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Links to current Newsletter Articles: Correction: Higher 1099 Penalties Effective This Year, TY2010. (9-29-2010) Flood Maps and Insurance Update Monthly Meeting - Second Thursday of Every Month At VFW Post 1308, 4445 Alby Street, Alton, IL The VFW allows us to meet for free in their facility. Please come early if you can and grab a drink at the "V" . January Meeting Agenda January 13, 2011 Matt Van Voorhis Macias Insurance Flood Insurance and Other Insurance Topics February Meeting Agenda February 10, 2011 March Meeting Agenda March 10, 2010
Members wanting 10-15 minutes to introduce their business to other members are welcome to do so. Please schedule your date and time with either Steve Hudalla or Mary Kerkemeyer. Vendors Participating with Discounts to RPOA Members
RPOA Officers:
Riverbend Growth Association - Upcoming Events Watch your emails for the RBGA newsletters and information. Changes for Year 2010 Beginning in January, 2010, eviction lists will be in digital format only and will no longer be mailed to members. Meeting notices will be by email only. by Tyler McCracken a North Carolina Real Estate Investor.
Setting the rental rate of your investment property is as much of an art as it is a science. As controversial as this topic maybe, it's often misunderstood from the onset. HereÕs just one BIG angle to consider. I ask that you keep an open mind and understand that the variables are great -keep an eye towards additional posts to Maximum Cash-Flow with Rentals. Often I find myself conservatively setting a rate on a home at $25-75/month less then my fellow investor. It is one of the most glaring divergences I have with others (2nd place goes to property valuation) and causes me much consternation. I constantly analyze and try new techniques; however, I usually end up at the same spot. My conclusion is that the science of it sets a base rental rate with the art creating both the flexibility and longevity of that difference. Did that make any sense? LOL The market sets the market rent for a home based on supply & demand with a few key variables the greatly dictate any distortion:
What is our common goal with a rental? To create a reliable steady stream of rental income over time to provide us with positive cash flow, tax deferral, and long-term wealth with debt reduction and appreciation (in both rental rates and property valuation). Right!?! Analyzing a prospective tenants credit and financial stability is the main key factor of distortion that occurs from one landlord to another. What do I mean? In basic economic theory, one can assert that a neighborhood will only attract an average basic family income (say the neighborhood average income is $40k) with some distortion based on no financial motivations. So if we all agree that we can approve a prospective rental applicant who meets a 3X gross income -what would be the average rental rate in that neighborhood (assuming all other variables are constant/equal)? $1111.11/mo. That's at gross income of $3,333.33/mo before taxes, insurance, and perhaps -401K. I then go to the credit report and then deduct car, credit card, and any other monthly obligations. Then think about utilities, food, gas, cloths, entertainment, etc., etc. In today's environment that can even be a challenge with the amount of times we are left analyzing shattered credit looking for any signs of viability let alone stability. So what can the average applicant for this neighborhood really afford? Do you see were I'm going with this?
I've got one Landlord trying to rent his home for $1250/mo in this average neighborhood were the average affordability rate is $1111/mo and we probably are facing credit headwinds that say the average prospective applicant cannot even afford that. I often get blank stares when I say that I would rent the home for $995/mo. Now -before you blow me off in a tirade and put the blinders on just let this sink in. Sure, I understand the difference and potential for lost cash flow compounded over 30 years. What my macro goal is to create a relationship where my rental resident wants to (let alone has the ability to) stay in my home for the long term. I make more money and (just as importantly) have less headaches, and time constraints when I can master the art of promoting long term tenants who stay 2, 3, 5, 15+ years versus another landlords annual tenant turnover rate. Did you read my ÒSlow the TurnÓ article? If on average one prices above the market rent, odds are that they will help accelerate their tenant turnover rate. Yes if one over improves a house (even for the neighborhood) one can reasonably assume they may get an above average rental rate; however, people rarely appreciate improvements (let alone over improvements) versus cost. What I find is that over time (and within the 1st year), the tenant that will pay for it to move in often will move on for a better deal more associated to daily living costs versus fit and finish details based on that particular neighborhoods norm. Ok -so our you now saying "Great -how does that help me now in today's environment and what I've paid/owe on my current rental investment portfolio?" I'm not advising change if your business plan works; however, if it isn't look at what changes you can create both long-term and short-term. If your in this for the long-term, then you are probably looking to add new rentals to your portfolio. What I challenge you to do is access your market rents for the neighborhood before buying that rental property and thus, adjust your purchase price variable based on this market rate. Believe me. I want as much monthly positive income as possible too. However, I've discovered I make more monthly positive income over the long term by not fighting individual neighborhood market rates. This is why I'm a big believer in purchasing in neighborhoods I believe that will appreciate at a greater rate then the city average. Guess what happens when this occurs? When a neighborhood is appreciating (on average) at a rate greater than the city average, that means the desirability of that neighborhood (location) is improving and attracting buyers that have greater purchasing power (average neighborhood income is increasing), and thus not only increasing the value of my rental investment but the average rental rate (and, thus cash flow) too! That's a mouthful -huh? As a landlord, we are focusing on creating a steady stream of positive cash flow and wealth over the long term. Remember being a landlord is primarily a long term wealth creator. Quit thinking all about today and focus on the big picture. Tyler McCracken The GOAL OF THIS POST -is to provoke thought! If turnover is constant with your landlording, then it's something to consider. This only looks at one economic constant from the scientific data and doesn't even take the Art of Landlording into context. Part 1 of a REAL Real-Estate Investor's viewpoint of achieving Maximum Cash-Flow with Rentals.
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Correction: Higher 1099 Penalties Effective This Year, TY2010. (9-29-2010) 1. Increased Information Return Penalties: The bill increases the penalties for failure to file a correct information return. The first-tier penalty increases from $15 to $30, and the calendar-year maximum increases from $75,000 to $250,000. The second-tier penalty increases from $30 to $60, and the calendar-year maximum increases from $150,000 to $500,000. The third-tier penalty increases from $50 to $100, and the calendar-year maximum increases from $250,000 to $1,500,000. For small business filers, the calendar-year maximum increases from $25,000 to $75,000 for the first-tier penalty, from $50,000 to $200,000 for the second-tier penalty, and from $100,000 to $500,000 for the third-tier penalty. The minimum penalty for each failure due to intentional disregard increases from $100 to $250. This provision applies to information returns required to be filed on or after January 1, 2011. (Tax Year 2010) Read the full TEXT of the 1099 items in the "Small Business Jobs and Credit Act of 2010"
For those of you who are interested in new tools for 1099 reporting, the following is a quick summary: 2010 Regulatory Tax Compliance, Withholding, & Accounts Payable Conference - November 14th to 17th at Royal Pacifc Resort in Universal Orlando¨. Conference
Brochure (2.43mb, PDF) www.TINCheck.com
- TIN Name Matching, OFAC/SDN identification on the US TreasuryÕs watch list,
USPS address validation. www.1099Pro.com - 1098, 1099, 392x, 5498, 1042-S, W-2, W-2G, and CA 592 Software. Sincerely, 818.876.0200
From: palmeem@aol.com <palmeem@aol.com> Subject: Flood Maps and Insurance Update Date: Friday, October 1, 2010, 7:43 AM
The Federal Emergency Management Agency (FEMA) and the U.S. Army Corps of Engineers are in the process of redrawing the nation's flood maps.. According to information provided by the Federal Emergency Management Agency (FEMA) Five levee systems in Madison, St. Clair and Monroe counties do not provide an adequate level of protection, and 150,000 people will now be included in a newly revised flood plain zone. FEMA indicated at the levee summit that the U.S. Army Corps of Engineers provided them with information that the Wood River, Chain of Rocks, Prairie Du Pont, Fish Lake and the Metro East Sanitary District levees do not meet the standard for protection in case of a 100 yr flood. (this means that there is a 1% annual chance of a flood). The problem with each of the levee systems is under-seepage. The Corps describes underseepage as water pushing into the sand layer under the levee and causing swirls or voids. They have indicated that over time, the water would dig away at the levee, causing it to collapse.
The plan would call for the owners of all properties that fall within these new boundaries to carry national flood insurance and any new construction would require flood-proofing requirements. (Flood insurance is required on funds secured from any federally regulated financial institution. So if you owe money to the bank on your home or property, those amounts would have to be insured.)
To view the flood plain maps for Madison county you can go to http://www.illinoisfloodmaps.org/. These are preliminary maps. The final determination for the flood maps will be published in June 2011. They will become effective December 2011. There is a six month period, before maps become effective, in which the community updates, revises, and adopts ordinances to comply with the new FEMA maps. During this six month period a county's status is considered final. If you have a problem reading the maps, Landlords can check at their zoning offices to see if their properties fall within the new flood plain.
The House passed H.R. 5114, the Flood Insurance Reform Priorities Act of 2010. The bill contains provisions authored by Costello that would prevent mandatory purchase requirements for flood insurance from taking effect for five years. It also phases in flood insurance rates over an additional five years. The provisions are based on H.R. 3415, legislation introduced by Costello last July. Like H.R. 3415, H.R. 5114 requires local jurisdictions to have an evacuation plan and an outreach and communication plan in place, advising residents about local flood risk, the availability of flood insurance and the potential consequences of not purchasing insurance. Costello has been working on issues of FEMA flood remapping and its effects on flood insurance for several years. This Bill has not passed the Senate. I am checking on the Senate. While this bill may push out the mandatory provision for buying insurance, if you wait I believe you will still have to pay the high risk as opposed to the preferred rate. Insurance can be bought directly from the government agency at the preferred rate up until the maps go into effect in Dec 2011. Lower rates are available for the life of your insurance policy if the policy is purchased prior to new map effective dates.
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