March Meeting

Monday, March 15, at 7 P.M.

Mike Stiles, Local CPAHow to cash in on the $8000 first time homebuyer tax credit by

selling your property using an agreement for deed or lease option!

JOIN THE RAA! Members enjoy . . .

✔ 8 monthly meetings with guest speakers covering a variety of property management topics

✔ Winter Member Mixer

✔ Spring Banquet

✔ a Web link or page advertising your units on the RAA Web site

✔ Member networking with current tips, bargains and referrals

✔ Knowledge of State and local political issues affecting property managers and owners

✔ Monthly newsletter

A one-year membership is $99.

To join or e-mail RAA, go to

www.rockfordapartmentassociation.org

To join the e-mail group, go to

RAAmembers@yahoogroups.com

Meeting LocationRockford Area Association Of Realtors 6776 East State St. Rockford, IL 61108

In This Issue:We have all heard about the $8000 first time homebuyer tax credit, however did you know you can get your hands on it as a landlord sell-ing to a tenant? Local CPA, Mike Stiles, will be teaching us how to use the tax credit to turn our tenants into homeowners. Under the IRS tax code, if you sell a property on agreement for deed or lease option, the buyer may qualify for the$8000 first time home buyer tax credit. What is even better is you can have your tenant/buyer hand the tax credit over to you, as their down payment. The tax credit expires on April 30th, so you need to act fast. This is a must attend meeting as Mike will tell you all the ins and outs.

In this issue, we have articles from Mr. Landlord, offering 17 best words on advice for new landlords. Then Bill Cook chimes in and talks about our biggest expense as landlords. Finally, we have an article from a Tyler McCracken, a Charlotte, NC investor and land lord who dis-cusses what makes a good real estate investment. Plus, make sure that you patronize the newsletter sponsors, without their help this newslet-ter would not be possible.

Last time we met . . . Once again, we had a huge crowd at the February meeting to hear Ken Crowley, the Rockford township assessor and David Dale Johnson, member of the property tax board of review. We learned how the as-sessor values properties and some effective ways we can successfully protest out property value assessments. In addition, they spoke of House Bill HB 4709, which would allow the assessor to use foreclosure sales when calculating the fair market value of a property. As it stands now, the assessor can not include foreclosures when valuing a property and we all know what a negative effect foreclosures have had on the value of some of our properties. Lastly, Five Points Realty, shared tips for getting vacant units filled, including offering a $99 move in special and listing your properties with some of the big employers in the area.

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Landlording: What Makes a Good Real Estate Investment? by Tyler McCracken

The foundation of my real estate investing is rooted in buy and hold investment property for the long term: otherwise, known as Landlording. While I have whole-saled & rehabbed property for short term, merchandis-ing of real estate, not to mention provided hard money loans to real estate investors in Charlotte, North Caro-lina, it is my rental portfolio that has provided the slow and steady upward growth in both equity and cash flow during both the good and challenging real estate cycles we’ve faced over the last two decades.

I’m often approached by real estate investors who want the secret to financial independence. You will hear me discuss how wholesaling, rehabbing to (sell) retail, and private money loans, create cash flow streams. I refer to rental property as a long term retire-ment package, for a reason. To build a reliable positive cash flow stream, one has to either have a low debt level (on the rentals), buy right (on multiple proper-ties), and/or let the compounding of debt reduction (via principal payments on a loan) or rent income (and valuation) appreciation occur over time. It is hard to create any of this with volume in the short term. I’m not saying it can’t be done -but nothing comes easy!

There are many variables that can make a good rental real estate investment. Often one will hear the mantra: Location, Location, Location. I will say that a good rental location can be like a McDonald’s fran-chise. It doesn’t need to be in the wealthiest area of town -heck one certainly won’t see positive cash flow on that investment unless it’s paid for in cash (and if that’s the case then one could argue the Return On Investment (ROI) is paltry and certainly not worth the sweat and tears it takes to run a landlord business). Nor am I a solid fan of the lower income rentals in which “positive cash flow” is a requirement because the appreciation component is hampered (the exact oppo-site correlation of that wealthy rental thought).

So what do I focus on that has created my greatest returns from both a cash flow and appreciation stand-point over many years of letting the power of com-pounding work its magic with rentals????

I seek neighborhoods that are the above average appreciating neighborhoods in Charlotte, NC. In my opinion these are older neighborhoods that surround our downtown metropolitan city -where gentrifica-tion occurs with a radically changing social-economic demographic. I find properties that are run based on the old neighborhood model. Typically they are a bit

run down, rented on the old pricing, and thus priced on the old model. I freshen up the homes and make them affordable for my new target tenant. I call them a ‘creative loafer’. Typically a 20-30 year old starting out in life or comfortable with themselves. They can be a yuppie, deadhead, tattooed or pierced, head shaven or in dreads, conservative or liberal -not sure how to ex-plain it other than a mindset. They don’t need granite nor the Starbucks drinking neighbors; however, they re-quire secure, clean, rehabbed, and efficient homes that meet their needs. Often small multi-families work well here too. However, key in on separate utilities, ability to provide washer/dryer hookups (or at least provide stack units if space is an issue), and off street parking.

These are other points I look for:• Invest in areas with a high concentration of owner

occupied homes• Stay in areas that are primarily single family homes

– areas of high density multifamily (note: this is locally as a highly populated metropolitan area certainly is an exception) tends to be commodity housing.

• Invest in areas where additional land for building doesn’t exist -otherwise, valuations on rent demand and pricing is contingent to the cost of new con-struction and what is built.

• For multi-family: always count electrical, gas, and water meters -the more that match up to the units available the less monthly expenses that you’ll absorb.

• Avoid carpet -at least in high traffic areas. Hard surfaces simply last longer. Hardwoods, ceramic tile, and VCT have lasted the test of time for me.

• Focus on schools.• Ease of in/out access of the neighborhood.• Use commonsense. What types of homes do home

owners prefer?• Houses that sit above road grade tend to be of

greater value while those below are the opposite• Parking• Dead Ends and cul de sac’s may be great once

you’re there; however, less traffic correlates into a greater challenge for filling the rental.

When I follow this model, I find that I will sell off some of my single family homes (as I mentioned in “Rinse & Repeat: 1031 and the power of rentals over time . . . ”) at a far faster pace (simply due to apprecia-tion & and costs (property taxes) out run rent apprecia-tion) while my multi-family units become powerful low maintenance, low turnover cash cows. Yes, part

Page 3 Rockford Apartment Association March 2010

of my philosophy is selling some long term rentals at times to actually accelerate one’s growth in rentals -but that’s another time, another story.

Regardless, it is following this method that has cre-ated my greatest returns (both in cash flow & apprecia-tion) in the world of landlording.

Tyler McCracken is a Charlotte, North Carolina Real Estate Investor. He has been investing for many years and you can follow his investing advice on his blog at www.charlottereblog.com.

Your Biggest Expense? Taxes by Bill Cook

Far too many Americans fail to realize that taxes are their biggest expense. In addition, many Americans fail to do adequate – heck, any – tax planning.

For example, did you know that two married cou-ples can each earn $70,000 in a given year but, because of how the money was earned, one couple only gets to keep $55,000 while the other couple gets to keep almost the entire $70,000?

You’re probably thinking that this isn’t fair. Brother, “fair” has got nothing to do with taxes! Remember: The government uses the tax code as more than a revenue-raising device. It also uses it as a mechanism to encourage or to discourage economic and social be-havior. This is why the tax code is so complicated and why tax planning is so critical.

How complicated is the tax code? When Doug Shulman, the IRS Commissioner, was interviewed on C-Span’s Newsmakers program, he said, “I don’t file my own taxes because the tax code is so complex.” If the head of the IRS uses a tax preparer, shouldn’t you?

For a better understanding, let’s look at the two couples mentioned above. Notice that HOW they earn their money plays a HUGE role in determining the amount of taxes they pay. Our first couple owns a small business and earns a combined salary of $70,000 a year. Their self-employment taxes, combined with their income taxes, total $16,165. This means the government (including deductions) lets them keep $55,035 of the $70,000 they earned.

Our second couple also earns $70,000 per year. One big difference: They are real estate investors whose income is generated from rental property. Because of this, the government gives them GIGANTIC tax breaks! For example, they get to depreciate their properties, plus they don’t pay self-employment tax on rental income. Also, because rental income is considered “in-vestment” income, not “earned” income, the tax rate is much lower! All told, of the $70,000 they make, their

total tax bill is only $13.00. Yep, thirteen whole U.S. dollars. In other words, they get to keep $69,987 of the $70,000 they earned – about $15,000 MORE than the first couple.

Why does the government encourage folks to own rental property? Simple answer. If the government didn’t give tax breaks to investors, do you think investors would continue to own rental property and experience the joys (and expenses) of property management? If investors sold their rental properties, where would tenants live? Government housing? If you think keeping more of your family’s paycheck is a good idea, make the com-mitment to learn about real estate investing and owning rental property.

“But I don’t have the time,” you say. A friend of mine, Travis Prather, recently shared some of his dad’s wisdom: Your living is made between 9 AM and 5 PM. Your for-tune is made from 5 PM to 10 PM. There’s time to learn – if you really want to!

Bill and Kim Cook live in Adairsville, Georgia and have been successfully investing in real estate since 1995. They’ve writ-ten their weekly real estate investing newspaper column since 2003. Visit his website at www.REIoutpost.com

MRLANDLORD.COM TIPS ON MANAGEMENT17 BEST WORDS OF ADVICE FOR NEW LANDLORDS (shared by rental owners with up to 50 years of landlord-ing experience)

1. Treat landlording as a business and develop a system and set of written procedures for all steps in your rental process.

2. Get a good state-specific lease and be sure your lease is clear regarding all expectations you have for your residents’ responsibilities. (Many leases make too many assumptions of what is to be expected).

3 Believe in yourself, but do not believe anything put on the rental application. Verify it all.

4. Thoroughly screen your applicants. Along with run-ning credit checks, be sure to check eviction records and possible criminal background on all applicants.

5. Get the cooperation of your residents and start adver-tising and showing rentals BEFORE the lease is up.

6. Fill vacancies faster by reaching out and serving a “niche” target market.

7. Keep your relationship between you and your resi-dents in a business-like manner and treat all resi-dents with respect.

Page 4 Rockford Apartment Association March 2010

ARENA CONSTRUCTIONRENOVATIONS

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Page 5 Rockford Apartment Association March 2010

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Page 6 Rockford Apartment Association March 2010

8. Conduct regular inspections of your properties.

9. Enforce your rules consistently and immediately.

10. Keep good records and document everything.

10. Utilize both craigslist.com and postlets.com to advertise your rentals. Both are free services.

11. Look for ways to reward your long-term residents even if in only small ways.

12. Join and participate in your local landlord associa-tion and visit MrLandlord.com to get continued support, education and encouragement from other landlords. Also seek out one or two mentors.

13. Become extremely familiar with the state landlord tenant laws where your own rental property.

14. Learn as much as you can about your local rental market and what other landlords and managers are charging, offering and doing.

15. Always look to expand your business network with other landlords, contractors, suppliers, profession-als and community contacts. Network with indi-viduals who are growing, progressive and honest.

16. Seek further training and education. Read land-lording books like Landlording and the Landlord’s Kit and go on a landlord cruise conference.

17. Don’t give up! Don’t let the small percentage of rental challenges take your focus off your big goals. Landlording is not a get rich quick scheme, but can generate long-term wealth when done correctly.

These ideas, words of advice and tips were shared by rental owners who attended our recent MrLandlord.com Cruise Conference. To receive a free sample of the Mr. Landlord newsletter, call 1-800-950-2250 or visit their informative website at MrLandlord.com, where you can ask landlording questions and seek the advice of other rental owners 24 hours a day.

Talking Real Estate

with Tim and Tim

March 22 and April 5, 9:35 - 10 A.M.

Call in with your questions!815-874-8255

• Property Management

• Remodeling

• Painting

• Doors & Windows

• Electrical

• Plumbing

• 24 Hour Service• 24 Hour Service

• And Much More!815-979-9016

www.apspros.biz

Rockford Apartment Association Directory

1-800-RAA-6676 | www.RockfordApartmentAssociation.org | PO Box 2502 | Loves Park IL 61132

raa Service Directory

Rockford Apartment Association Code of EthicsWe, the members of the RAA, recognizing our duty to the public and the intimate nature of the relationship between the apartment resident and the owner, or manager, and being aware of the vastly increasing role of the apartment industry in providing the home of the future, and in order to provide the apartment-residing public with the maximum in quality and service upon the highest standards of honest and integrity, do hereby bind ourselves, with each and every member, together and alone, agreeing that, so long as we remain members of the RAA and so long as nothing con-tained herein shall be unlawful, we shall:

1. Promote, employ and maintain a high standard of integrity in the per-formance of all rental obligations and services in the operation of our apartment communities.

2. Maintain and operate our apartment communities in accordance with fair and honorable standards of competition, ever mindful of the pur-poses of the Rockford Apartment Association and in compliance with the bylaws thereof.

3. Strive continually to promote the education and fraternity of the mem-bership and to promote the progress and dignity of the apartment in-dustry in creating a better image of itself in order that the public may be better served.

4. Seek to provide better values, so that an even greater share of the public may enjoy the many benefits of apartment living.

5. Establish high ethical standards of conduct within the apartment in-dustry in the business relationship between the owner, managers and suppliers of products and services to the apartment industry.

6. Maintain property standards of the appropriate governmental authority.7. Ensure that every qualified individual, regardless of that individual’s race,

color, religion, gender, disability, familial status or national origin is af-forded the same opportunity to rent an apartment and enjoy the ben-efits of apartment living.

Financial statement available upon request to members in good standing.The content and opinions expressed in the RAA newsletter do not neces-sarily reflect the views of, nor are they necessarily endorsed by, the Rock-ford Apartment Association or its board.

All Property Services 815-979-9016

All Seasons Cleaning & Restoration 815-399-8690

Arena Construction 815-243-2924

Carpet One 815-633-8100

Coin Appliances Inc. 800-242-5453Geoffrey Erdman, gerdman@bizwi.rr.com

www.coinappliances.com

Great Lakes Commercial Sales 800-236-5599

Hales Equipment 800-965-8767

J & J Cement 815-519-4795

Ken Becker Realtors 815-399-8000

Magnuson Property Solutions 815-243-0078

Midwest Community Bank 815-637-78473693 N. Perryville Road

Richard A. Schrom, Executive VP

Commercial Lending

Nicholson Hardware 815-963-4821

Northern IL Sewer Service, Inc. 815-229-1174

RK Overhead Doors 815-633-7734

The Rock River Times 815-964-9767

Rockford Area Renter’s Guide 815-964-6700

Suburban Patrol 815- 961-8100616 South 6th Street

Universal Restoration 877-496-6699Complete Structural Repair

Window World 815 399-1333

When Nature Calls Pest Control 815-601-7378

raa 2010-2011 BoarD MeMBerS

President / IRPOA Rep Paul Arena 815-243-2924

Vice President Tim Hoffman 815 988-4004 Secretary Pete Sukniach 815 332-9463

Treasurer Mike Cavataio 815-397-3320

Nominating Com. Ken Becker 815 399-8000

Legal Issues Tom Wartowski 815 978-1572

Advertising Jim Merrick 815-222-7423

Bus. Forms Ken Hagemeyer 815-519-5583

Membership Vince Miosi 815-877-3272

Programs Director Karl Fauerbach 815-877-6077

Programs/Public Relations Rick Davis 815 690-5288

Newsletter Editor Tim Jensen 815 558-4663

Web Site Steve Lantow 815-633-9967

Legal Counsel Tom Wartowski 815 978-1572

www.RockfordApartmentAssociation.org

1-800-RAA-6676

PO Box 2502, Loves Park, IL, 61132

March Meeting

Monday, March 15, at 7 P.M.

Mike Stiles, Local CPAHow to cash in on the $8000 first time homebuyer tax credit by

selling your property using an agreement for deed or lease option!

RAA rental forms for members onlyForms are available at the following locations. Please call

in advance to be sure someone will be available to help you.

RAA Meetings 6776 E. State St. 1-800-RAA-6676

Hurd Properties II LLC 124 Water Street Suite 204

1-815-519-5583

State Line Rentals 7210 E. State Street Suite 002 (LL)

1-815-398-8886

Terra Creek Apartments 375 Bienterra Trail 1-815-397-3320

Come to the meeting!

Join and save!

Free to RAA members

$15 non-members

Rockford Area Association Of Realtors

6776 East State Street

Rockford, IL