Great Website for Zip Code Demographics

We now use this for our Available Rental Properties. Information seems to be accurate...

http://www.bestplaces.net/

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/

Incredible Time for Property Management

I have been constatnly surprised as to the make-up of our new customer base. Not surprised that half of our new customers are 'unintentional investors' who have/need to move but don't want to sell their house, but VERY surprised as to the magnitude of the homes coming to us.

In a given week, it is not uncommon for us to take on multiple homes that are in the $500k and up range. A few weeks ago, we even had a $1.5M and a $600k in the same day. Perhaps more important, these homes are renting... some of them VERY fast. Cherry Creek School District is a huge driver (they are typically on the market for days), but expensive properties are renting in all areas as well (might take 4 weeks to move something in east Aurora, but they do eventually move).

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

Real Estate Negotiating Tactics

Real estate investors tend to settle into a set style during the negotiation process, and most of the time it may work well. It always pays to keep these major 'classes' of negotiation tactic in your back pocket, however:

Standard Practice Tactic
Getting the other party to agree to certain standards and common practices that commonly define such deals. Propensity towards automatic compliance is great. You can also have official forms that are pre-printed with items in your favor.

Bogey Tactic
Use a bogey, third-party bad guy to be the focus of ‘why it has to be this way’. E.G. “The bank will not lend me more than 70% LTV based on the rental trends in this area, and I only have $15,000 for a down payment”. Best if the bogey can be governmental/ regulatory.

Nibbling Tactic
After the major agreements have been made, nibble away at the smaller things to gain advantage. Post-inspection, perhaps. After seller has psychological ‘sold’ mind-set, they will typically make last minute concessions. Repairs, appliances, roofing,

Good Guy/Bad Guy Tactic
Get the person over to your side by being a confidant. “Listen, between you and I, I really want this to happen. My partner is demanding that we discount the property by 20%... I am confident I can talk him into 10% though if we act immediately.”

Deadline Tactic
Put pressure on the other party to react to your proposals. If anything, lets the other party know that there are other proposals you are considering, and that this one stands to fall through the table if a quick transaction is not achieved.

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

A Historic Crossroads for Denver RE Investment Opportunities

For those considering entering the real estate investment market or expanding your portfolio, this is an incredible time! The Denver Metro area is in a soft period where there are historically high inventories of properties on the market. And as you are likely aware, Denver recently earned the dubious distinction of ‘foreclosure capital of the nation.’ Bad news? Hardly. Together with the facts below, this could be a tremendous opportunity for you to either enter the real estate investment arena, or to add to your existing portfolio of properties.

The Facts
Mortgage rates at a 4-year high. 2 issues here… first, rising interest rates are forcing more and more would-be homebuyers (and one-time homebuyers going thorough foreclosure) into the rental market. Remember… a 1% increase in interest rate on a 100,000, 30-year fixed loan at 6% adds over $65 to Principal and Interest payments alone! (our Investment Analyzer is a great tool to play with the tradeoff in Interest Rate and P/I payments) Second, while we are still at historical lows rates, they will only get higher (we have already seen a 1% jump over the past year).

Vacancy rates are incredibly low, and rents are rising. Recent studies for the Denver Metro area show a ~6% vacancy rate for apartments and single-family residences. This is less than half the vacancy rate we experienced in 2002 and 2003.

Unlike other areas of the country, Denver has experienced only moderate appreciation over the past 5 years (here is a good site to view Devner RE appreciation in the various areas). Where other areas of the country could experience radical declines in property values, most agree that Denver will sustain a slowdown in growth, if anything at all. There is really not a lot of risk in the Denver market.

Results
All of this adds up to an amazing amount of quality inventory, with very motivated sellers, reasonable financing still available, and most importantly, a strong and growing rental market. Supporting this, we recently put two of our own properties, one in Fitzsimons and one in Walnut Hills, up for rent. After a week of listing them only on RentClicks, we had 2 offers on each property from well-qualified tenants. We also recently raised our rents 7-10% for our other properties, and the tenants did not lift an eyebrow.


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