Taxes on Passive Investment Activities

Upon sale of an investment property (as a passive investment activity), different tax rates apply towards different elements of the property:

Ordinary Income
- Personal property depreciation

Long-term capital gains
(15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets )
- Building / improvement depreciation

Short-term capital gains (Ordinary income tax rates up to 35%)
- Everything else

Critical Elements of Tenant Leases - 1

Over the past few months, I have reviewed many, many home-grown and 'Realtor-provided' tenant leases for individual investors and homeowners who are trying to go it alone in the property management route. I have been shocked by what I have seen.

My philosophy is that manageing your own property is always the #1 option... no matter what a PM company says, nobody will give it the care and attention that you will.

Tenant leases are different. This is where you can loose your shirt, your home, and sometimes both. I have spent over $20,000 in legal, financial and other fees over the years on creating the 'perfect' lease. Even with a perfect lease, it is easy for a career rental abuser to make the 'apparently perfect' application package. You will love them. You will empathize with them. You will want to have a drink with them. Then they will squat in your property for 6 months without paying rent, knowing there is nothing you can do.

Please, please, if you DO do your own tenant leasing, make sure you:

• Do not give more than 5 days grace period before posting a Pay or Quit noitice. This will be their first test for you.
• ENFORCE late fees. Behavior is learned, not inherited.
• Mandate they carry renters insurance. I make them add myself or Echo Summit as an additional insured under the Liability section.
• Include a PAYMENT OF FUTURE RENT provision that allows you to accept partial rent payments in the middle of the evicton process (otherwise, you have to re-start the eviction clock every time you collect a penny)
• Here are some good free forms that I am happy to share with you

Many other elements to consider, but at least make sure of these.

Scott Lukes
Echo Summit Properties
http://www.echo-summit.com/

Re-keying a Critical Issue - Our Technique

In my conversations with property managers, I am still surprised at how few PM companies do not change locks after acquiring a property from an owner. I am guessing the same goes for home buyers when they purchase in a consumer deal.

The fact of the matter is that you DON'T KNOW the property is secure unless you personally had the property re-keyed while it was under your management. From a 'plausable deniability' perspective (yes... a huge West Wing fan) this is huge. From a liability perspective, this is life/death.

At Echo Summit, a good system we have employed is to have the Owner pay for initial re-keying (we hire the vendor to conduct it), and have the Resident pay for subsequent re-keying after they leave the property (we withhold from their security deposit).

Scott Lukes
Founder
Echo Summit Properties
http://www.echo-summit.com/