In Colorado, someone is putting up the funniest signs and the puns are the best!!
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In Colorado, someone is putting up the funniest signs and the puns are the best!!
Great networking meeting for all Real Estate Investors
Wed, Dec 12, 2018, 6:00 PM: The December meeting of the Allentown Area Real Estate Investors’ Club will be 6pm Dec. 12 at 40 S. Cedar Crest Blvd. (people have told me that the 3rd Wed. of December is
Forming an LLC for Real Estate Investments: Pros & Cons
Over the last decade, limited liability companies (LLCs) have become one of the most preferred forms of business entities through which to hold title to investment real estate properties. LLCs did not come into existence in the United States until 1977 when the State of Wyoming enacted special legislation to accommodate the needs of oil companies. Prior to LLCs, real estate investors seeking limited liability protection were largely limited to using corporations to acquire title—a form of entity that has potential drawbacks. Florida followed Wyoming's lead a few years later by enacting its own LLC statute in 1982 and now all 50 states have enacted legislation creating some form of the LLC business structure. The insulation from personal risk exposure for real estate investors provided by LLCs, coupled with the relative ease of administration and potential tax benefits, make ownership of investment property through an LLC a very desirable option in most instances.
LLC vs. Liability Insurance
Although there are many benefits to holding real property assets through an LLC, a limited liability company may not be the best holding vehicle for every property owner. For many real estate investors, the trouble of forming and maintaining a company isn't worth protection from the theoretical threat of a lawsuit, particularly when affordable liability insurance is available.
That said, real estate investors that rely solely on insurance as a means of protection from personal liability take a significant risk. Liability policies typically have limits, exceptions and carve-outs. While the chance of a loss that exceeds policy limits may be remote, if it happens, the consequences can be devastating.
Under current laws and market trends, the popularity of real estate holding LLCs is very likely to continue to increase as more and more property owners seek to take advantage of the benefits offered by this form of entity.
LLCs Limit Personal Liability
First and foremost, LLCs limit personal vulnerability to potential lawsuits related to the property. Consider the situation in which the owner of an investment property leases it to a tenant who decides to throw a big party, during which one of the tenant's guests falls over a balcony. In today's legal climate, it is quite possible that the injured guest would pursue a claim based on the “unsafe condition” of the rental dwelling. More often than not, the owner would be named in any lawsuit resulting from the incident.
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If that rental property were owned by a real estate investor individually, he or she would be named in the lawsuit and would have to defend his or her personal assets from the plaintiff's claims. In contrast, if that property were owned by an LLC, the owner's risk exposure would be insulated by the protection of the company, leaving only the assets owned by the LLC (as opposed to all of the owner's personal assets) exposed to potential lawsuits.
Pass-Through Taxation for Single & Multimember LLCs Another advantage of an LLC is the owners' ability to enjoy the benefits of pass-through taxation. In 1988, the IRS released Revenue Ruling 88-76 which declared that Wyoming LLCs would be taxed as partnerships even though they provide for corporate-like protection against liability. C corporations, in contrast, are subject to double taxation—once at the corporate level and again when dividends are distributed to shareholders. While the owners of corporations can achieve pass-through taxation by making an “S” election, S corporations are subject to many other restrictions and requirements that limit their utility in the real estate investment realm. The 1988 revenue ruling was a true game-changer because it enabled real estate investors to avoid double taxation by acquiring property through an LLC while enjoying a liability shield.
Under the default tax classification rules, the IRS classifies a real estate holding company with one owner as they would a sole proprietorship, namely as a “disregarded entity.” As a result, income and capital gains from the LLC pass through directly to the owner, who would only have to pay taxes as an individual, while still enjoying the protections offered by the LLC liability shield.
Since there is no separate LLC tax, the owner can avoid double taxation on both the rental income generated by the property and the appreciation in value of the property upon disposition. Moreover, the owner of a single-member LLC can deduct mortgage interest similar to a sole proprietor based on current IRS rules.
Real estate holding companies that have several owners are known as “multimember” LLCs and are generally taxed by the IRS like partnerships, meaning that the LLC files an “informational” tax return, but does not actually pay taxes itself.
Multimember LLCs also enjoy the benefits of pass-through taxation as the LLC passes its profits and losses through to its members, who report their portion of the LLC's business income or losses on either a Schedule C, K or Form 1065 with their individual income tax returns. This means that both single member and multimember LLCs offer the benefits of pass-through taxation of profits and losses and limited liability and personal protection for the owners.
LLCs Can Make Business Life Easier
LLCs offer numerous other general benefits relative to other entity forms that aren't necessarily unique to—but certainly apply to—the use of LLCs to hold real estate investments.
When delegating management responsibilities, LLCs enjoy much greater flexibility than either a corporation or partnership. While corporations are statutorily required to have officers and directors, the LLC can be easily managed by its owners or third-party managers.
In the many states that impose increased fees based on the authorized number of shares, LLCs may pay lower state registration and maintenance fees than corporations.
Owners of LLCs can take advantage of the tremendous flexibility in the distribution of profits, as determined by the LLC's operating agreement. Cash flow distributions do not have to be pro rata according to ownership like an S corporation, which gives the owners the ability to financially reward the “sweat equity” effort of select members through appropriate distributions of available cash flow.
Unlike an S corporation, foreign ownership and investment in U.S. real estate is possible through an LLC.
LLC owners can also easily transfer their ownership in real estate holdings by proactively gifting the company's membership interests to their heirs each year. Over time, it is entirely possible to effectively pass ownership of real estate owned by an LLC to loved ones without ever having to formally execute and record a new deed. This enables property owners to avoid transfer and recording taxes and fees, which can be substantial in many states.
Although not every company will seek these particular benefits, it's safe to say that LLCs can offer steep rewards to companies that choose to take advantage of them.
Explore Your Options
Many business owners choose to form an LLC because they are unfamiliar with the many legal nuances between different entity choices, and they simply assume that an LLC offers the most protection from risk because it has “limited liability” in its name.
In reality, a properly formed and operated LLC does indeed limit the personal liability of the owners, as much as U.S. law allows, by affording the owners no personal risk above and beyond their investment in the company—but, in many instances, so do corporations and certain partnerships.
Of course if a small business owner of any entity form fails to respect the separate and distinct identity of the business or observe statutorily required corporate formalities (such as co-mingling personal and business funds, paying owners instead of creditors, or failing to maintain a registered agent), the integrity of the corporate shield provided by law will be compromised and potentially expose the owners to personal liability. Generally speaking, though, the basic requirements to operate an LLC within the confines of the corporate statutes are not particularly onerous.
Minimize Risks with the Right Strategy
There is simply no way to eliminate all the risks associated with starting a real estate investment business, but you can easily improve your chances of success by complying with the corporate formalities required by applicable laws, even though these steps may seem tedious and somewhat confusing.
If you are in the market for investment real estate, you should at least consider whether or not the acquisition through an LLC is the right choice for you. If so, it is much easier to purchase the property through the LLC to begin with, as opposed to trying to transfer the real estate to an entity at a later date where a lender might have to consent to the transaction. An LLC may not offer any more or less protection from outside lawsuits than a properly formed and operated corporation or limited liability partnership, but it does offer many other advantages that make it the most desirable form of entity in many cases, particularly with respect to real estate holding companies.
Thanks to Atty Jeff Weaver, and LegalZoom
Investing in Real Estate: How to Diversify Your Portfolio
Andrew Carnegie—founder of U.S. Steel and one of history’s richest men—once observed, “More millionaires have been made through owning real estate than through all other industrial investments combined.”
Owning real estate investments remains one of the most effective means of growing one’s wealth. But to fully take advantage of the opportunities the real estate market affords, those planning on purchasing investment properties should familiarize themselves with the different types of investment products and should spread their investment across several widely different opportunities.
But how? Here are a few core concepts:
What Is a Portfolio?
Investors and industry professionals refer to a person’s collection of investments as a “portfolio.” This is a concept that basically encompasses all of your investments. So, if you own stocks, bonds and rental properties, that's what your portfolio consists of.
What Is Portfolio Diversity?
A portfolio is “diverse” when the investments it contains vary in relatively equal amounts. Keeping with our above example, a portfolio that is 90 percent stocks, 5 percent bonds and 5 percent rental properties is not diverse. A portfolio with 33 percent of each investment type would be considered diverse.
In the context of a real estate-specific portfolio, diversity means owning several different kinds of real estate investments.
Why Is Diversity Important?
This is a great question that a lot of new investors overlook. Here’s an example that may resonate with many. In 2008, the housing market collapsed. Many people lost their homes, and the average value of those homes went down dramatically. If you were a real estate investor who focused only on renting out houses, there's a good chance your net worth went down in 2008, even though your cash flow might have still been good.
But, if you were a real estate investor who also owned other properties like commercial real estate, you were more likely to maintain your wealth.
How Do I Diversify My Real Estate Portfolio?
For the new investor, or for the investor who hasn’t explored much of the market, your first stop should be at the offices of an experienced REALTOR® who works specifically with real estate investors. An experienced investment REALTOR® can help you find the right properties—and the right balance of properties—to secure your wealth and make you a tidy profit.
Thanks to freelance writer Dixie Somers
4 Times an Umbrella Insurance Policy Could Save You
An umbrella insurance policy covers you above and beyond your regular insurance policy. It is meant to help you if some type of accident occurs and the coverage needed exceeds the amount of your regular policy. Basically, it covers you for an issue that you can be deemed responsible for. Let's look at some examples.
1. When a Dog Bites
Our dogs are our friends, but sometimes they can act out of character for whatever reason, and we may not be able to control the situation or may not be around. This could lead to a dog biting another person on your property. If this results in bodily injury to that person and he or she files a claim, it could possibly exceed your regular policy. The person could take you to court as well, resulting in even more cost to you. An umbrella policy will give you the extra cushion to cover those expenses.
2. You Have the Coolest Jungle Gym in the Neighborhood, Until Someone Gets Hurt
Having the best jungle gym or the only pool in the neighborhood can be fun when you have kids and all their friends come to hang out at your house. (Such potentially dangerous delights are known in the insurance world as "attractive nuisances.") Then a kid gets hurt and the fun stops. While we hope that parents understand things happen when kids are playing, sometimes it is not that simple for the parent of the child who got injured. This can result in them filing a claim against you and, depending on the severity of the injury, the costs could well exceed your regular policy. Your umbrella policy will give you a cushion to fall back on.
3. Landlord Liabilities
If you own rental properties, then you can have liabilities tied to those properties. Sometimes they may be things that you haven't noticed, like a crack in the walkway. If something like this results in bodily injury, then it is possible that you will be held responsible and legal action could be taken against you. Just as in the other examples, the umbrella policy will cover you for additional expenses above your homeowner policy.
4. Be Careful What You Say About Others
You may have been told that if you do not have anything nice to say, then do not say anything at all, but sometimes it is hard to hold your tongue. In these cases, it is important to be careful about what you are saying, as well as about what audience you are saying it to, or through what outlet. Something negative said or written could be considered slander or libel by the person it is being said about. This could result in legal action taken by that person, and — you guessed it — an umbrella insurance policy will cover you.
Thanks to Usha P. of Keller Williams
"Some people want it to happen, some wish it would happen, others make it happen." —Michael Jordan
"Don't wait. The time will never be just right." --Napoleon Hill, American self-help author
6 Easy DIY Projects That Will Boost Your Home’s Value
Invest in your landscaping -- Landscaping is often regarded as one of the top three ways to add value to your home in terms of return on investment. Homegain.com conducted a survey of 2,000 brokers in 2007. The results indicated you could possibly quadruple an investment of $400-$500 on well-planned landscaping. That said, just throwing a couple hundred dollars at plants is not a good approach. Instead, focus on creating a healthy, vibrant lawn. Fill in dead or sparse areas, fertilize, and clean up edges along your sidewalk, pathways, and gardens. Trim overgrown bushes and shrubberies, cut down tangled tree branches. Plant flowers and plants to brighten up your landscape—just be sure to plant perennials that will come back year after year, not annuals that will die within a year and never return. Also, look for plants that are native to your region or are drought-tolerant. They need less water and maintenance, saving you money in the long run.
Upgrade your front door -- Your front door is the entryway to your home and it sets the tone for the rest of the house. Make a good impression by ensuring your home’s entry point (including the area directly surrounding the door) is attractive and eye-catching. The first thing to consider here is whether to replace your existing door or not. If the door you have is good quality and a style you like, you can save some money by just freshening it up a bit. Refinish the wood or paint it for a pop of color; clean and polish the hardware or replace it with something that will add more of an accent; and replace the hinges if they are worn. If you decide to replace the door, look for a well-insulated, energy-efficient, secure door; this is not something you want to cut corners on by going with a cheap alternative.
Illuminate with outdoor lighting -- Outdoor/exterior lighting adds value to your home in three important ways. First, it helps keep you and your family safe. It’s important to be able to see where you are going to avoid a fall. Second, it adds a layer of security. Keeping your property well-lit is a good way to deter a would-be thief from targeting your home. Third, it enhances the aesthetics of your property. Show off your beautiful home and well-maintained landscape. Consider which of these aspects are important to you. If safety is your goal, focus on pathways, entryways, and steps. If you are more concerned with security, perimeter lighting set on timers and motion-activated flood lights are your best bet. If you want to add curb appeal, light up your trees, unique landscape elements, and water features. The second thing to consider is what type of lighting to go with. Solar is great because you don’t need wiring and don’t have to pay for power. LED lights produce a bright, crisp light and are energy efficient. Halogen lighting, though affordable, is being phased out for the most part. Consider replacing existing halogen bulbs with LED replacements (also called LED retrofitting).
Discover the magic of pressure washing -- You see your home every day, so you might not notice as it slowly gets dirty and the colors and features become dusty and dim. Just spending an afternoon with the power washer can dramatically add some pop and resuscitate your curb appeal. First and foremost, read the instructions and specifications of the pressure washer you purchased or rented. Check the water flow in gallons per minute in addition to the PSI, and get one with different pressure settings if possible. Confirm it is okay to use on all the areas you are planning to wash to ensure nothing will be damaged. You’ll probably be okay on things like sidewalks and driveways, but double check that your siding and windows can withstand the pressure. Turn off power to electrical outlets and fixtures and cover them. You may also want to cover plants and flowers if they are close to your house or the area you’ll be cleaning. You’ll likely want to use detergent (only use detergent that is specifically made for pressure washers) for the grimier parts of the job.
Create a beautiful, functional space with a fire pit -- Adding a fire pit is a cheap, simple way to help get the most out of your outdoor space by breaking it up into different areas. Fire pits consistently poll well among potential homebuyers (especially in the younger portion) and came in first in expected popularity of design elements according to the Residential Landscape Architecture Trends Survey. One of the great things about taking on this project is that it can be as simple or as grand as you like. You could DIY a very basic one for as little as $150, or you could go all out and include a gas line (with professional help) and a fancy fixture if you have a bigger budget at your disposal. If you are not as handy, you can get a kit with everything you need and step-by-step instructions. However, building your own fire pit is not overly complicated and will allow you to completely customize it to fit your personal taste.
Upgrade your home’s technology -- These days, homebuyers want the latest technology. It’s easy to understand why when you look at all the amazing things technology can do for your household. Having these advanced features can be what sets your home apart from similar ones on the market. You can install smart locks for added safety and convenience. You’ll never have to stumble around trying to get your keys out of your pocket while carrying groceries again, thanks to Bluetooth technology that will pick up on your phone approaching. And you’ll never stress again wondering if you forgot to lock the door when you rushed out. Smart sprinklers can save time and money. The sprinkler system can adjust based on weather patterns and temperature so you’ll save money by not wasting water.
Thanks to Housecall
40 S Cedar Crest Blvd
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