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by ARLnow.com Sponsor — January 11, 2017 at 2:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

The formation of a Limited Liability Company (LLC) entity can be extremely useful if you are a rental property owner. It allows you to protect your assets, gain tax benefits for your rental property, and manage any property ownership transfers in a more convenient way. This article explores the legal, tax and property transfer benefits of holding your property in an LLC, rather than keeping it under your name.

Asset Protection

If you elect to form an LLC and transfer your rental property to the LLC, any judgment against the property will extend only to the LLC and not to your personal assets. In essence, the LLC offers you liability protection against a lawsuit or against creditors who might seek to make claims on your assets. It is also generally recommended that you place each rental property you own in a separate LLC. This provides additional assurance that any judgment against one property will not affect the other properties. Moreover, in many states, creditors can seize a property if it is owned in your name. If it is in an LLC, however, creditors may be limited to placing a lien on your property. Although types of liens vary, a lien may allow a creditor to claim any cash distributions from the LLC to its owners, and may also entitle the creditor to have the right to any proceeds from the sale of the property. In D.C., for example, a judgment lien can be attached to your rental property for up to 12 years. Other liens, which may be attached to the property, will impact a creditor’s ability to collect funds under a judgment lien. Creditor-debtor laws do vary by jurisdiction, and you should research your state’s regulations to understand the rights and obligations that debtors and creditors have under the law.

You can further protect yourself by adding a liability insurance policy for each property, as well as purchasing an umbrella policy to provide additional liability coverage beyond the limits of your primary insurance policies. Placing your rental properties in an LLC and buying additional insurance for them offers you a double layer of protection in the event of a lawsuit.

Tax Advantages

An LLC can be taxed as a sole proprietorship, a partnership, a C corporation or an S corporation. For rental property ownership purposes, it is best that an LLC is taxed as a sole proprietorship or a partnership. This is because any income will flow through to the individual members of the LLC and it will be reflected on their tax returns. In this case, the company will not have to pay any federal income tax and its owners can take advantage of tax deductions for the rental properties held in the LLC.  You would be eligible for the real estate depreciation deduction, but will also have to pay capital gains taxes when you sell the property. However, there are options to defer capital gains taxes, such as a 1031 exchange, if you sell one property and reinvest the sale proceeds into another property of like-kind within a specified time period.

Property Ownership Transfer Benefits

When you transfer your rental property into an LLC, you can create units of ownership with a specific value and allocate them to any other members of the LLC. This offers an easy way for you to designate ownership in the property to other family members, rather than updating property deeds to reflect changing ownership interests. Ownership interests can also qualify for several valuation discounts, depending on the structure of the LLC, the terms of its operating agreement, and the division of ownership interests among its members. Since these valuation discounts can reduce the overall value at which ownership interests are valued, they can have a significant impact on gift taxes and estate taxes when interests in the property are transferred between LLC members.

For more information about the benefits of placing your property in an LLC, see the following:

by ARLnow.com Sponsor — December 28, 2016 at 3:00 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

Trusting your valuable property to tenants is often a difficult enough step. When you live far away from the property, being a landlord is even more challenging. Many owners worry about whether things are going smoothly and struggle to stay informed without racking up big travel bills to check on the property. If there are problems, it can be difficult to manage repairs or legal issues from hundreds of miles away.

Long distance rental property owners need to make sure properties are managed well. Here are some factors to consider and tips to make sure you’re valuable asset is taken care of even when you can’t physically be there.

  • Is hiring a property manager necessary?

Some owners delegate the job of dealing with the rental to family or friends. But managing rentals — overseeing contractors for repairs during the workday, answering middle-of-the-night emergency calls or handling tenant complaints — often involves more time, attention and expertise than they can provide.

In addition, proper management of your investment property requires a proactive, not reactive, approach. Professional property managers can provide your property with the attention it deserves. They have the experience to anticipate any potential problems and market knowledge to reduce vacancy times. This will not only help you lower expenses and possibly increase revenue, but it will also give you peace of mind. From rent collection, leasing, and maintenance to accounting and due diligence issues, the right property manager will make a big difference in how your property is maintained and appreciates over time.

  • How can you obtain a good return on your investment?

To make sure that your asset continues to provide you with a good return on investment, examine your expenses in the context of your revenue stream. The rent you receive is your income from the property, but your expenses include everything from marketing, to property maintenance and repairs, as well as tenant evictions. As a landlord, you may face unexpected issues in one or more of these areas. A professional property manager would be able to step in and handle any problems. Not only will this result in decreased vacancies and lowered expenses, but it will also increase your return on investment.

  • How can you stay informed about your rental property?

When you live far away, you’ll need a good way to stay informed about your property. After all, you can’t just drive by. Some owners rely on receiving rent payments to assure them that everything’s going well. But tenants who pay rent can still create problems or unwittingly allow property issues to worsen. Rent payments don’t tell you what’s going on inside the property.

Professional property management companies often use the latest high-tech software to give owners a virtual window into their rental property. The software gives you secure anytime online access to rental agreements and financial statements along with updates on inspections, property maintenance and marketing efforts. Some managers even post inspection photos to give owners additional peace of mind. Whenever you want to know how things are going, you can just log on. The software also allows gives owners another way to communicate with management, in addition to phone calls and directly e-mail.

Many property owners choose to manage their own rentals. But living far from the rental is the factor that often tips the scales away from self-management. Once you factor in the costs of traveling to the rental and the headaches of dealing with even routine property issues, it will likely balance any fees paid for professional management. And ultimately, professional property management services will result in the continued maintenance of your asset while potentially reducing property expenses and increasing return on your investment.

by ARLnow.com Sponsor — December 14, 2016 at 2:45 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

Pop-up stores are popping up everywhere.

The pop-up retail phenomenon, once known as flash retailing, has grown in recent years. A pop-up store is a short-term, temporary business that sets up shop in an unused open space, storefront, or within an existing store. It is rented for a fraction of the cost of a long-term space and is a cost-efficient way for a retailer to increase its brand awareness and make a profit. A retailer will rent a pop-up space for as little as one day to upwards of a few months.

Standalone pop-ups come in many shapes and sizes and are found at different locations. They can include vendors, restaurants, and exhibits. Pop-ups sell almost anything: books, art, clothing, cosmetics and beauty supplies, jewelry, music, art, food, and seasonal items. They are set up where there is much foot traffic (due diligence will help a retailer choose an accessible, busy location.) These pop-ups can be located in a marketplace–such as a stand at a crafts fair or farmer’s market–or inside a shopping mall that embraces pop-ups as a way to fill vacancies and keep shoppers coming back. They can also operate as a gallery space, standalone kiosk, college campus store, a collection of tables in a parking lot or on a side street, a booth or a tent in a public park or town square, or a food truck or motorized vehicle.

While the concept is popular among small business owners, major retailers such as Walmart, Toys “R” Us, Ann Taylor, Nike, Target, and Lexus have integrated pop-up concepts into their marketing strategies to extend their brands.

An example is Toys “R” Us, which has 30 outlet center pop-up stores. Toys “R” Us started opening pop-up outlets in 2010. On July 1, it opened a new location at the Jersey Shore Premium Outlets in Tinton Falls, NJ. Its outlet stores average 2,500 to 5,000 square feet. The store features products not found at its brick-and-mortar or online sites.

A building owner is likely to be willing to rent out storefront space to a pop-up retailer for a short time rather than not rent it out at all. Also, the owner still has the chance to book a higher-paying tenant later on.

Another pop-up trend is the “store within a store” in which space is rented to a retailer within an established store. This helps the store owner offset rent. In this scenario, pop-up retailers often will match their wares with the building owner’s merchandise.

An example is at Nordstrom, which hosts its own [email protected]” specialty pop-up shops, which are a recurring series of retail products not typically found in a Nordstrom store. Jewelry retailer BaubleBar, which began as an e-commerce retailer, opened a pop-up within Nordstrom department stores before recently expanding into its own retail shops. And in 2015, London-based designer goods retailer Liberty set up within five U.S. Nordstrom locations. Another example is in New York City, where menswear retailer Rothman’s added a 750-square foot pop up shop inside its Park Avenue location to host emerging designer brands. Rothman’s rotates its pop-up tenant every six weeks. Other retailers such as Best Buy and Sears have also been successful integrating pop-ups.

There are a number of benefits to pop-ups. They can provide a starting point for someone just starting out in retail who is looking to generate brand awareness or experiment selling different products. They also give a digital retailer an opportunity to engage its customer’s offline.

Customer engagement is a strong reason to open a pop-up shop. As with commercial real estate, location is the key. A pop-up retailer has the advantage of identifying locations where customers are most likely to be, thus providing built-in foot-traffic. Scouting out the location will also identify if there is parking nearby and whether the location is accessible by public transit.

A pop-up space provides a move-in ready small space without the concerns of committing to a long-term lease, getting insurance, managing staff, and operating much equipment. Typically there are fewer costs on inventory, equipment, physical appearance, and labor. Some pop-ups serve as stepping-stones to permanent business locations, thus helping a local economy.

A critical step for a pop-up store is having a budget. This includes budgeting for inventory and rent, the design of the space, marketing and promotion, a window display and signage, Internet access, and even food and beverages for customers.

There are pop-up pitfalls. Some of the most common are the wrong location; not promoting the event on social media; not distributing flyers and promotional material in nearby cafes and shops; not having a launch event (think food and balloons); not having a window display or signage; not installing Wi-Fi; not having a welcoming atmosphere; not scheduling setup and breakdown time; and staying in a location too long.

There are organizations that help pop-up shops get set up. Launched in 2012, Chicago-based PopUp Republic has helped promote 30,000 pop-up shops, restaurants, events, and spaces and has worked with large brands to create and execute pop-up concepts. Pop-up retailers can visit PopUpInsider.com for lists of available pop-up spaces, and Storefront.com helps brands find temporary retail space from commercial real estate owners. Popupmarketplace.com allows property owners in need of tenants to list their temporary pop-up spaces. New York-based Lionesque Group is a pop-up architect and has produced award-winning pop-up shops for large brands.

According to a PopUp Republic poll, pop-up shoppers look for unique services and products, localized assortments, optimal pricing, convenience, and a fun experience.

For Washington D.C. business owners who lack resources and finances, pop-ups provide a viable and creative alternative to an expensive retail space. Recently, Washington D.C. pop-ups have grown in appeal. For example, in June digital fashion retailer ModCloth set up a pop-up inside the old Urban Chic space in Georgetown for a one-month stint. Today, Washington D.C. pop-ups offer products and services that include fashion, cosmetics, arts and crafts, farmer’s markets, beads and jewelry, eateries, coffee, chocolate, bike repair, and even supper clubs.

Both small and large retailers are embracing the pop-up trend. A pop-up store is an exciting and creative way for new retailers to test the waters, or for existing retailers to expand their niche. Having a brand, budget, and a location will give retailers the keys they need to pop-up success.

by ARLnow.com Sponsor — November 30, 2016 at 2:45 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

Commercial developers are venturing into virtual reality technology as a way of allowing prospective tenants to visualize and experience a space — even before it is built.

The trend

One of the biggest technological trends over the past decade has been the ability to create and visualize 3D representations. While most of these technologies have been developed for the gaming and entertainment industry, virtual reality has grown into having key applications in real estate by allowing potential tenants and buyers to take a simulated “tour” of a property.

According to a recent study by Goldman Sachs Research, virtual reality will become an $80 billion market by 2025, with $2.6 billion being targeted for real estate. More commercial developers and brokers are currently exploring the virtual reality trend as a key tool in selling or leasing potential spaces.

How it works

Commercial developers have begun using 360-degree video systems throughout their properties to record spaces. The recordings are edited together to create an interactive projection — or simulation — of the interior spaces and surrounding landscape. Potential tenants and buyers are able to view the 3D simulation using virtual reality software applications on a phone, computer or tablet.

The technology gives the illusion of walking through a space and allows the users to look around in different directions from multiple vantage points, feeling as if they are actually touring the property in person. Users can click or scroll on their device to navigate through a space and zoom in on particular features. Some of the 3D applications require special headsets.

Potential prospects can also tour a potential property before construction has even begun.

Some of the main providers of virtual reality applications and 3D gear include Facebook Oculus, Samsung Gear VR, Google Cardboard and HTC Vive.

Uses and benefits

Whether touring an existing property or one being developed, the virtual reality software applications will let users experience:

  • Floor plans and square footage of spaces
  • Views from windows
  • Natural light at different times of day (sun and shadows)
  • Interior lighting
  • Floors and ceilings
  • Landscaping
  • Changing finishes, furniture, textures and colors
  • Parking features.

Among the most valuable benefits of virtual reality systems and applications include:

  • Potential prospects can take a virtual reality tour of a commercial property anywhere from their laptops or mobile devices without having to set up appointments or travel.
  • You can showcase multiple properties at the same time.
  • Instead of traditional architectural renderings, virtual reality breaks down design concepts with minimal effort.
  • Users with accessibility issues can reach all parts of the space.
  • Research shows a higher level of engagement by real estate customers when experiencing virtual reality.
  • A virtual tour will last many years until renovation of the property.

The cost outlook

One hurdle for widespread use of virtual reality in commercial real estate is cost, which can run into the thousands of dollars depending on the scope of the project. The cost of hiring a professional to shoot 360-degree videos can be $3,000 or more. Gear such as headsets are available for under $1,000.

For example, 3D interactive headsets that debuted this year include Oculus Rift at $599 and HTC’s Vive Pre at $799.

Because virtual reality hardware companies are continuing to innovate, however, the costs of virtual reality applications and 3D gear are likely to come down. Commercial developers should also weigh the time-saving potential and the cost-savings of not having to arrange and conduct actual physical tours of their properties.

Transforming the industry

A commercial virtual tour has the potential to increase interest in your property and simplify your sales efforts. This can provide you with a competitive advantage.

While virtual reality technology will likely not replace a physical building tour and still has a way to go, virtual reality stands to play a key role in transforming the way commercial developers and brokers do business in years to come.

by ARLnow.com Sponsor — November 16, 2016 at 2:45 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

If, after reading our article on why it’s a good idea to hire a property management company, you decided to move forward on that, you might wonder what to look for in a property management company. The process requires a careful assessment of your needs, budget and goals as a landlord.

There are several factors to consider before choosing a property management company:

What are your needs and do the company’s services match them?

A property management company should be able to handle the entire rental process for your property — from advertising and marketing the unit to tenant screening and collecting rent once a tenant has been found.

Once a tenant has been placed, key tasks property managers handle include: preparing leases and enforcing the lease terms, inspecting the property regularly, overseeing all repairs, landscaping and other maintenance. A property management company should also have a sophisticated system to track rent collection, notify you of any property issues, document all financial transactions and provide you with regular reports of income and expenses. Because the company should handle all communication with the tenants, great customer service and the ability to maintain positive relationships with tenants are critical.

If you own a DC rental property, for example, but live here in Arlington, you are legally required to provide the city with the name and address of a resident agent based in D.C. Since the resident agent can be an individual or a business, you can use the services of a DC property management company, which can receive any communication on your behalf.

What is the company’s fee structure?

Ask for details about the company’s fees and what services they cover, before you sign a contract. This is an area where companies differ.

  • Is there a flat percentage fee for an all-inclusive package or does the company charge different fees for separate services?
  • Are there extra charges for specific services or items?
  • For repairs, does the property management company add a percentage “mark-up” fee to contractor’s invoices?
  • How often will you be billed for the fees?
  • Who will be responsible for handling your property?
  • Find out whether the company will designate a dedicated property manager for your property. If so, find out whether the manager is licensed and how much experience he or she has, including experience managing properties similar to yours. Find out the company’s procedures for handling issues that might come up when your manager is busy or on vacation.

How and when can you and the company communicate?

When you have a question, will the company answer quickly? The company’s availability and responsiveness to you and to tenants matter. Note their hours and learn how they respond to owners questions and how they handle urgent and emergency property issues that occur outside of those hours. Do they have 24-hour emergency service?

Some companies have sophisticated property management software that allows owners to securely view their property records and monthly reports online anytime. If the company doesn’t have that, find out when and how the issue reports.

Decide how often you want your manager to contact you with updates. In addition, it is wise to set limits on how much the company can spend on repairs without your approval.

Does the company have good references?

Request and call multiple references from the company. Has the company managed properties comparable to yours? How many additional properties does the company manage? How do they divide their time to address issues at different properties?

These questions can help you start the process of selecting a property management company for your rental property.

by ARLnow.com Sponsor — November 2, 2016 at 3:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and homeowner associations. Please submit any questions in the comments section or via email.

On the surface, becoming a landlord seems like a simple decision.

You choose a property, invest just enough to turn a profit and choose a credit-worthy tenant. The rent is paid on time, nothing ever breaks, and your monthly rental income is sufficient to cover your mortgage (if you have one) and monthly maintenance expenses.

Unfortunately, things don’t really work that way and even a credit-worthy tenant can cause cash flow issues. Nothing ever works perfectly all the time, and you may operate at a loss until you have sufficient equity in the property.

If you’re renting a property that’s thousands of miles away from your location, you also have to worry about how well the tenants are taking care of things since you’re not physically present.

While you may be able to hire an individual to take care of your property, without the proper experience, resources and knowledge you may be wasting precious dollars.

Do you really need a property manager? It’s up to you to decide, but here are some of the issues you may face if you choose the DIY route:

1.   Legal

Leasing agreements are complicated. And while you can easily pick one up at the nearest Staples, these generic agreements may not be legally sufficient in the area you choose to invest in. Because DC is not a state, the agreement may need different language and might not hold up in court.

Though you can hire an attorney to draft one for you, when it comes to enforcing the agreement you’re left to your own devices. If this is your first time as a landlord, you may not know when it’s appropriate to secure legal counsel to help before things get out of hand.

2.   Physical

This is particularly difficult if you are a long-distance landlord. You need to conduct inspections on both the outside and inside of the property on a periodic basis. But you cannot waltz in anytime you choose and depending on the terms of your leasing agreement, you may not be able to go in without prior notice.

If the exterior of your property is showing signs of neglect, chances are the inside of the property is as well. A good property manager can drive by a property and make an accurate assessment.

If the grass isn’t mowed and the exterior of the home shows signs of recent damage due to negligence, vandalism or weather, it’s probably time for an interior inspection.

(more…)

by ARLnow.com Sponsor — October 19, 2016 at 2:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

When searching for an investment property, you might be faced with the decision to buy a fixer-upper or a home that’s already upgraded. It’s a common question, particularly from those making their first excursion into the income property arena. There are numerous right answers, requiring your thoughtful consideration of multiple factors before you make the leap.

Make your evaluation in light of the three most important rules of real estate:

  1. Location
  2. Location
  3. Location

Whether you buy a home to occupy or rent, a desirable location supersedes all other considerations. Sure, you might find a seemingly fabulous “deal” on a property. However, if it’s in an undesirable location, you’ll face one or both of these challenges:

  • Difficulty finding good, qualified tenants
  • Needing to charge lower rent to entice tenants

Either of these issues will potentially lower your income, cash flow and profits. Despite self-help articles and books written about getting rich with real estate, owning, maintaining and managing rental property requires hard work. Sure, you’ll enjoy tax-deferred gains while you own the property and favorable tax treatment when you sell, but profits depend on your ability to generate sufficient cash flow to make mortgage payments and pay operating expenses.

Do you really want to risk the cost of having zero rental income while you spend months finding qualified tenants? Or, being forced to lower your rent by 30 to 50 percent just to attract appropriate tenants? Investing in a desirable location can help you avoid these issues.

Fixer-Upper Differences

Real estate fixer-uppers come in a variety of flavors. Ask yourself a few critical questions to make the right decision for you.

  • How handy with home repairs are you? What can you do well and what repairs will you need licensed professionals to do?
  • Do the properties you‘re considering just need some TLC (thorough cleaning, paint, new carpet, etc.) or major system repairs (electrical, plumbing, HVAC, roof, septic or sewer, etc.)?
  • What will necessary repairs or improvements cost you? Is it possible to recoup the cost of repairs with higher rental income or greater appreciation in value when you sell?

Your honest answers to these questions help you determine whether a fixer-upper or rehabilitated rental property is your best option. Further, evaluate the cost difference between buying a rehabbed home and the costs of fixer-upper “deals” plus what it will cost to fix them. Don’t forget to factor in the cost of mortgage, insurance, etc. while it sits vacant during repairs.

To help you judge if you are really getting a deal on a fixer-upper, consider the following:

  • Be sure your math works. Estimating the cost to upgrade the property versus buying a property in good shape must work in your favor, at least on paper. Add 10 to 25 percent to your estimate to avoid unwelcome and costly surprises to your budget.
  • Seriously consider houses needing minimal repairs.
  • Choose fixer-uppers only if you have the time, energy and some ability to do part of the fixing.
  • Order a full inspection from a proven, thorough home inspector.

Finally, even if you own only one rental property, consider hiring a quality property management firm in your area to save you time and headaches and give you cost control.

Source

by ARLnow.com Sponsor — October 5, 2016 at 3:50 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

If you are moving and considering renting out your home rather than selling, there are a multitude of details to consider before renting out your home, such as should you hire a property manager or rent it out yourself? Regardless of your decision, here is a checklist to get your house ready to rent.

Start the process at least six weeks out.

Start even sooner if you’ll need to have some work done to make the rent ready. You’ll want the home to be at its best before you start showing it to tenants, and many tenants start looking for a home four to six weeks prior to their move date.

Spruce it up.

Spend some time and money to give your property a coat of fresh paint, plant some flowers, de-clutter and clean thoroughly. Quality tenants want a clean home that makes a great first impression. This guide offers more tips you get your property ready to rent.

Change your insurance.

Your homeowner’s policy isn’t enough to cover you when you become a landlord. Before you sign a lease, be sure to consult with your insurance agent and get a landlord’s policy, also known as a dwelling policy. Find out more about landlord’s policies.

Get Legal.

Research the laws in your area and obtain any required licenses and inspections. In most jurisdictions, being a landlord is considered a business that requires a license, even for a single property or basement unit. Some cities (like Washington, D.C.) require inspections and a certificate of occupancy before you can legally rent out your home. Learn the requirements for becoming a landlord in Northern Virginia.

Decide if you’ll accept pets.

You’ll have a larger pool of tenants if you’ll consider furry companions, but make sure you have strong tenant and pet policies in place to prevent costly damage, noise and other pet-related problems. Determine whether to charge pet rent or pet fees. You’ll find information to help you decide and develop good pet policies in this article.

Figure out how much rent to charge.

Research the market for homes or units similar to yours in size, location, amenities and condition. See how much those comparable homes are charging and whether they rent quickly.

Create a marketing plan.

Think about your likely renters and decide where to post your listing to attract the largest pool of qualified tenants. Write an ad highlighting your property’s best or most in-demand features and take high quality pictures that show it in the best light. Learn more about how to market your rental property.

Develop a comprehensive tenant screening process.

Thorough screening is the key to making sure you get a great, qualified tenant instead of a nightmare. Screening should include pulling a credit report, criminal history, and eviction history as well as verifying employment and checking references. In addition, having a systematic process that you use for every applicant will help you avoid potential discrimination charges.

Have an iron-clad lease.

A lease outlines rights, rules and responsibilities for you and your tenant. In case of a disagreement or problem, a well-written lease will help protect you. To make sure you are adequately protected and that your lease follows all applicable laws, you may wish to consult an attorney. Get more information on leases and rental agreements.

Consider hiring a property management company.

A management company can help with or take care of all of the tasks above. And they’ll be there to handle anything that comes up after the tenants move in, too. Moving is stressful enough without worrying about starting a new business as a landlord at the same time. The value of professional property management is even greater if you’re going to live far from your rental property. Download our free guide to Working with A Property Management Company.

by ARLnow.com Sponsor — September 21, 2016 at 2:45 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Reality shows, speaker circuits, how-to courses and book deals hype the dream of buying a house with improvement potential, revitalizing it and selling it for big profit. How much easier can making money be? According to these “experts,” one house can return as much profit to the savvy investor as an annual salary.

Of course, in reality, flipping houses is more involved than it appears. Prudent investors will exercise due diligence before spending a single dollar. They’ll also consult true industry experts, home inspectors and contractors to provide evaluations and cost estimates to compare against possible returns.

One of the biggest hurdles for first-time flippers is to balance the cash needed to buy the house with the cash needed to fund the rehabilitation. It is a big consideration and requires professional consultation to make a sound, profitable decision. Just consider the disclaimer for the A&E reality show, Flip This House: “Do not try this at home. It is for trained professionals. You will lose money.”

The difference between a flip and a flop

You are good with tools, have a flair for decorating and found a terrific bargain in an up-an-coming neighborhood – all the formulas for the perfect house flip. It is a no-brainer, right? So, where is the wrinkle? There are plenty of underlying considerations to evaluate before gambling on restore-resell investing.

  • Location — This can make or break the deal for potential buyers. Newer neighborhoods are attractive but usually come with higher purchase costs. Look for neighborhoods that are nearly complete. It is very difficult to compete with builder incentives for brand new homes when you are selling a previously occupied home. Good bargains may be found in situations where a builder abandoned the development and a house needs to be finished. Older neighborhoods on the cusp of revitalization also present good opportunities for aspiring flippers, but may require more skilled repairs and modernization.
  • Foreclosures — Many buyers interested in flipping a home look to foreclosures. Remember, if an owner couldn’t afford to pay the mortgage they probably couldn’t keep up the maintenance on a house. A foreclosed property may present a number of challenging — and costly — underlying issues for investors.
  • Neighborhood crime — Crime not only affects the appeal of a house to potential buyers. It also affects the restoring and reselling process. Empty houses make a prime target. Theft, vandalism, drugs and squatters can add thousands of dollars and hours of time to the process of restoring a property for resell.
  • Relative market value — An important consideration in restoration planning is the aggregate value of the neighborhood. According to experts, over-improving for the market is a big mistake house flippers make. If the average home in a residential area sells for $100,000, it isn’t wise to invest $100,000 in remodeling and upgrades anticipating a $250,000 sale. You’re unlikely to find a buyer willing to spend that much, and if you do, it will be tough for them to obtain a mortgage for overvalued property.
  • Contingency plan — There is an old saying that any plan is only as good as the backup plan. This is especially true for investors looking to flip a house. Beyond the initial purchase and reconstruction costs there are ongoing mortgage payments, insurance, utilities and other costs of keeping the house in the event it fails to sell quickly. Many investors rent homes out for income until the market improves.

Restoring and reselling may be a great option for getting in to real estate investing for future financial gain, but, as with any speculation, a prospective buyer should first invest the time and effort to do necessary homework on the deal. Assemble a team of trusted experts: a lawyer, accountant, real estate broker and contractors. Despite the implication, flipping a house may not mean a quick profit. But with diligence and some good old-fashioned elbow grease, it is possible to come out ahead.

The real estate professionals at Gordon James Realty are experienced in all areas of real estate investment. With more than 30 years of combined experience, they understand the complexities of the market and can help with your property investment opportunities.

by ARLnow.com Sponsor — September 7, 2016 at 2:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Finding and selecting a property management company to manage your most valuable asset(s) is no small feat. The stakes are high — you’re looking for a firm or person you can trust to take care of a very valuable investment, maybe even your own home. And not everyone uses the services of a property manager, so recommendations from family or friends may be hard to come by.

Because of this, some property owners fall into the trap of picking the company that’s been in business the longest, manages the most properties or has the largest number of employees.

Here’s why that by-the-numbers approach is a mistake, along with some advice on what you should be looking for instead.

Longevity doesn’t equal quality.

Plenty of firms boast about how long they’ve been doing business. But professionalism, ethical behavior and responsiveness are all far more important than a long tally of years on the job. Developing the expertise to do the job well takes time, but not decades.

In fact, longtime businesses sometimes get stuck in the rut of doing things the way they always have, rather than innovating to keep up with changing markets and client needs.

A balance of experience and innovation is optimal. You want a company or manager that has learned the ropes but also has fresh ideas. Interviewing the company, looking at the types of properties they manage and checking references should give you a good idea of how well prospective firms know the local market and the job.

An ideal firm has embraced some new ideas and technology, especially property management software that allow owners to check property records online anytime. That transparency will bring priceless peace of mind.

Bigger companies aren’t necessarily better.

Can you think of a retail giant that has generally poor customer service and is an unpleasant place to shop? We thought so. Quality doesn’t necessarily increase with size.

Size may come with some advantages, such as financial stability and buying power with local vendors, but it isn’t just the big guys that offer these. And you and your home may just be an address number to a company managing thousands of properties. With that many clients to juggle, firms can be slower to return phone calls or let service slip in other ways.

Aim for the middle ground instead. Find a company that manages enough properties that they’re market experts but not so many that they’re likely to be spread thin. These medium-sized companies likely have the key perks of their larger counterparts, including in-house maintenance and preferred pricing from vendors, so you’ll get a good deal and fast service on any repair work. They’ll have plenty of clients to support the business but not so many that they can take you for granted, so they’ll work hard to keep clients happy.

The number of employees is less important than the quality of employees.

The company you’re considering has hundreds of employees. But how many are licensed managers? Do they all know the market and landlord-tenant laws in your area? Whether you’re thinking of hiring a firm like this, a boutique firm with one or two employees, or something in between, the managers’ qualifications and skills are paramount.

Learn about company practices and employee qualifications. Make sure any managers are licensed and keep their skills fresh. Beyond that, ask the company what other qualities they look for in managers. A professional manner, organization, responsiveness, and excellent customer service should top the list.

How the company assigns managers is also important. Some give owners a dedicated manager, so they have a single, familiar point of contact. At other companies, all managers work with all clients. Companies with both dedicated managers and a team approach offer the best of both worlds. Owners get the benefit of personalized service and the expertise of the entire team.

Looking beyond the numbers when picking a property manager may require a little more homework. But when you can relax, knowing your property is in good hands, you’ll be glad you took a more thorough approach to choosing a property manager. To help you get started, we have a free ebook you can download on the benefits of hiring a property management company and interview questions to ask.

by ARLnow.com Sponsor — August 24, 2016 at 3:50 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Real estate investments should be made on their potential to produce a good return (ROI) and consistent cash flow. Experienced real estate investors use financial metrics such as net present value, internal rate of return, and capitalization rate to evaluate real estate investment opportunities.

Let’s explain:

Net Present Value (NPV)

The net present value (NPV) is a good place to start. The formula provides a broad overview of the value of future earnings in contrast to money invested in the present.

The metric isn’t perfect, but it does give you an idea of whether you’ll gain or lose on a property. Because of that, it’s a good calculation to use when deliberating between a couple of investments. It should always be paired with other financial data before coming to a final decision about a property.

Internal Rate of Return (IRR)

The internal rate of return (IRR) is the discount rate, or interest rate, used to produce an NPV of zero. Generally, the higher the IRR, the better. It means that an investment has less risk associated with it.

However, the IRR calculation, like the NPV, is influenced by cash inflows and outflows, inflation, and other factors throughout the years you hold the property. It should be combined with other financial metrics to develop a clearer picture of your real estate investment portfolio.

Capitalization Rate

The capitalization rate is more often termed “cap rate.” It measures the rate of ROI and is based on the annual net operating income (NOI) of the property. It’s a simple way to calculate potential returns and compare them against current market trends.

Like other calculations, the cap rate has limitations. It only analyzes one year of prospective NOI, a number that doesn’t and often cannot account for expenses like taxes or financing costs. While it’s a good number to have in hand, you should always view it as an exploratory, rather than final, number when evaluating real estate investment opportunities.

Real estate can be highly lucrative. However, it requires careful consideration and an understanding of some basic financial metrics. Always evaluate your real estate investment opportunities’ NPV, IRR, and cap rate before committing to one of them.

In fact, if you’re contemplating a property and would like some advice, we’re happy to help. Not only do we provide residential property management services, but we also counsel clients on their investments.

by ARLnow.com Sponsor — August 10, 2016 at 2:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Income property owners are likely aware of federal Fair Housing laws, but they may be less familiar with D.C.’s ban on discrimination based on appearance or other additional anti-discrimination protections that exist throughout the D.C. metro area.

The Federal Fair Housing Act prohibits discrimination based on race, color, national origin, religion, sex, disability or family status. But each state, city and county in the region makes it illegal to discriminate against several additional groups, known as protected classes.

Following are additional protections in each jurisdiction.

In D.C., landlords may not discriminate in housing based on: age, marital status, personal appearance, sexual orientation, gender identity or expression, family responsibilities, matriculation (being enrolled in college or other secondary education), political affiliation, source of income, place of residence or business or being a victim of domestic violence, sexual assault or stalking.

In Virginia, state law protects those who are 55 or older from age-based discrimination in housing. In Northern Virginia, both Arlington County and Alexandria outlaw discrimination based on sexual orientation and marital status. Alexandria also prohibits discrimination based on children and ancestry.

The variations from place to place make it crucial that landlords know and follow all federal, state and local laws when advertising property, selecting tenants, and working or communicating with interested applicants and tenants. Each year, about 10,000 housing discrimination charges are filed, according to the Department of Housing and Urban Development.

Discrimination can take many forms. A few examples include: imposing additional checks or requirements for some groups applicants and not others, overtly refusing to rent to someone in a protected class, refusing to allow a guide dog in a pet-free building, refusing to allow a tenant to make reasonable modifications to a property to accommodate a disability, and asking screening questions that are discriminatory or may be interpreted as being discriminatory against any protected group.

Professional, licensed property managers are required to understand all federal and local Fair Housing rental laws and ensure they are followed, both to safeguard the rights of applicants and tenants and to protect owners from legal trouble. Of course, a property manager can help ensure owners rely only on legal, relevant and consistent criteria for making decisions about applicants’ qualifications, such as credit history, income ratio and rental history. You can learn more about our property management services.

This article does not serve as legal advice and is offered only for informational purposes.

by ARLnow.com Sponsor — July 27, 2016 at 2:25 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Trusting your valuable property to tenants is often a difficult enough step. When you live far away from the property, being a landlord is even more challenging. Many owners worry about whether things are going smoothly and struggle to stay informed without racking up big travel bills to check on the property. If there are problems, it can be difficult to manage repairs or legal issues from hundreds of miles away.

Long distance rental property owners need to make sure properties are managed well. Here are some factors to consider and tips to make sure you’re valuable asset is taken care of even when you can’t physically be there.

Is hiring a property manager necessary?

Some owners delegate the job of dealing with the rental to family or friends. But managing rentals – overseeing contractors for repairs during the workday, answering middle-of-the-night emergency calls or handling tenant complaints – often involves more time, attention and expertise than they can provide.

In addition, proper management of your investment property requires a proactive, not reactive, approach. Professional property managers can provide your property with the attention it deserves. They have the experience to anticipate any potential problems and market knowledge to reduce vacancy times. This will not only help you lower expenses and possibly increase revenue, but it will also give you peace of mind. From rent collection, leasing, and maintenance to accounting and due diligence issues, the right property manager will make a big difference in how your property is maintained and appreciates over time.

How can you obtain a good return on your investment?

To make sure your asset continues to provide you with a good ROI, examine your expenses in the context of your revenue stream. The rent you receive is your income from the property, but your expenses include everything from marketing, to property maintenance and repairs, as well as tenant evictions. As a landlord, you may face unexpected issues in one or more of these areas. A professional property manager would be able to step in and handle any problems. Not only will this result in decreased vacancies and lowered expenses, but it will also increase your return on investment.

How can you stay informed about your rental property?

When you live far away, you’ll need a good way to stay informed about your property. After all, you can’t just drive by. Some owners rely on receiving rent payments to assure them that everything’s going well. But tenants who pay rent can still create problems or unwittingly allow property issues to worsen. Rent payments don’t tell you what’s going on inside the property.

Professional property management companies often use the latest high-tech software to give owners a virtual window into their rental property. The software gives you secure anytime online access to rental agreements and financial statements along with updates on inspections, property maintenance, and marketing efforts. Some managers even post inspection photos to give owners additional peace of mind. Whenever you want to know how things are going, you can just log on. The software also allows gives owners another way to communicate with management, in addition to phone calls and directly e-mail.

Many property owners choose to manage their own rentals. But living far from the rental is the factor that often tips the scales away from self-management. Once you factor in the costs of traveling to the rental and the headaches of dealing with even routine property issues, it will likely balance any fees paid for professional management. And ultimately, professional property management services will result in the continued maintenance of your asset while potentially reducing property expenses and increasing return on your investment.

by ARLnow.com Sponsor — July 13, 2016 at 3:45 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

Real life isn’t a day at the beach. But investors interested in vacation or resort properties can see that day at the beach in their future. Today, we look at the implications and advantages of investing in vacation property.

Of course, this investment opportunity isn’t just for beach lovers. You may prefer mountain vistas, country farmlands, a dessert oasis, or even the lights of the big city. No matter the type of location, investing in property where vacationers enjoy spending time is a big lure. It is enticing to think about purchasing a home in your ideal location to add to your portfolio. You can use it a bit yourself and then rent out for the remainder of the year – or at least during peak seasons – to help cover the mortgage and other expenses. The appeal is real, but there are serious considerations for the investor.

Real World Implications for Investing in a Vacation Home

Purchasing a second home can become a heavy financial burden for many owners. Regardless of whether it will be used as personal residence or an investment property, many experts advise against purchasing a second home unless you can pay for it with cash. In addition to the initial financing of a vacation home, owners must realize:

  • The property may be vacant 90 percent of the year
  • Upkeep is required for the property to maintain value
  • You’ll see increased insurance premiums
  • Security issues may need to be addressed
  • There may be significant tax repercussions

The U.S. Internal Revenue Service frequently changes the tax rules governing the use of second homes and investment class homes. Lending institutions also make loan determinations based on the declared use of a second home versus investment class residential property.

Personal Use

How much time you spend using your vacation home determines how the IRS classifies your property and what your tax obligations will be. A vacation home is considered a personal residence if the owner uses it more than 14 days a year or more than 10 percent of the total number of days the property is rented. In those cases, the IRS limits the rental expense deductions to amounts equal to or less than your rental income.

If you rent the home out for 14 or fewer days, you don’t need to report the rental income and you can deduct the mortgage interest as a personal deduction.

Rental Use

If a homeowner uses the residence for fewer than 15 days a year or less than 10 percent of the time the property is rented, the IRS considers the home an investment property for income tax purposes and you must report your rental income. Financial institutions also treat the home as investment class property.

If you use the home for more than 14 days and also rent it for more than 14 days, you’ll have to calculate the percentage of time for each use to determine how to handle deductions. So, if you rent out the home 25 percent of the time, 25 percent of deductible expenses, such as mortgage interest and repairs, can be deducted to offset rental income.

The Upside of Vacation Real Estate Investing

The complexities of investing in vacation property may seem daunting, but there is a financial upside. Most properties located in desirable, popular locations enjoy higher than average appreciation. Savvy investors seeking bargain purchases may also find sweet deals in vacation destinations, because second home sellers are often motivated to sell quickly and foreclosures can be more common. Fluctuations in markets can create significant gain or immediate losses in vacation real estate ventures.

Expert Guidance and Management

Vacation and resort property real estate presents exciting options for investors, but the risks are considerable. As with all real estate speculation, industry experts are the best source of guidance. Trusted accountants, lawyers, real estate agents, property management services experts and loan brokers make up the A-team for any successful portfolio.

Vacation and resort investments also require more marketing and property management work. Rather than finding suitable tenants once every few years, vacation properties typically turn over every week. Rental competition in the destination is often fierce. And with every new tenant the property becomes vulnerable to damage and wear and tear. Partnering with a solid, reputable property management company will help you protect the investment, especially if you live too far away to keep an eye on the property yourself.

Read more in our series Investing in Your Future.

by ARLnow.com Sponsor — June 29, 2016 at 2:30 pm 0

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This biweekly sponsored column is written by the experts at Gordon James Realty, a local property management firm that specializes in residential real estate, commercial real estate and home owner associations. Please submit any questions in the comments section or via email.

How much can rent increase in Washington, D.C.?

This is a common question we receive from DC landlords. It’s important to understand your rights and responsibilities and the rent increase laws in DC.

The following does not constitute legal advice, however it should provide a good overview. Please consult with your attorney or the DC Department of Consumer and Regulatory Affairs for advice on your specific situation.

Raising the Rent in DC

Rental increases in DC are typically governed by the terms of the lease and whether the unit is rent controlled. If not registered as exempt, most rentals are rent controlled. Notable exemptions include properties built after 1975 and those owned by a person with four or fewer rental properties. Landlords cannot raise the rent if there is an agreement – usually a written lease – between the landlord and tenant with a specified rental amount.

Rentals Exempt from Rent Control

As long as they follow the terms of the lease, landlords who rent units that are exempt from rent control may typically raise the rent by any reasonable amount, and at any time, as long as such rent increases are not done for any illegal purposes, like seeking vengeance on a tenant for taking lawful action against the landlord. Landlords must give 30 days written notice. While the size of the increase may not be limited by the laws, landlords should carefully consider the market. Increasing the rent too much is a sure way to lose tenants, and vacant apartments don’t earn any rental income.

Rent Controlled Units

If the unit is subject to rent control, landlords may raise the rent if the following criteria are met:

  • The previous rent increase was at least 12 months ago (unless the unit is vacant);
  • The unit has been registered with the Rental Accommodations and Conversion Division (RACD);
  • The rental unit is in compliance with housing regulations;
  • A 30-day written notice is provided stipulating any increase in rent.

Landlords may only raise the rent by the amount specified by the DCRA each year, which is based on the Consumer Price Index. Increases on rent-controlled apartments cannot exceed 10 percent. For tenants who are elderly or disabled, allowable increases are more limited and cannot exceed 5 percent.

If a unit becomes vacant, the law does allow property owners to raise the rent on rent-controlled units, even if the last increase was less than one year ago. The owner may then increase the rent by 10 percent or up to 30 percent to match the rent of a comparable unit. But then no other increases are allowed for a full year.

There are a few other circumstances, such as hardship or renovations to the unit, where owners of rent-controlled units may be allowed to raise the rent or raise it by more than the standard allowable percentage. Landlords who are not making at least a 12 percent rate of return on their rental unit can send in a request to the city’s rent administrator to increase the rent by more than the approved amount. It requires filing a “Hardship Petition,” which outlines equity in the property, expenses, rental collections, and other key information. Information on other allowable increases can be found in the district’s rent control fact sheet.

It’s always a wise idea to gather all the necessary information and do the preliminary homework before raising the rent on a unit in order to avoid penalties. For DC rental units, landlords can refer to this rent control fact sheet or contact the Department of Consumer and Regulatory Affairs at (202) 442-4610 for more information.

If you have any questions, or prefer to have a property management company handle this for you, don’t hesitate to contact us.

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