Limited Partnerships and Investment Properties

Limited Partnerships and Investment Properties

By Mitchell Weisman of Rubin, Weisman, Colasanti, Kajko & Stein, LLP, Andover MA

Mr. and Mrs. T came to my office the other day.  They are buying a two family home for investment purposes.  They did not want to own the two family in their own names, so they asked me what their options were.  I told them they had several choices and each had advantages and disadvantages that I would try to explain in the next several articles.

The choices are:  partnership, limited partnership, limited liability partnership, trust, Limited Liability Company or corporation. YIKES.  So many entities to choose from!  Let’s start with a partnership, which is often called a general partnership.

Two or more people can join together to form a partnership.  They can choose a name to run the partnership business and the only requirement is that the partnership must register the partnership name with the local city or town clerk.  There is a nominal charge.  There may or may not be a written agreement. Mr. and Mrs. T probably wouldn’t need a written agreement between them but two or more unrelated people should seriously consider a written agreement if they want a partnership.  So, the one major advantage is simplicity of formation.  The partnership must file its own federal and Massachusetts tax returns.  So, Mr. and Mrs. T asked me, what disadvantages there might be.

Each partner is a general partner and each general partner is personally responsible for his own acts AND each partner is responsible for every other partner’s acts as well.  So, as far as Mr. and Mrs. T is concerned, there appears to be no real advantage to forming a partnership to own the two family home.

Mr. T asked about a “limited partnership”.  So I explained to him that a limited partnership is a form of partnership that has general partners and limited partners.  The general partner or partners operate the business and are personally liable for their acts.  The limited partners MUST not interfere or take part in any of the activities of the partnership or they will be called general partners and face the liability of general partners. This form of arrangement would require a carefully drawn written agreement to clearly identify the general and limited partners. Either Mr. T or Mrs. T would be the general Partner and the other would be the limited partner.  Whichever person became the limited partner would have to avoid taking part in the business activities of the partnership.  A limited partnership is no longer a favorite device to recommend to my clients.  It was a popular form of ownership in the 1970’s but it is rarely used today.

Next and probably the form of ownership that has supplanted partnerships and limited partnerships is a limited liability partnership (LLP). In an LLP, all the partners have limited liability, and are similar to the shareholders in a corporation.  The advantage of the LLP is that each partner has limited liability from the acts of the OTHER partners, but ALL partners who are involved with any acts of negligence are still personally liable.  The other partners are protected from the acts of the negligent partner.

Mr. and Mrs. T said they had to go home and digest these forms of ownership but they want to come back to discuss trusts, limited liability companies and corporations.  I told them to check the next blog and I would be there to discuss these remaining entities.

As a real estate agent, I never try to pretend to be an insurance agent, lawyer, or home inspector. I DO work together with these professionals and can refer people to my buyers and sellers that I (or other of my clients) have done business with.  I am really happy to have the author of this blog, Mitchell Weisman, be one of the attorneys that I work with regularly!  :)

Written by Mitchell Weisman, of Rubin, Weisman, Colasanti, Kajko & Stein, LLP, located in Andover and Lexington, MA

The full-service office has many attorneys covering a wide variety of practice areas, including:  Estate Planning and Administration, Family Law, Personal Injury, Residential real Estate, Workers’ Compensation and much more!  Call 978-296-5107   or   781-325-1786 today to get in touch with the office today.

 

The Costs of Renting Out Your House

The Costs of Renting Out Your House

By: Richard Koreto
Renting out your house can be a smart financial move, as long as you calculate your costs carefully.

You have a single-family house you’d like to rent out. Perhaps you’re temporarily relocating for work, or maybe you inherited your childhood home from your parents, and you’re not quite ready to part with it yet.

Renting can be a profitable choice, but it requires an investment of time, money, and organization to make it work. Here’s how to determine whether renting out your house is worth the cost.

Calculate your monthly expenses

You want to charge at least enough to cover your monthly outlay. So the first step is to use our free downloadable worksheet to calculate your costs. Start with regular expenses like mortgage, maintenance, and homeowners association dues.

You may also need to upgrade your insurance coverage. Your agent can advise you about adding landlord insurance, a special type of policy that covers rental properties. As a rule, landlord insurance costs about 25% more than standard homeowners insurance.

If you’re renting the house furnished, make sure you’re covered for the personal possessions you leave behind. Jane Cline, the insurance commissioner of West Virginia, tells owners to prepare a detailed inventory of household items. If you’re renting the house unfurnished, figure in the costs of moving and storing your items.

Check out prospective tenants

As a practical matter, you’ll have to formally check out your prospective renters. MrLandlord.com, an information and service site for landlords, suggests a variety of background checks: credit reports, eviction reports, and criminal background reports. None of these is expensive, but you must get your prospects’ permission.

MrLandlord.com charges $8.95 for an eviction report. A combined credit and eviction report is $14.95. If you want to be especially careful, a countywide criminal report costs $29.95.

Account for maintenance and upgrades

Even with the most scrupulous checks, you can’t be completely sure renters will take good care of your home. Eva Rosenberg, an enrolled agent in Northridge, Calif., advises that if you’re not within easy driving distance of your rental property, you’ll need to arrange for someone else to keep an eye on the place, even if it’s just to make sure the lawn is mowed. If the tenants are neglecting upkeep, you’ll want to know about it sooner rather than later, since it could be a warning sign of trouble down the line.

Of course, even if the renters are conscientious, problems can crop up: boilers will fail; roofs may leak; washing machine hoses can burst. If household systems or appliances need repair or replacement, you’re better off spending the money up front, before the fix becomes an expensive emergency.

You may also want to invest in some of the “extras” that Sue Peters, a broker in Wellfleet, Mass., recommends adding to attract a tenant willing to pay a higher fee. She suggests spending money on air conditioning, expanded-channel cable TV, and a Wi-Fi network.

Don’t want the headaches? Hire a property manager

You can save yourself a lot of time and effort if you engage a management company to oversee the property and take care of the details. Some firms charge a percentage of the rental fee, others a flat monthly fee, based on the extent of services. Joe Aimone of GoRenter in Phoenix, Ariz., says his firm offers a variety of services, starting at as little as $50 a month, including general maintenance, rent collection, and–if necessary–eviction.

A management company can help you figure out how much to charge, find and vet tenants, and prepare a lease. It will also pay the real estate taxes on your behalf and present you with an annual 1099 form. Many management companies maintain 24-hour emergency lines and a roster of approved service people, so they can take care of plumbing or electrical problems and bill you later. A property manager will also see that driveways and sidewalks are shoveled, so you don’t find yourself with an unpleasant claim against your liability insurance.

Expect to pay a management company 8% to 10% of the annual gross rent, on average, with a $50 to $85 monthly minimum.

Keep scrupulous records

Whether or not you use a management company, you’ll have to keep extensive business records. DeDe Jones, CFP, CPA, in Lakewood, Colo., advises owners to save receipts for any expenses and to file them carefully.

The IRS treats maintenance expenditures, like a new hot-water heater, differently from capital improvements, such as a new deck or patio, so you’ll want to consult a tax professional. Meanwhile, keep the two types of receipts separate to make tax prep easier. You’ll have to file Schedule E on Form 1040, which can also serve as a template for the kinds of records you’ll need.

Finally, because of the complex tax and liability issues involved, many financial experts suggest forming a corporation when you become a landlord. An attorney can advise you about whether incorporating makes sense in your situation.

Republished Courtesy of House. Logic Richard J. Koreto has been editor of several professional financial magazines and is the author of “Run It Like a Business,” a practice management book for financial planners. He and his wife own a pre-Civil War house in Rockland County, New York.

If you need additional help with legal paperwork to rent out your house or do credit checks on potential renters, contact me today at 603-318-6953 and I can refer you to a nearby attorney!

Home Staging Tips

Home Staging Tips with Karen

Karen DiMattia, from Staging on a Shoestring, has been giving home staging tips for 10 years to her husband who is a  contractor that has remodeled and sold many homes/condos.  Then, three years ago Karen formalized her passion as the business “Staging on a Shoestring”.  Certainly in the last 5 years there have been shows on HGTV and other channels regarding home staging, but just in case you don’t know what it is, let me share with you using Karen’s words:  ”decorating is for living and staging is for selling”

Karen holds an official certificate naming her a Professional Real Estate Stager and Home Redesigner and graduated from the Academy of Design and Decorating.  In the last 3 years Karen has worked with over 350 home sellers and their Realtors working with her home staging tips to prepare their homes for selling, including Beth from Haverhill who shared home selling tips 1-3 with me on previous blog posts.  Karen has worked on projects ranging from $99,000 to $3,000,000 including those that the sellers are still living in as well as brand new construction.

There are a couple of steps that Karen takes when working on home staging tips with sellers,first of which is the consultation.  $99 will get you a whole house consultation , inside and out (and if you mention this BLOG ARTICLE, Karen will give you a discount) During the consultation, you will discuss everything from decluttering to painting (including specific suggestions/selections).  Karen will then go on to also discuss furniture placement, arrangement, editing, and accessory suggestions for everyroom.  (If necessary, accessories/furnishings can be loaned from Karen at an economical fee.)  Beyond the consultation, if you choose to continue to work with Karen, she will come back with the chosen accessories and put the finishing touches in the house to be prepared for picture-taking for the listing.  (Included in the borrowing fee 90 days to keep everything and beyond that is a nominal monthly fee.)

What are the top 3 reasons Karen recommends using her home staging tips to sell your house?

  1. Over 90% of buyers make their decision to see a house or not from the online pics.  Staging will insure the focal points/architecture of your home are highlighted and give you that magazine looks that gets more buyers in the door
  2. Staging will sell your house 2-3 times faster and for top dollar.  Buyers believe if a house is professionally staged that there is more pride in ownership and the house is more valuable.
  3. Staging is just as important for occupied homes as it is for vacant/new construction

Do you like these home staging tips and want Karen to come to your home?  Contact Karen to schedule an appointment – she works in MA and NH and the whole process can be done in a week’s time (if necessary).  See below the article written on her Dec 2010 announcing her 1st place finish in the home staging design contest at the Northeast ADE (Association of Design Education) Conference in Hartford, CT.  In the mean time, if you’d like to have a seller’s consultation to see what your home should be listed for for the fastest sale, maximizing your proceeds, contact me today and we can being right away!

Just SOLD – 15 Grove St Haverhill, MA – 01832

Just SOLD – 15 Grove St Haverhill, MA – 01832

List price:  $155,000

Sale price:  $143,900

Days on Market:  7

2 Family home

# of units:  2

# of bedrooms:  6

This greater investor property JUST SOLD today, Jan 21st, for 93% of the asking price in Haverhill, MA.

It was only on the market for 7 days before there was an accepted offer.

Congratulations, Kathleen!  Kathleen was an educated seller who knew where the property needed to be priced to sell quickly.  It was great working with you!  If you are looking to buy or sell a single family home or a multifamily home in Haverhill, MA, click on the link to get started or contact me directly.

I look forward to hearing from you!

Getting estimates from contractors

Getting estimates from contractors

Getting estimates from contractors is fun because you’re getting solid financial information that you need in order to get work done, but can be difficult as well, coordinating and following through.

Believe me, I can speak from experience on many different properties in Southern NH and Northern MA that I’ve worked with buyers and sellers on … if you follow these couple of rules, you’ll have a more successful time than most people:

  1. Ask people for referrals who have used the contractor and knows their habits and craftsmanship
  2. Make sure to get 3 estimates (you may have to 5 contractors to get those 3 estimates!)
  3. Be very specific regarding the work to be done and the time frame you want it done in.
  4. Make sure the contractor is not too busy to handle your job with any other jobs they are also working.
  5. Be very specific with the contractor regarding when you need the estimate by and ask for a break down of the costs, including labor and supplies.
  6. Ask the contractor for the names and numbers of some past customers to call.
  7. Make sure the contractor is licensed and insured!  (Don’t hesitate to ask for the insurance company’s phone number to check and see if their insurance is current and especially if there are many guys on a job site:  see that all employees are names!)
  8. Do NOT pay the contractor all the money up front!  I don’t want to be a “neah sayer”, but if there are 2-3 jobs that a contractor is juggling, they may be less motivated to finish your work since you already paid them.  (Sounds weird, doesn’t it?)
  9. “Hire slow, fire fast” is an interesting saying.  Most of the time when that “little voice” inside me is saying that “this guy is always late meeting me”, “this guy doesn’t return my phone call promptly”, etc. MEANS SOMETHING!!! Don’t ignore it!
  10. Search on the internet to see what other customers had to say about your contractor – believe me, I was surprised what I read about some septic companies lately!  (This may not always be accurate, and there will be people who complain about others, so make sure to read as many reviews as possible and believe what the “consensus” has to say.)

There are many great contractors out there that are very talented!  When you follow the above tips, your level of success will go up significantly and everyone will be happy!

If YOU need a contractor, don’t hesitate to contact me today at 603-318-6953

Just listed – 15 Grove St Haverhill MA 01832

Just listed – 15 Grove St Haverhill MA  01832

List price:  $155,000

2 Family:  Unit 1:  2 bedroom, Unit 2:  4 bedroom

This is a great opportunity to live and have rent help pay the mortgage or for an investment property!

This Grove St Haverhill property has been well cared for!  Fully de-leaded, newer siding and windows, 2 new hot water heaters in the last 2 years, brand new furnace for the 2nd unit Nov 2010, separate electric, and washer/drier hook-ups for both units in the basement.  Large back yard and off-street parking for at least 3 cars.  What more could you want for this price???

Contact Debbie to learn more about this Grove St Haverhill property at 603-318-6953 or search for other homes in Haverhill, MA.  If you’re new to investing, call to talk about the opportunities available, I’ve got a lot of information to share!


Title Insurance Problems

Title Insurance

Title Insurance Problems are becoming the next big concern for home buyers.  Does every home purchased have title insurance problems?  No, in fact, rarely are there title issues on homes because people buy title insurance.  So why am I writing about problems with title insurance?

Here we are in 2010, US citizens are trying to recover from one of the biggest foreclosure phenomena in US History, and now the Insurance companies that write Title Insurance Policies are refusing to write insurance on foreclosed properties!  In order to understand why that is happening, the consumer needs to know a little bit about title insurance first.  There are 3 basic types of insurance that a homeowner may get when they purchase a house:  Lender’s Title Policy, Owner’s Title Policy, and Extended Owner’s Coverage.   When a buyer gets a mortgage to purchase the property, they will be required to have a Lender’s Title policy and beyond that they can purchase additional policies as desired.  I always recommend to my buyers to get Owner’s title insurance and to learn more information about the basics, see the article at About.com.

Now that you have the basics, specifically remembering that “Defective recordation” is one of the things that the owner’s policy covers, you can see how the huge mortgage fraud issues we’re having right now are scaring the Title Insurance Companies away, and rightly so!  (Who can really know which bank or person owns a property when the recording may not have been done properly …. or at all!)

What a vicious circle we’re in!  Banks were foreclosing on homeowners which were driving property values down and then when other homeowners couldn’t sell (or afford their mortgage payments), they became short sales which were driving home values down and now even when an investor might want to buy a foreclosed properties, they won’t be able to do so because of the liability of not being able to have title insurance.  So now mortgage companies have put a freeze on foreclosures, pending investigation to see if the foreclosures were done legally and homeowners wait before moving and/or selling!

Don’t get me wrong, I would NEVER CONDONE the banks foreclosing on homeowners illegally!!!  I’m just wondering how the banks (who are not getting mortgage payments) are going to be able to continue to cover taxes and insurance, etc while they wait for HOW LONG to get this mess straightened out????

Whew!  What a mess – can we push a “fast forward” button now and get out of this mess?  8-O

Well, perhaps we’ll all learn something from these couple of tough economic years!  Certainly now, more than ever, home buyers understand and want to purchase title insurance to protect themselves and their “castles”!  ;-)

Search now to buy a home or an investment property, or contact me today at 603-318-6953 to see how we can get started!

This Month in Real Estate – October 2010

This Month in Real Estate – October 2010

The video this month discusses the national increase in pending home sales of 5.2% (the northeast came in 2nd with an increase of 6.3% new contracts signed, behind the west which increased 11.6%).  Does an increase in contracts signed mean an increase in home prices as well?  View the video below to see the answer and also see which cities are listed as the most undervalued in the nation….maybe it’s time for you to do some investing for rental income or get a vacation home????

[youtube]http://www.youtube.com/watch?v=X5QaG60QgUU[/youtube]

If you or someone you know is looking to buy or sell in Massachusetts or New Hampshire, contact me to get started.  I have worked with a wide variety of people, including first time home buyers, down-sizers, “step-up buyers” and seasoned investors.  As you can see from my blog, I value educating the consumer and will be certain to answers any and all questions you bring, even if it means getting the answer from a trusted colleague in the event you “stump me”.  :-o   I look forward to hearing from you soon!

This Month in Real Estate – September 2010

This Month in Real Estate – September 2010

The video this month reviews buying foreclosed properties.  In 2010, 25% of all properties sold in the US were foreclosures.  With California, Florida, and Arizona being the top 3 states with foreclosures in the first half of 2009, there are a lot of “deals” to have, but knowing what to expect will “ease the process”.  Watch the video below to learn more about some of the challenges in buying a foreclosed property.

[youtube]http://www.youtube.com/watch?v=Rr011xZaeWk[/youtube]

If you or someone you know is interested in buying a property in Massachusetts or New Hampshire, including a foreclosed property, contact me today!  I have worked with several buyers, many of whom are buying foreclosed multifamily properties to use as investments to build their wealth.  I look forward to speaking with you today to discuss your housing desires.

Massachusetts lead paint – are you concerned? Check this out!

In Massachusetts lead paint poisoning should be a concern to everyone. In addition to working with residential buyers, I also work with investor buyers.  As an investor who is a landlord, a way to reduce your risk significantly is to know whether or not there is lead paint in the rental property.  If a property to be purchased has units with more than one bedroom, chances are there will be a child under six years old living in the property.  (All properties built before 1978 require that a lead paint disclosure is signed before the purchase of the property because these properties may contain lead paint which, when internalized in large amounts in children under 6, can cause lead paint poisoning which can cause damage to the child’s brain, kidneys, nervouse system, and red blood cells.)

One initial way of checking out a property before you buy is to check the Massachusetts “Lead Safe Homes” website before you puchase (or ask the seller directly for copies of the lead paint certificates proving that the house was fully de-leaded).

Check out this website yourself!  (One tip – instead of inputting the specific address of a property, just put in the street name and then click on the address you’re interested in.)

webapps.ehs.state.ma.us/Leadsafehomes

For more information on lead paint poisoning, go to:

www.mass.gov and type in “lead paint” in the Search box.

As a specialist working actively with investors, I am happy to supply this tool and others for people building their wealth while investing in Massachusetts homes. Contact me to start today at 603-318-6953.