Have you given serious consideration to if it’s time to sell current holdings and what it will take to bring in that top profit?

Those that have multiple holdings should be fully aware which ones are generating the highest profit rate and which ones are at the bottom of the list. It may not be time to divest of all properties but it may be time to sell the lowest performers. Is it time to sell before your local market goes over the peak?

Investment Diversification and Distressed Properties

Grab your profit. And jump back into real estate investing. At any point in the real estate cycle, there are great investment opportunities. This could be the time to diverse your portfolio into commercial real estate. There is still plenty of upside in the right commercial sectors. Or it could be time to diverse into raw land or brownfields. Most indicators show strong and growing demand for new supply.

Specialized niche experts always have a network of people on the lookout for distressed properties for sale. Mold infested houses, fire damaged houses, and those with crumbling foundations, etc. never appeal to buyers looking for a turnkey home. If you’re a niche investor, maybe it’s time to sell an existing lower preforming property to start a new project. Start early because it takes time to market and sell one place while simultaneously searching out that next bargain deal.

No one can time the market perfectly, and anyone who says he or she can is lying or ignorant about how lucky they have been. But you should always strive to buy low and sell high.

Please leave a comment if this article was helpful or if you have a question.


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How Value-Add Has Changed Since The Great Recession

Mon, 05/22/2017 - 9:22am

In the 10 years since the Great Recession, the process of value-add multifamily investing — buying a property, renovating it, raising rents, then selling for a profit — has completely changed. Markets with strong population growth and healthy job markets have become the epicenter for the new value-add.

Putting The Value Back In Value-Add

In the years following the housing crash in 2008, many value-add multifamily assets were in serious need of cash, better management and a new owner.

“You used to find very low occupancy when we began [in 2011],” Exponential Property Group managing principal Kimberly Radaker said. “We were fixing an occupancy issue as well as getting units to market. By 2013, most properties we were seeing were 90% occupied, but still had a lot of value-add potential as far as amenities, interiors and things that could increase rents.”

When Wehner Multifamily owner Ryan Wehner founded his property and construction management company in 2007, the value of value-add assets was that the new owner had some kind of capital. “Value-add used to mean the previous owner ran out of money and we bought it at a discount, upgraded it just a little and pushed rents about 3% to 5%.” These days, value-add means a lot more than increasing occupancy.

Many value-add firms, like Milestone Group, take a holistic approach.  “We define value-add not only as interior and exterior renovations but also as potential improvements to management, inefficiencies and capital structure issues,” Milestone co-managing partner Robert Landin said. That approach may have changed the definition of the term, but realities of financing and finding deals, coupled with the population surge in many Sun Belt cities, have caused a lot of variation in the market.

Conti Organization CEO and co-founder Carlos Vaz said that benefits renters. Tiers of renovations allow renters to have more options, and more affordability, when choosing an apartment. A tier 1 value-add property may include full renovation of all units, tier 2 may include partial renovation, tier 3 includes some cosmetic upgrades such as new appliances, and tier 4 properties get new paint and some landscaping. Those upgrades are reflected in rents, with lower tiers allowing for more affordable options in increasingly less affordable markets.

Today’s Value-Add

More Competition, More Money The competition for value-add acquisitions has gotten stiff in markets with strong job growth and population surges, like Texas.  Conti, which has about 15 properties in DFW, is competing with out-of-state and global investors more than ever before. Milestone Group, which has completed more than $10B worth of transactions in the Sun Belt since 2004, is competing for acquisitions more now with private equity investors and institutional groups.

“The attractiveness of the multifamily sector has only gained momentum over the last 20 years,” Landin said. “That stability [of the sector], tax advantages and residual upsides create more competition.” Exponential Property Group, which has just under 2,000 units across five properties in Texas, has recently been competing with developers to acquire properties.  “We see some groups who were doing more building now doing more redeveloping,” Radaker said.

Many outside investors have seen the success of markets like Dallas, and are now flocking to put their money in Dallas assets, she said. Financing options have also become more plentiful.  In 2010, Wehner saw many owners buying a property with a loan and using equity for the rehabilitation. The amount of Fannie Mae and Freddie Mac money, CMBS loans and local bank debt in the market today opens up a lot more options during acquisition and value-add, Wehner said. Radaker said plentiful financing options might allow more competition in the market, but she thinks the additional loan options have been positive. “Besides the higher price per door to renovate and lower cap rates, it’s easier to finance now than it was in 2011 [when Exponential was founded],” Radaker said.

When Land Value Tops Rental Value Although it has been the darling of the multifamily world for the last few years, the rising cost of acquisitions and renovations is pushing many owners away from value-add.  For Vaz, it is simple math. “If you bought 200 units for $10M [earlier in the cycle], you might have spent another $4M in renovations. Now you may pay $16M for that same property, so you can’t put another $4M on top or else the price doesn’t make sense,” Vaz said. If both scenarios allow owners to push rents the same amount, $4M in renovations may only pencil out for the lower price.

Vaz said at some future point the true worth of value-add in attractive infill markets may not lie in the property, but in the land.  “Value-add will never go away, but at some point the highest and best use of the land will change. Today, buying a 1980s property and renovating it makes sense. In the future, the highest and best use for that land may no longer be multifamily,” he said.


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Three Simple Landlord “Mistakes” That Could Send You To Prison

Mon, 05/22/2017 - 9:15am

Do you look good in orange?

How about an orange, one-piece jumpsuit?

I recently watched the entire first series of “Orange is the New Black” on Netflix, and although it was an entertaining look at life inside prison, it also made me realize how much I really don’t want to end up there. Frankly, I like my freedom and personal space just a little too much and orange looks terrible on me.

I’m going to do whatever it takes to make sure I stay out of jail. You wouldn’t think it would be that hard to avoid, right? I mean… don’t punch a postman, don’t rob a gas station, and don’t start a riot. Check, check, check.

However, I’ve got some bad news for you…

For all the great things real estate investing can do for you, it can also send you straight to jail- do not pass go, do not collect $200.  After all, in the words of Uncle Ben from Spiderman, “with great power comes great responsibility.”

However, have no fear! This post is going to throw open the doors on three of the most common ways real estate investors find themselves in prison and hopefully prepare you to avoid those simple mistakes so you can avoid the prison life.

1.) Killing Someone… By Accident

People die everyday.

I’m sorry to put it so bluntly, but it’s true.

In fact, if you really want to get specific about it, 169,000 people will die on planet earth today, which means by the time you finish reading this three minute article, 354 people will no longer be around (but don’t worry, in those same three minutes, we’ve added 762 to our numbers! Isn’t life grand!?)

The first key to staying out of prison as a landlord is to make sure you aren’t responsible for any of those deaths. Sure, I know you aren’t about to go hire a hitman for your tenant who paid late…(right?)… but what about accidents?

In Oklahoma, criminal charges are being sought for a landlord after a fire broke out in one of his rental properties and he did not have working smoke detectors in the home.

Don’t let a $1 battery send you to jail. Make sure each of your rental properties have working smoke detectors when the tenant moves in, and consider doing semi-annual inspections to ensure the alarms are working and present.

Additionally, make sure all your properties are as safe and up to par on all other areas. Decks and patios should be checked for rotten boards, electrical problems fixed by a professional, and maintenance concerns addressed promptly.

Accidents happen all the time and are sometimes unavoidable. However, to avoid the orange jumpsuit – make sure you’ve taken the necessary steps so you aren’t the one at fault.

2.) Discrimination: A Fast Track to a Fat Fine

The second major reason you might find yourself facing a major fine and possibly hauled off to prison for is something the government is VERY concerned about: discrimination.

As a landlord, you are able to choose the best tenant to rent your property, but you don’t have the ultimate authority to decide who can’t rent your property. Over the past fifty years, there have been multiple acts and laws which today make up the “fair housing laws” that govern what qualifying factors you can and can’t include in your real estate decisions.  These laws have created certain “protected classes” that you, as a landlord, must not refuse to rent, sell, steer, advertise, or charge extra fees for including:

  • race
  • color
  • national origin
  • religion
  • sex
  • familial status
  • disability

Keep in mind also that there may be other local protected classes in your area that you could face steep penalties or jail time for breaking. For example, the following states include “sexual orientation” as a protected class in regards to housing: California, Connecticut, Colorado, Delaware, District of Columbia, Hawaii, Illinois, Iowa, Maine, Maryland, Massachusetts, Minnesota, Nevada, New Jersey, New Hampshire, New Mexico, New York, Oregon, Rhode Island, Washington, Vermont, and Wisconsin.   (source: HUD)

Will you really end up in jail?

3.) Tax Fraud – A Ticket to the Slammer

I hate taxes.

I work hard for my money (and my money works hard for me) and I don’t like to see that money disappear.

However, I also understand that hiding any income to evade taxes is a sure way to head off to federal prison.  It seems that a week doesn’t go by that I don’t hear of some powerful real estate mogul being investigated for tax inconsistencies. Since the beginning of the tax system, there have been real estate investors who have tried to hide their wealth and ended up paying for it through the loss of many free years of their life while they sit in jail.

Many of these “imprisoned investors” are the real estate guru from past years, who made  a lot of money but didn’t want to share their wealth with the government. Bad idea.

Don’t end up in federal prison. Get a qualified CPA to do your taxes for you if you can’t do them right yourself, and pay the government what the government is owed.


Please, don’t go to jail. It doesn’t shine the best light on the real estate investing community and besides – I kinda like having you around. So buy yourself some smoke detectors, follow the discrimination laws, and give to Caesar what Caesar is due.

Besides, you look terrible in orange.


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The 20 most expensive zip codes for renters in America

Mon, 05/22/2017 - 9:03am

If you’re considering moving to New York City, you’ll want to crunch some numbers first. According to a new report from apartment search site RENTCafé, 16 of the 20 most expensive zip codes for renters are in Manhattan.

Using data from Matrix, the site collected rent averages for every state and every zip code in 125 major U.S. markets. “The top award for ‘most outrageous rent prices’ this year goes to New York City’s 10282 (Battery Park City), where rent costs on average almost $6,000 per month,” RENTCafé reports.

Read on to see which other cities besides New York boast some of the most expensive neighborhoods, and the monthly rent you’d have to shell out to live in each. Average rent prices are as of March 2017.

20. 10128: Manhattan, New York

Neighborhood: Carnegie Hill / Yorkville

Average rent: $3,977 per month

19. 10011: Manhattan, New York

Neighborhood: Chelsea / Flatiron / Greenwich Village

Average rent: $4,006 per month

18. 10014: Manhattan, New York

Neighborhood: West Village / Meatpacking / Greenwich Village / Hudson Square

Average rent: $4,010 per month

17. 10028: Manhattan, New York

Neighborhood: Carnegie Hill / Yorkville

Average rent: $4,014 per month

16. 94158: San Francisco, California

Neighborhood: Mission Bay / Central Waterfront

Average rent: $4,070 per month

15. 10022: Manhattan, New York

Neighborhood: Central Midtown / Sutton Place / Turtle Bay

Average rent: $4,097 per month

14. 10010: Manhattan, New York

Neighborhood: NoMad / Kips Bay / Flatiron / Gramercy Park / Peter Cooper Village

Average rent: $4,166 per month

13. 10003: Manhattan, New York

Neighborhood: Gramercy Park / East Village / Greenwich Village / Flatiron / NoHo

Average rent: $4,178 per month

12. 02199: Boston, Massachusetts

Neighborhood: Back Bay

Average rent: $4,227 per month

11. 10001: Manhattan, New York

Neighborhood: Chelsea / Koreatow n/ Hudson Yards / NoMad

Average rent: $4,373 per month

10. 10036: Manhattan, New York

Neighborhood: Hell’s Kitchen / Theatre District / Central Midtown

Average rent: $4,375 per month

9. 94105: San Francisco, California

Neighborhood: Yerba Buena / South Beach

Average rent: $4,380 per month

8. 10013: Manhattan, New York

Neighborhood: TriBeCa / Soho/ Hudson Square / Chinatown / Little Italy

Average rent: $4,422 per month

7. 10002: Manhattan, New York

Neighborhood: Lower East Side / Bowery / Chinatown / Two Bridges

Average rent: $4,441 per month

6. 10024: Manhattan, New York

Neighborhood: Upper West Side

Average rent: $4,525 per month

5. 10025: Manhattan, New York

Neighborhood: Manhattan Valley / Upper West Side / Morningside Heights

Average rent: $4,535 per month

4. 94129: San Francisco, California

Neighborhood: Presidio

Average rent: $4,762 per month

3. 10023: Manhattan, New York

Neighborhood: Lincoln Square / Upper West Side

Average rent: $4,892 per month

2. 10065: Manhattan, New York

Neighborhood: Lenox Hill

Average rent: $4,898 per month

1. 10282: Manhattan, New York

Neighborhood: Battery Park City

Average rent: $5,924 per month


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Set the Mood During an Open House With the Right Lighting

Mon, 05/22/2017 - 8:56am

When a home is on the market, it’s all about creating a light and bright feel throughout the space to welcome buyers. A home seller can do this in a number of ways by utilizing natural light, painting and adding more indoor lighting.

The more light bouncing around each room, the bigger the home will appear, and since buyers are purchasing square footage it’s important to make sure you’re showcasing the illusion of maximum space.

Natural light provides several benefits when showing off a property while keeping money in your wallet. Sunlight, rather than light from a fixture, can save on energy costs and boost a buyer’s mood when walking through the home. Start by assessing the natural light in each room of the house:

  • Does the room feel dark or light?
  • How many windows do you have?
  • How many doors?
  • Would it make sense to update either of these or add skylights?

Here are a few tips on how to intensify a natural light source to appeal to buyers touring your home.

Trim bushes and trees. Overgrown trees, bushes or shrubs in the yard can immediately put a dark cloud over a property. Trim hedges and prune branches away from the windows so the home gets ample sunlight. Be sure to clear the exterior and interior windowsills for optimal sunlight.

Consider new window treatments. Some window treatments can actually block sunlight from entering the home, like Roman shades, which are usually made of fabric that lies directly over the window. Heavy fabrics like velvet or tweed and dark colors can also weigh a room down. The best type of window treatment to use is a sheer, light cotton or linen curtain that can hang on either side of the window. Make sure to have the curtains open during every showing.

Replace solid doors. Try replacing the solid front door for one that has a window. It will instantly add light to the entryway. You can also add a screen door so you can leave the front door open during showings, providing the illusion that there is more light in the entryway than there really is.

Add more windows and doors. Consider adding a window, skylight, door or sliding door in a particular room that lacks natural light. The more windows and doors you have in a room, the brighter it will be. Before adding any of these, though, make sure to monitor how the sunlight reflects in the room to determine if and where additional light will be most helpful.

Use a mirror. Mirrors are a great way to reflect light around a room. Adding a mirror on a wall opposite to a window doubles the light streaming in and can make the space appear brighter. Try using a large mirror, a grouping of mirrors or mirrored furniture and accents to bounce the light around.

Another way to make a room look lighter and brighter is by choosing the right paint colors. Dark colors absorb light while light colors and whites bounce natural light around the room. Plan on lighting up the color palette before putting the property on the market.

Choose the color of the walls carefully by determining what direction the room is facing. A north- or south-facing window, morning versus afternoon light and the amount of natural light the space gets can play a big part in how you should paint it.

For example: If the room faces north, avoid cool colors with blue undertones. Instead, opt for colors that are warmer on the color wheel and have yellow undertones.

Wall color sets a room’s atmosphere. Use neutral earth tones rather than all white. Try choosing a darker color for an accent wall. When choosing a paint color for a room, take a cue from the items in the room such as the flooring, woodwork, tile or cabinets.

The fifth wall. Over time, a ceiling can look dull from dust, pollen, aging paint, nicotine and cooking oils in the air. Use paint sold as “ceiling white paint” because it is especially designed to be reflective. It’s a pure, bright white.

Once the room’s natural light has been determined and the paint has dried, it’s time to add indoor fixtures. While this seems obvious, most homeowners have ample lighting in their home, they just neglect to change the burnt-out lightbulbs in their fixtures. So take a moment to check lighting. Make sure to use the appropriate wattage (use maximum wattage), and on a multi-bulb fixtures all lightbulbs should match.

There are different ways to utilize indoor lighting. Light can come from ceiling fixtures, fans, chandeliers, table lamps and floor lamps.

Ceiling fixtures. Overhead lighting is a must. Many homes have no overhead fixtures in some of the most important areas of the home, such as the entryway, living room and bedrooms. If you’re faced with this problem, the first thing to decide is whether you have money in the budget to add lighting. Add a fixture in the middle of the room or add hi-hat lighting so you have ample lighting throughout the space.

Ceiling fans. Fans are a great way to circulate air throughout the home, especially in bedrooms, living rooms and great rooms. Use fans with a lighting kit, but try to avoid fans with control chains – get fans with remote controls instead. Also, pay attention to the fan’s finish, and match it to other finishes throughout the room.

Chandeliers and pendant lighting. This type of lighting is a great way to add bling to a room. Chandeliers are statement pieces, so be sure to choose one that matches the home’s aesthetic and style decor. Add a chandelier in an entryway, dining room or master bedroom using something big, bold and reflective. A pendant light is ideal overkitchen islands. Hang pendant lights approximately 30 to 36 inches above the countertops.

Table lamps. A table lamp is a great way to update a space – it’s budget friendly and can add a huge impact on the overall feel of the home. Table lamps come in different sizes, colors and shapes. Choose lamps that match the home’s decor and are proportionate to the other items in the room. Swap shades by using neutral, patterned or textured lampshades. A drum shade can instantly update a lamp. Be sure to avoid dark lampshades that absorb light. Don’t rely on your real estate agent to turn on all the lights when showing a home – put lamps on timers to make sure dark rooms are always well-lit.

Floor lamps. Like table lamps, floor lamps effectively add extra light in a space where a table won’t necessarily fit. Put a floor lamp next to a couch or chair. Be strategic about placement, though. Try to make cords invisible, rather than having an extension cord out for buyers to trip on. Also, look for a lamp that provides ample light and doesn’t take up a lot of square footage.



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