Monthly Archives: February 2007

February 21, 2007 · 10:52 pm

Depreciation: You must Bifurcate!

Bifurcate depreciation? I first heard of the term when I attended one of Tom Lundstedt’s workshops on calculating the returns on investment property. (If you haven’t been, you should go. Or just order his CDs online. I don’t say this very often but he is worth every penny.) Anyway, it’s a $10 word to say separate.

I’ve referred to the 4 Benefits of owning rental property before but surprisingly I get very few comments or questions regarding depreciation. With tax season here, I thought I would hammer it home.

Pay very special attention to what I’m going to say next: Most rental property owners are improperly depreciating their income property because they are using a tax preparer who is unaware that you can bifurcate your depreciation. It may be costing you thousands!

There are 4 ways you should be breaking up the depreciation of your investment property;

Land – no depreciation permitted.

Building – depreciates over 27.5 years for residential or 39 years for commercial.

Land Improvements – depreciates over 15 years. (driveway, landscaping, stairs, exterior lighting, etc.)

Personal Property – depreciates over 5 years. (carpeting, appliances, etc.)

Hear Me! Most of you are only depreciating the Building! Stop doing that! We are entering the tax season and you need to know this so you can quiz your tax preparer. Still don’t believe me? Watch this example.

EXAMPLE 1: $200,000 duplex located in Overland Park, KS and the tax assessor says the land is worth $34,500. Depreciating the remaining number as the Building on your first year schedule will yield you a tax savings of $1,901. ($165,500 x 3.48% = $5759 x 33% tax bracket = $1,901)

EXAMPLE 2: $200,000 duplex located in Overland Park, KS and the tax assessor again says land is worth $34,500. A Cost Segregation Study shows you have a breakdown as follows;

Building at $127,500.

Land Improvements at $17,000.

Personal Property at $21,000.

Now your formula works out to a tax savings of $3,131. That’s a $1,230 increase in saved taxes! ($127,500 x 3.48%) + ($17,000 x 5%) + ($21,000 x 20%) = $9,487 x 33% tax bracket = $3,131.

Please, I’m begging you (and I don’t generally do that unless you have KU basketball tickets I need) to do your homework on this and make sure your tax preparer does as well. After all, whether you depreciated your property correctly or incorrectly, you will have to pay the depreciation recapture when you sell. Unless, of course, you do a 1031 exchange. (So long as that is the smart thing to do. A whole other way to go is discussed here by my friend in San Diego.)

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Filed under 1031 Exchange, Real Estate Investing

February 21, 2007 · 1:47 pm

Is A REALTOR Worth The Money?

I’m a real estate agent, so you know how this is going to go. But let me see if I can make a compelling case as to why you need professional representation.

People think they are paying their real estate agent to get their house sold. And to a degree they are right. But what is “sold”? When I sit down in my listing appointments and talk with a Seller one of the things that I think is important for them to understand is my general philosophy. I don’t believe I can sell anyone a home. Whether it’s for personal use or to be used as an income property. It’s too big an asset to get sold. People pick and choose their houses carefully based on a very wide variety of criteria. In short, if a Buyer doesn’t like it they can and will move on to the next possibility.

And usually, a home will sell through a co-op agent. Someone else will bring and represent the Buyer. I’m there to market the home in a variety of ways including electronic media, print, word of mouth, signs, mailings, etc. My job is to drive enough people through the house that are ready and able to buy a house to secure a qualified Buyer. And then my work begins.

I tell anyone who will listen a brand new agent can market your home. They can read enough books on how to advertise, hold an open house, etc. But a brand new agent usually will lack the experience necessary to negotiate inspections, hurdle title difficulties, answer an appraiser’s questions, work with mortgage officers and underwriters and their frequent and sometimes unusual demands. Then there are the last minute snafus with the furnace…

In the last month I’ve had several inspections from down under. Massive things wrong and big dollars attached. And not clearly visible without detailed inspections. Keeping the deal together can be daunting and sometimes impossible. But if there is a way, an experienced agent can work it out, get creative, think outside the box. (Are there any other cliches I can throw your way?)

I know many a person who have successfully bought or sold their houses as unrepresented Buyers or Sellers. However, I know many more people who had a contract and the deal fell through. Possibly these two reasons had something to do with it; 1. Lack of experience to know to prepare and/or how to solve the issue. 2. Direct communication between the Buyer & Seller (with their egos involved) may not always be the best path to take. Sometimes, it’s good to have an intermediary.

HotPads.com – Find & List Rental Housing

Looking for a place to rent? Or are you a property owner looking for a good tenant?

You may want to check out HotPads.com. I had heard of this site sometime back but had forgotten about it until earlier today when I was bouncing around the internet between appointments. I was blown away.

The site is pretty impressive and is a good resource to find your next rental house, or, if you are a property owner, to list your home. Go to the site and check it out. If you have had any experiences with HotPads.com before drop me a comment or an email and let me know how it went for you. I’m curious to know!

1 Comment

Filed under Cool Sites, Property Management

February 20, 2007 · 3:57 pm

Reading: A great source of real estate knowledge

I’ve heard an old axiom that went something like this: “There are two ways to learn; 1. By your own experience. 2. By someone else’s experience.”

So true.

On the right side of this site you will see two books advertised for sale. Is it because I need the $0.86 or so I’ll make from you buying the through this website? (I do have four kids…so it won’t be turned away!) It is so that you can read two very well written books with slightly different perspectives about real estate investing. I’ve recommend these two books before and I still haven’t changed my mind. They stand up in any market for any community.

Whether you’ve been at this for a while or new to the game or just thinking about real estate investing you should take the time to read or re-read these books.

A Home Inspection? What is that?

Many of us have lived in a home for the better part of our lives. We’re used to living in them, used to using their components and even used to repairing them when we see problems. So why would anyone need to hire a home inspector? I mean, really, how hard is it to see a defect in a home? Can’t everyone tell if a faucet is leaking or an automatic garage door opener doesn’t work?

To answer that, let’s ask the question, what is a home inspection? That’s the easy part – A home inspection is a visual examination of the readily accessible components of a house.

That’s the simple answer. But looking a little closer, there are many components of a home. They include the structural systems, the foundation, the roof, the mechanical systems, the electrical system, and the plumbing system, among others. All systems are independent, but are designed to work in conjunction with one another. A home inspection will give valuable insight into the condition of all of these components, and help to identify those that may be in need of repair or replacement. This is especially valuable information for those that are ready to buy or sell a home.

Consider this analogy: If you have a pain in your neck (other than your boss), you might consider going to your family doctor, or general practitioner. Your doctor might then refer you to a specialist for a more thorough evaluation of the specific problem in your neck. Your doctor may be a very good doctor, but he or she is not a specialist in every aspect of the human body. In much the same way, you can consider a home inspector as a general practitioner regarding a home. Your inspector can point out the obvious, and can even give you an indication of the condition of the systems or components of the home. Your inspector might even suggest that you consider hiring a specialist to look at a specific component (such as a HVAC specialist for the furnace, or a plumber for the water heater).

A good home inspector has been trained in all aspects of the components of the home. He or she can readily identify and describe the condition of each component. Inspectors understand how the components interact with each other are trained to identify material defects, operational defects, and other indications of problems that may exist in a home.

A thorough home inspection will take between 2-4 hours for the average home of approximately 2000 square feet and will cost between $250-400 on average. In this time, a home inspector will operate and visually inspect all the readily accessible components of a home. A thorough home inspector will evaluate the major systems of the home, including those listed above. The inspector will give you a list of the items of in the house that need some type of attention or repair, and will even let you know when a specialist is warranted for a particular component of the home. During this evaluation, most inspectors will encourage you to follow along and ask questions.

The inspector is there for you. It their expertise and time you’re buying. Make the most of it, attend the inspection, and ask questions. It is an excellent opportunity to learn a lot about the home.

Until next time….

John Clason, ASHI Certified InspectorCrown Home Inspections

Ask the Inspector

Approximately once a week, I’ll post a blog regarding some aspect of home inspections, and the home inspection process. In the mean time, feel free to email me directly if you have questions, or if you have a topic that you’d like to see discussed. You can reach me at john@crownhomeinspections.com or on my cell phone at 816-305-4624.

John Clason, ASHI Certified Inspector
Crown Home Inspections

KC Star: Prices reel from robust toward bust

For those of you not from the local area, the Kansas City Star has an article in today’s paper that has a really helpful flash graphic to help show the local economy’s housing condition. It’s a good read and a cool graphic.

Personal note: None of this should be a surprise to anyone watching the market. Again, long term Buy & Hold is a great way to invest in real estate. But be very wary on Buy & Sells (flipping) unless you are sure of the buy or you have deep pockets.

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Filed under Kansas City Real Estate

February 16, 2007 · 8:23 pm

Learn to Invest in Real Estate 101

Shameless plug here:

A workshop to help neophytes and the experienced alike know how to determine profitable from not profitable income property BEFORE they buy. February 24th, 2007 starting at 9:3o a.m. at the office of Keller Williams Realty, Diamond Partners, Inc in Olathe, Kansas and lasting until 11:00 a.m.

I will speak from both knowledge gained and personal experience on what to look for, how to measure it and why one should consider real estate investing. Either go to my website or email me to register. Space is limited as I keep the class sizes small to allow for as much interaction as possible.

There is no charge for the workshop and you will not be asked to buy any books or tapes. It’s low key and information based. Hopefully, when you decide you need a real estate agent, you will think back to me! So register today.

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Filed under Real Estate Investing