Property Manager in CA, needs license or not

Situations Where a License is NOT Required:

1. If you are managing your own home or your own property, then neither a salesperson or broker license is required.

2. You may manage a property WITHOUT a license if the owner of the property agrees to let you do so under a "power of attorney", thus empowering another person to act on the owner's behalf.

3. If you are managing the homeowners association (not the individual units within the association for rent), then the property manager does NOT need to be licensed.

As with most states, an individual who seeks to sell, list, auction, or rent/lease real estate in California must be a licensed real estate broker or agent working under the supervision of a broker.

To own your own property management company and run it under your own name, you will need to be a broker, rather than a salesperson.

San Jose requires business license for residential landlords >= 3 units

In San Jose, CA, residential landlords renting 3 or more units are require to apply for business license.

CA rent control cities

Here is link to rent control cities in California:

http://www.caltenantlaw.com/RCcities.htm

Home price slide 5.3% in July, 2008

WASHINGTON (AP) -- Home prices in July fell 5.3% compared with a year ago, a government agency said Tuesday, and have now receded to October 2005 levels.

...

The national average rate on a 30-year, fixed rate mortgage rose to 6.26% on Monday up from 6.11% on Friday as details of the government's rescue plan remained in flux, according to financial publisher HSH Associates. The rate had fallen as low as 5.87% last Tuesday.

Mortgage rates down slightly

Rates for 30-year fixed-rate mortgages (FRMs) averaged 6.35% in the week ending Sept. 4, according to Freddie Mac (FRE, Fortune 500). That's down from last week, when it stood at 6.4%, and below a year ago, when the rate stood at 6.46%.

Five-year adjustable-rate mortgages (ARMs) averaged 5.97% this week, dropping from last week when it reported at 6.03% and from last year at this time when it was at 6.32%.

Tax law change: Reduced home sale exclusion

By Eva Rosenberg, MarketWatch

Last update: 7:26 p.m. EDT Aug. 14, 2008

LOS ANGELES (MarketWatch) -- Many readers panicked after reading my previous column on how the Housing and Economic Recovery Act of 2008 will affect the personal residence exclusion ($250,000 for single filers; $500,000 for married filing jointly) on sales of vacation homes or former personal residences.

TaxMama's mailbox was inundated with questions about your specific situations. Whew! Too many to answer all of you personally. But, we selected four questions that represented the issues affecting most of you and took those questions to the experts. See previous column.

Move back in, or tax-free exchange?

Sofia writes: I own a home which I currently rent out. I have owned the house close to 30 years. I lived in it the first three years and rented it out the following 27 years. I am retired and presently live in a rented apartment. It was my understanding that I could move back in for two years and then sell it using my personal residence exclusion of $250,000. Or I could do a 1031 exchange to avoid some or all of the taxes. What advantage would there be if I moved back into this home before 2009 vs. doing a Section 1031 exchange in 2009?

In general, the experts agree that, at present, the house has been rented too long to qualify for the personal residence exclusion if Sofia were simply to sell it. Naturally, if she moves in now, in 2008, and sells it two years later, Sofia would be entitled to the full $250,000 since the new rules only apply to properties with "nonqualified use" starting Jan. 1, 2009. (We'll explain "nonqualified use" in a moment.)

But if moving back in is an inconvenience or costs Sofia an important stream of rental income, what about that tax-free exchange alternative?

Dan Yu, a certified financial planner and director at Eisner LLP's Personal Wealth Advisory division in New York, says that when you elect to use a 1031 exchange, you are deferring taxes on the gain from sale of an investment or business property by lowering the cost basis on your replacement property. Certain rules must be followed. (Deferring means that you're putting off paying the taxes until later.)

Essentially, Sofia could follow the rules and trade the property -- and keep trading it as long as she is alive -- and pay little or no taxes on the exchanges. (Beware of "boot" -- money received during the course of the exchange or when the buyer's funds pay your selling costs.)

Then, after Sofia's death, the property would get a stepped-up basis for her heirs. In other words, at date of death, the tax basis (value) of the property would jump up to fair market value, and no taxes would need to be paid on all those deferred gains.

Seems like a good idea? Sure. But there's a nearly forgotten provision of the Economic Growth and Tax Relief Reconciliation Act of 2001, warns Barbara Weltman, an attorney and author of J.K. Lasser's "Small Business Taxes 2008." That step-up in basis will disappear after Dec. 31, 2009.

We already moved back home

James writes: We recently moved back into our home after renting the property out for three years. Are you saying we are safe from the new law as long as we have moved back into the rental residence before the end of this year?

In a word, yes. All experts agree unanimously.

'Nonqualified use' reduces exclusion

Rajesh wants to know what the tax consequences would be for a home converted to a rental: I bought a home in October 2002. I stayed in the home until June 2006; then rented it from July 2006 onwards. What would happen if I sell the property in March 2009? Would I still get any benefit from the personal residence exclusion?

Now we come to the heart of the issue. What happens to someone who made plans relying on the tax laws to remain in place for the full five years from the date they bought their home?

Mark Luscombe, principal tax analyst with CCH Inc., a Riverwoods, Ill., tax publisher, is confident that the way to interpret this nonqualified use still includes the five-year look-back period for personal use of the home. First, let's check to see whether the five-year rule is met: Will Rajesh use the house for at least two years out of the last five years?

By March 2009, the house will have been rented for a total of 33 months (July 2006 to March 2009). In the last five years before the projected sale in March 2009, Rajesh will have lived in the house for 27 months (60 months minus 33 months), which is more than two years.

Next, remember that fraction described in the housing bill? The numerator is the aggregate periods of nonqualified use during the period the property was owned by the taxpayer and the denominator is the period the taxpayer owned the property.

Luscombe interprets this situation as follows:

The fraction's numerator is: Nonqualified use = January 2009 to March 2009 = 3 months

The fraction's denominator is: Ownership (last five years) = April 2004 to March 2009 = 60 months

Three divided by 60 = 0.05, or 5%.

So Rajesh would only lose 5% of his $250,000 exclusion. He'd still get credit for $237,500 or $475,000 if he's married.

Recent switch from home to rental

Mark is upset about the lack of warning. He writes: I just moved into a new home and did not sell my previous personal residence, relying on being able to use that $250,000 personal residence exclusion when I sell the house in two years. The plan was to rent it out for two years while the market recovers a bit and sell it then. Now based on what you wrote I am getting the feeling that I would be hit by taxes that I did not factor in my decision when I entered in a lease with tenants. Had I known that I would be taxed, I would have put it up for sale right in the first place.

Whew. This is tough. If Mark just converted his home to a rental in July, and has a two- year lease, he is going to be affected deeply by the new law. Let's look at the formula, assuming two things: 1) He can sell the house at the end of the two-year lease in July 2010 and 2) he will have owned the house for four years by then.

Here's the equation in Mark's situation:

Nonqualified use = January 2009 to July 2010 = 19 months

Ownership (last five years) = August 2006 to July 2010 = 48 months

Nineteen divided by 48 = 0.3958, or 39.58%.

Mark will lose almost 40% of his residential exclusion.

So it's time to compare the profit that would arise from selling it now with the full residential exclusion to the potential profit two years from now with only 60% of the exclusion. Assuming Mark is married, 60% of the exclusion would still be worth $300,000. If the projected profit is less than that, he won't lose a thing.

Even if the profit is more than the residential rental exclusion, Mark will only pay tax at 15% on the capital gains and whatever the state tax rate will be, if the state complies with the housing bill. Remember, not all states will comply with federal tax laws. Find out if your state does.

Yu recommends that you keep detailed records of improvements and all activities that affect the basis of your property. Those records will reduce your profits if you find yourself exceeding the personal residence exclusion limits.

If you've moved out of your home and rented it out, Luscombe advises you to watch that five-year deadline carefully. Be sure you sell the property while you still have a full two years of personal residential use.

Weltman reminds us that all this advice is the experts' best interpretation of the Housing and Economic Recovery Act of 2008. Until we see written guidance from IRS, as with all things tax -- who knows?

And finally, Yu wants taxpayers to remember one thing: The ordinary income from the recapture of the depreciation of the rental will be taxed (maximum rate 25%) even if someone qualifies for the personal residence exclusion.

===============================================================

Summary of Changes

Property Held For Rental or Investment First

Property held for investment purposes and then subsequently converted into a primary residence will be impacted the most under these legislative changes to Section 121.

The amount of time that the real property was held as investment property (non-qualified use) will no longer qualify for tax free exclusion under Section 121. Only the actual time that the real property was held and used as a primary residence (qualified use) will qualify for the tax free exclusion.

This will significantly affect those homeowners who had planned to move into investment property and convert its usage to their primary residence in order to take advantage of the 121 exclusion. The longer the real property was held for investment the greater the impact will be on the amount of capital gain that can be excluded from taxable income (i.e. the more capital gain that must be included in taxable income).

Property Held As Primary Residence First

The modifications made to Section 121 do not affect homeowners that move out of their primary residence and convert it to non-qualified use. The homeowner can still take the full amount of the 121 exclusion upon the sale of the property as long as they still qualify for the 121 exclusion.

In other words, a primary residence that is subsequently converted into investment property will still qualify for the tax free exclusion under Section 121 provided the property is sold no later than three (3) years after its conversion to investment property. The property will no longer qualify for the 121 exclusion once it has been held by the homeowner as investment property beyond the three (3) year window.

America's Most Overpriced ZIP Codes - By Matt Woolsey, Forbes.com Aug 1st, 2008

Ten spots where buyers pay a huge premium to own relative to how much it would cost to rent.

In San Jose, Calif., home to Silicon Valley and some of the highest home values in the country, a bumper sticker reads, "Dear God, one more bubble before I die."

Chances are the car's driver lives in Willow Glen, a neighborhood with a small-town feel, Spanish-style single family homes and a main street with sidewalk cafes and locally owned shops. To live there, residents are paying the city's highest prices relative to what they could pay to rent similar properties in the same area. When you compare mortgage payments to the value of a similar home on the rental market, the price to buy is 26.1 times higher, one of the biggest differences in the country.

Willow Glen 95125: 26.1

Dallas 75209: 26.7

San Francisco 94122: 28.5

San Diego 92103: 30

West Hollywood 90038: 30.2

Seattle 98104: 30.3

Boston 02111: 30.5

New York 10013: 36.3

======================

Comment: San Jose 95129 31.0; Palo Alto 31.25; Sammamish 20.1

Good news if your home owner insurance is with Allstate

California insurance regulators have ordered Allstate Insurance Co. to cut rates for homeowners coverage by an average of 28.5 percent, representing a savings of $255 million for policyholders.

Allstate customers would save an average of $242 per policy per year, state Insurance Commissioner Steve Poizner said in a news release Thursday.

Not safe neighborhoods in SF Bay Area

. East Palo Alto
. Area in East San Jose
. Some neighborhoods in and near Berkeley
. Oakland
. Richmond (oil refineries and crime rate)

Not nice neighborhoods in Seattle area

From a post at Yahoo and other sources:

North Seattle avoid Aurora Ave. within the general vicinity. Alot of cheap motels, pawn shops, etc... used to be a hot spot for drugs and prostitution been cleaned up in the past few years none the less still a seedy area.

Central Seattle or Central District this area has changed in the past 10 to 15 years from a low income area to middle class area due to gentrification still some seedy areas along 23rd Ave.

West Seattle avoid anything in the general vicinity of Delridge Way heading toward White Center and also South Park

South Seattle avoid the general vicinity of Rainer Ave/Columbia City

Renton - near Wal-Mart

Lynnwood

Forbes: 2007 most affortable U.S. real estate markets

1. Indianapolis, Ind.

Median home price: $112,500
Median household income: $60,383

2. Cleveland, Ohio

Median home price: $122,900
Median household income: $57,472

3. Detroit, Mich.

Median home price: $154,600
Median household income: $63,052

4. Pittsburgh, Pa.

Median home price: $109,000
Median household income: $54,872

5. Cincinnati, Ohio

Median home price: $136,800
Median household income: $60,146

6. St. Louis, Mo.

Median home price: $134,400
Median household income: $59,950

7. Atlanta, Ga.

Median home price: $170,400
Median household income: $63,484

8. Greensboro, N.C.

Median home price: $145,100
Median household income: $50,447

9. Dallas, Texas

Median home price: $145,500
Median household income: $58,736

10. Austin, Texas

Median home price: $176,200
Median household income: $65,739

U.S. rent control

In the United States during World War I, rents were "controlled" through the efforts of local rent anti-profiteering committees and public pressure. Between 1919 and 1924, a number of cities and states adopted rent and eviction control laws. Modern rent controls were first adopted in response to WWII-era shortages, or following Richard Nixon's 1971 wage and price controls. They remain in effect or have been reintroduced in some cities with large tenant populations, such as New York, San Francisco, Los Angeles, Washington, DC, and Oakland, California. Many smaller communities also have rent control, notably Santa Monica, Berkeley, and West Hollywood, California[1] along with many small towns in New Jersey. In recent years, rent control in some cities, such as Boston, Massachusetts and Cambridge, Massachusetts, has been ended by state referenda.

California - Landlord and Tenant responsibility for repairs

The landlord is under an obligation to put and keep his rental units in a condition fit for human occupancy, except for those conditions caused by his tenant's want of ordinary care {Civil Code Secs. 1929, 1941} A building fit for human occupancy must have at least the following characteristics {Civil Code Sec. 1941.1}.

1. Effective weatherproofing of roof, exterior walls, and unbroken windows

2. Plumbing up to code and in good condition

3. Water supply up to code providing hot and cold water

4. Heating facilities up to code and in good condition

5. Electrical lighting up to code and in good condition

6. Building, grounds and appurtenances clean and free of vermin at the time of renting

7. Adequate receptacles for garbage

8. Floors, stairways and railings in good repair Install and maintain locks

9. Conforming locks {Civil Code Sec. 1941.3}

The landlord's obligation to repair dilapidations in the characteristics of habitable dwellings does not arise if the tenant violates his own legal obligations as to maintenance, provided these violations substantially interfere with the landlord's ability to do the repairs {Civil Code Sec. 1941.2}

Tenants are required by law to take reasonable care of their rental units, as well as common areas such as hallways and outside areas. Tenants must act to keep those areas clean and undamaged. Tenants also are responsible for repair of all damage that results from their neglect or abuse, and for repair of damage caused by anyone for whom they are responsible, such as family, guests, or pets.

3 tips for buying foreclosure properties

In addition to the usual tips for buying a property,

1. Use web sites such as www.redfin.com, www.realtytrac, www.foreclosure.com.

2. Use a broker who is familiar with REO (Real Estate Owned) properties in the area.

3. Watch out for repair costs. Foreclosed properties could have been neglected and the prior owner was not able to upkeep it.

Rent amount references

As of June 2008, here are some examples from Craigslist:

In Queens, NY - 2BR/2BA apartment - $1340/month


In Redmond, WA - 3 BR/2 BATH TOWNHOUSE - $1600/month

• Near Microsoft, I-520, shopping, trails, award-winning schools
• Water and landscaping included

In Cupertino, CA - single family house in great school district - $3190/month:

• National award school district: Lincoln Elementary, Lawson Middle, Monta Vista High
• 3 Bed/2 Bath/2 Car Garage, 1550 S.F. huge lot; almost 9000sq
• Completely remodeled, mint condition
• Dual Pane window

In Foster City, CA - condo - $2300/month

• 2 Bedrooms 2 Baths Condo, approximately 1350 sq, ft.
• Living Room with fireplace
• Secured One-car underground parking
• Swimming Pool
• Tennis Courts

In Fremont, CA - 1br apartment - $1250/month

• Pool
• Fitness center
• Cable TV and internet connection available

Tenant credit and background check

It's essential to run a check on the applicant.

The items to check include:

• Credit check
• Eviction records
• Criminal records

There are quite a few service providers out there. Be sure to choose one who is creditable and provide accurate information of the tenant's, so you can make sound decision.

What are IRS depreciation methods?

Please refer to IRS publication 527 for detail.

There are three ways to figure depreciation. The depreciation method you use depends on the type of property and when it was placed in service. For property used in rental activities you use one of the following.

• MACRS (Modified Accelerated Cost Recovery System) for property placed in service after 1986.

• ACRS (Accelerated Cost Recovery System) for property placed in service after 1980 but before 1987.

• Useful lives and either straight line or an accelerated method of depreciation, such as the declining balance method, for property placed in service before 1981.

How does ACF Rental Cash Flow help me in filing tax return?

In the system, the income and the expenses you entered are by tax categories. The system totals the income and expenses for the tax year for each property. You simply carry them onto schedule E, or into tax software.

Or if you use an accountant, you may choose to use "export to file" feature, and forward to your accountant the Excel file or HTML file. This feature may help to save you $$$ on accountant fees.

Receiving and returning of security deposits do not have tax consequences. In CA, you return the full amount plus interest to the tenant when after the tenant moved out. If you use a portion of the security deposit for cleaning fees or late fees, you need to enter them as income.

For depreciation items, if you use a tax software, you enter each of them to the tax software. The tax software should calculate it based on the nature of the item, the depreciation method used, and the property location (e.g. Gulf Opportunity Zone). If you use accountant, he/she will figure this out for you. Please refer to IRS publication 527 for detail.

Is my rental property a good investment?

If one put money in a FDIC insured online CD account such as ING Direct, WAMU, etc., he/she will get slightly better return than regular bank accounts. At this time, the return is close to the inflation rate.

For U.S. stock market, if you invested on S&P 500 index fund over the last 20 years, the annual average return would be at ~10%.

To invest in real estate, longer term investors would be looking at both the cash flow, and the appreciation of the property value.

There is a popular saying "real estate is local". The rent amount and the property value depend on mostly on local situation. For example, if you own a rental property in Silicon Valley near an excellent high school, and you have owned it for a few years, most likely you are doing very well. But if you've just purchased the property not long ago at a high price with 20% down-payment, the rent income may not generate positive cash flow at present time. But still, the property value may increase year-over-year.

To make a sound decision, you need put into consideration for:
. Purchase costs - commission, title insurance, escrow, etc.
. How much down-payment you put in.
. Loan amount, interest rate, and therefore, the points and mortgage payment.
. Property tax, insurance, and other expenses.
. Rent income generated.
. In the future, when you sell the property, the selling price and selling costs.

Rent amount discussion

Factors include:
. Local market situation - such as job situation, schools, etc.
. Quality of the property.
. Get ideas from local craigslist.com, and/or from newspaper.
. You may want to keep the existing rent amount for an excellent tenant. This will reduce tenant turnover rate.

What's the purpose of ACF Rental Cash Flow exporting data to file?

File export creates an .XML file. This file can be opened by Excel 2002, 2003, or 2007. Please refer to the help contents for how to export, and to open the file.

Within Excel, you can further format the data, or perform additional calculations. Afterward, you may choose to email the file to your accountant for tax filing - including rental income, expenses, and depreciation.

From Excel, you may choose to save the file as .HTML. This file then can be opened by any browser.

ACF Rental Cash Flow, Installation notes for Windows Vista users

To install ACF Rental Cash Flow on Windows Vista O.S., perform these steps:

. Download our .RAR file and extract the files from .RAR to a folder on your hard-drive.
. Logon as Administrator user role. Under Account Setup, turn off the user account UAC. Vista will ask you to reboot your computer - you reboot the computer.
. Execute our setup .exe file you extracted from the .RAR. The installation procedure checks for required Microsoft components and install them. You must have active internet connection at this time.
. After finishing the installation, you may turn user account UAC back on.