Make sure to call The Lawhead Team! Though it may be a lot of work finding a tenant to rent your home to fixing minor to major repairs throughout the home, one of the best benefits of owning a rental property are the considerable tax deductions.

• Insurance deductions: You can deduct the premiums you pay for almost any insurance for your rental activity. This includes fire, theft, and flood insurance for rental property, as well as landlord liability insurance. And if you have employees, you can deduct the cost of their health and workers’ compensation insurance.
• Legal and professional service deductions: You can deduct fees that you pay to attorneys, accountants, property management companies, real estate investment advisors, and other professionals. You can deduct these fees as operating expenses as long as the fees are paid for work related to your rental activity.
• Capital gains on a rental property: When you sell a rental property, the profits are taxed as capital gains as opposed to ordinary income. The difference is important, because the maximum capital gains rate is 15 percent, whereas the maximum tax rate on ordinary income, as of 2010, is 35 percent.
• Doing a 1031 Exchange on a rental property: If you plan to sell your rental property and buy a larger one, there is only one smart way to do it: through a 1031 exchange, also called a deferred exchange. In this process an exchange facilitator takes the cash that comes out of your sale and holds it until you close escrow on a replacement property. You must identify that property within 45 days and close within six months. It must be purchased for more than the price for which you sold your first property. If you keep using exchanges to sell and then buy, you defer the tax due forever.
• Tax-free cash out: When you sell without doing a 1031 exchange you pay taxes on the profit; when you take cash out through a refinance, the money is tax-free until you sell. If you never sell, you never pay taxes. This is an excellent tax strategy for retirement: once you pay off or pay down the mortgage on a rental property you can refinance it and take cash out and still have the monthly rents coming in.

If you are looking to buy a rental property, it is important to know what type of property and in what location will gain the most reward.

• Nearby Schools: The school districts can be the biggest deciding factor for your renters if they have children. If you have found a good property rental, check the quality of the school. If the school has a poor reputation, prices will reflect your property’s value poorly.
• Check Your Neighborhoods: The quality of the neighborhood and demographics living within the neighborhood will reflect the types of tenants you attract and how many free vacancies you will experience. If you buy your rental in a neighborhood near a university, chances are your tenants will mainly be students and you will experience quite a few vacancies during the summer months.
• Property Taxes: Find out what the property taxes are in the area you are looking to purchase your property rental. Make sure you are aware exactly how much you will have to pay in property taxes. If the taxes are high, this may not necessarily be a bad thing if the neighborhood is an excellent place for long term tenants.
• Employment Opportunities: Finding a rental property in an area with growing employment opportunities will attract more people, meaning more potential tenants. Find out if a new company has recently moved to the area or is planning to move to the area. Workers will flock to where new company’s start sprouting up, meaning more potential tenants.
• Price Of Rent: Find out how much the average rent is in the area you are looking to buy your rental property. If charging the average rent in that area will not cover your mortgage, taxes and other expenses, it might make sense to look elsewhere to purchase your rental property.
• Insurance Expenses: If you are looking to purchase in an area prone to earthquakes or flooding, make sure you can afford that extra insurance expense on a monthly basis.

Of course for all your real estate buying and selling needs, call The Lawhead Team, “Because Two Lawheads Are Better Than One.”

Are you looking to upgrade into a larger home and rent out your current home?  Make sure to check out these helpful tips to renting your home and protect your property.

Find a Good Tenant – You can find tenants by advertising in local newspapers, both in print and online. Also spread the word through friends, relatives and coworkers you are renting your home.

Ask potential tenants to fill out an application form, listing their basic information: name, employer, salary, previous landlords and references. You’ll also need their Social Security number and signed authorization to check credit reports and criminal history. If you hire an online agency to provide background checks, make sure it is accredited by the Better Business Bureau.

Do your own background checks by when renting by:

• Pulling credit reports. You can conduct your own research through one of the credit reporting agencies — Equifax, Experian or TransUnion — as long as you follow the guidelines of the Fair Credit Reporting Act, or FCRA.
• Checking criminal history. Search state and local records online or find an agency. Landlord.com offers tips on conducting tenant screening.
• Checking references, contacting employers and talking to previous landlords.

Determine How Much Rent to Charge – Get an idea of rent amounts by checking newspapers, online resources or neighborhood rental signs. Be realistic about rent levels. The rent may be lower than your mortgage payment, but if you want to find a tenant, the rent must be comparable to what’s in the market.

Protect Your Rights with a Lease – Make sure to have a written lease so both parties understand their rights and obligations when renting.  A good lease complies with fair housing, rental, tenant and insurance laws of your region.

A lease should spell out the following:

• Lease term: A month-to-month lease offers more flexibility if you are selling, while an annual lease provides more stability if you are holding on to the property.
• Security deposit, usually one month’s rent or more
• Rental due date and late penalties
• Repairs and who’s responsible for what
• Routine upkeep and maintenance responsibilities, such as lawn care
• List of tenants
• Rules of behavior, including noise levels, neighborly conduct and smoking
• Pet policies and related deposits
• Who pays homeowner association dues
• Association rules that the tenant must follow
• Arrangements for showings, if you plan to put your home on the market while it’s being rented
• Eviction terms, such as not paying the rent or damaging the property

Protect Your Property with Insurance – Protecting your property with the correct insurance policy is extremely important. You need a different policy if you’re renting a property to a tenant versus using it as your primary residence.  As a landlord, you’ll need rental property insurance. This policy covers your home’s structure, legal costs, medical expenses and loss of rental income, if repairs are needed. Since you are not responsible for the tenant’s belongings, you should encourage tenants to buy renters insurance.

Hire a Management Company – Fees are charged primarily for two services: finding a tenant, which includes advertising and background checks, and managing the property. The fee for filling a house  when renting can range from 50% to 150% of one month’s rent, depending on the area. Monthly management includes collecting the rent, charging late fees, handling repairs and dealing with early vacancies and evictions.  One big advantage of using property managers is emotional distance.

Prepare Properly for Evictions – You’ll need an attorney to evict a tenant. If the renting tenant doesn’t leave willingly, you can’t just go and move their personal property and kick them out. How much is an eviction? Legal fees alone can range from $300 to $1,000.

Bottom line make sure to research everything to make sure your rental process goes as smoothly as possible.  Nothing can be more stressful than a bad renter.

The Lawhead Team came across a very interesting survey done by Fannie Mae about what exactly motivates consumers to own their home vs. rent.  Even the deepest housing crisis since the Great Depression wasn’t enough to dampen Americans’ desire to own their homes.

A recent study by Fannie Mae came to that conclusion and tried to answer some major questions: What influences consumers’ current home ownership status? What would motivate people to buy versus rent in the future? And are we influenced by unconscious biases that lead us to make less than ideal choices, such as buying too much house, or others that might prevent a well-qualified renter from buying at all?

Naturally, Fannie Mae — the government-owned housing agency — has a reason for investigating: the answers to these questions have implications for housing policy makers and the industry. And the survey found that home ownership still appealed to the majority of Americans: 85 percent said owning makes more sense than renting over the long term, and 64 percent of those polled said that they would buy a home if they were going to move.

The survey, which analyzed Fannie’s monthly housing survey data for all of 2011, looked at three different groups of consumers: renters, homeowners with a mortgage, and those who own their homes outright. (The Fannie Mae National Housing Survey polls 1,000 adults each month across the United States with more than 100 questions about the economy, household finances and owning and renting; this study’s full-year data includes information from more than 12,000 people.)

Researchers found that demographics — including income, age, marital status and employment status — were the primary drivers behind individuals’ current home ownership status, as well as what influenced outright homeowners’ future intentions to own or rent. And perhaps not surprisingly (particularly when mortgage underwriting is tighter) homeowners with mortgages were more likely to be middle-aged, married and employed full time with higher incomes, whereas the converse was true for renters. Outright owners tended to be older, more likely to be retired, widowed and past their peak earnings years, the study said.

But the intentions of renters and people with mortgages to buy or rent as their next move were largely driven by their financial and housing attitudes, the study said. The most influential belief was whether they thought “owning or renting makes sense financially over the long term,” which influenced all three groups, and especially renters. The perceived ease or difficulty of getting a mortgage influenced the intention of homeowners with mortgages, the study said, but wasn’t as big a factor for renters.

Meanwhile, the Fannie Mae study results also found that once consumers buy a home, get a mortgage and have a positive experience owning, they wanted to continue to own. But concerns about affordability — both for the home purchase itself and upkeep — was a major factor that discouraged renters from taking the plunge.

“For renters and mortgage-owners, aspirations for and belief in home ownership play a major role in decision-making, possibly forming a ‘home ownership optimism’ in determining whether they expect to own or rent in the future,” the Fannie Mae study said.

“It is possible that many of these drivers, especially the attitudinal ones, act as automatic or unconscious biases that lead consumers to less fulfilling and less successful housing choices,” the researchers said, adding that further research is necessary.

The Fannie Mae researchers also found that exposure to default, perceived appreciation or depreciation in home value, and self-reported underwater status had only a minimal effect on predicting whether a consumer intended to buy or rent for their next move.

The Lawhead Team would like you to share with us what has influenced your decision to buy or rent.  Has the recent housing crisis altered your views on home ownership?