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Blog – Property Management With Hart

Albuquerque and Rio Rancho Rental Investments

A plan for finding the best Albuquerque and Rio Rancho Single-family investment property

The following are a few things to consider when planning on investing in a rental home in the Albuquerque Metro Area.   People have been building wealth by investing in real estate since the beginning of civilization. In Albuquerque and Rio Rancho metro areas approximately ten percent of the single-family homes are an investment property.  Just as every market is different every single-family home is different.  This discussion is intended for the investor who wants to hold their property as a rental for at least five to seven years and not for someone who is looking to “flip” a property for a quick profit. The following are some of the things I have learned over many years of investing for myself and managing thousands of single-family rental properties for Single-Family Home Investors.   These are simply my suggestions.  Be sure to check with your financial and real estate professionals when developing your own plans and benchmarks.

Strategies for finding the right long-term single-family home investment

1. Create a plan. Include in your plan, both the local and the micro local market in which you want your investment. (All real estate is local but market rents are micro local.).

2. Be sure to factor in the vacancy time as well as the cost of getting the property in condition. Inspections are crucial to include in your plan. From the inspection you will be able to assess better the condition of the property.

3. Deferred maintenance is a double-edge sword. Limit your fix up items to carpet, paint, yard work and minor carpentry, or as I call it lipstick and eye makeup. Larger projects often cost twice as much as estimated and take longer than expected.  The loss of monthly income generation plus the remodel cost can be hard to make up in rent increases.

4. If you pay cash, remember to factor in the cost of insurance and property taxes when figuring out the net present value of the initial investment and revenue streams.  Consider using a self-directed ROTH IRA.

5.  Be conservative with  vacancy cost and maintenance cost in your calculations.  For my own calculations I use a three year block of time.  I estimate an average of 18 months leased with four weeks of vacancy and  approximately two and a half months rent as routine maintenance cost.  This does not count any capital improvements.  If you anticipate having to make a capital outlay within five years factor that cost as well.

6.  The investment return % can be calculated using many of the revenue stream present value calculators available on the internet.  I escalate my rent by 2% each year and use a 2% inflation factor from the initial purchase for sales price at the end.  I wantshoot for a 6+% net present value over seven years as my minimum benchmark.

7. There is always a risk that something unexpected can go wrong with the rental process.  People, money and many Federal, State and local regulations are involved.  You can minimize that risk when you hire a local professional property manager with great experience and enough staff.  Murphy’s law of rentals says: if you do not have an expert on your team you will need one.  My corollary to this is: if your property manager does not have enough qualified staff the person you need will be sick or out of town when you really need them.   If you want to do your own maintenance at lease hire a professional for the lease up.  It you have a quick temper, do not do your own maintenance.

 

Albuquerque Rentals And Lead Paint

Nice Homes In Lovely Neighborhoods Can Have Lead Paint

Many popular rental neighborhoods in Albuquerque have homes that can cause lead paint concerns.  Most Albuquerque pre-1977 rental homes are located in the established neighborhoods that mushroomed around the city center in the 1950’s and 1960.  These lovely older neighborhoods especially appeal to young couples who rent as a first step from apartment living and people with young children who want a large yard for the play area.   Although, the use of lead pigmented paint was banned in the US in 1977 due to rising concern over its toxicity, the possibility of lead paint toxicity still remain as long as some of the original home is standing.

Children Chewing on Window Sills Is Not The Issue

The average pre-1977 rental home in these tree shaded established neighborhoods of Albuquerque are usually in excellent repair and have been repainted outside and inside many, many times.  Many people do not realize that simply sanding or cutting into a wall painted with a lead based product can create substantial risk.  If you have owned a pre-1977 rental home for a while or have recently purchased one as an investment you may be considering doing some remodeling such as in the kitchen and bathrooms.  Remember that toxic lead paint may be lurking behind old cabinets, moldings, etc.

Lead-based paint will continue to be a concern in pre-1978 properties for many years to come, requiring diligent attention by all who work in any capacity with renovation or repair. The landlord needs to be aware of potential toxicity of the presence of Lead paint and the regulations that need to be followed.  Studies have proven that protection from the potential hazards of ingesting lead from the paint extends far beyond not chewing on window sills and that adults are at greater risk than originally believed.  The EPA web site contains vital information with which every consumer, contractor and landlord should be familiar. The following link takes you to the EPA Repair, Renovation and Painting Program page. A little time spent in educating yourself can save a lot of grief! http://www2.epa.gov/lead/renovation-repair-and-painting-program

A Little History

In January of 2011 the Environmental Protection Agency established a series of regulations regarding procedures to be followed when areas containing lead-based paint are disturbed in any way. Failure to follow these procedures creates substantial risks to health and can result in very heavy fines

The use of lead based paint came about in part as a result of public health concerns. In the late 1800’s and early 20th century, millions of people worldwide died from infectious diseases. Although the concept of bacterial and viral infections was ill understood, the medical community encouraged people to regularly wash the walls of their homes. Most walls of the day were covered with paper, a fact which made regular washing both difficult and ineffective. Enter the era of paint. People of the time most often relied on professionals to paint their houses and the products of choice by tradesmen contained lead pigments, prized for its shine and durability. The Federal Government even specified the use of lead pigmented, “lead-based”, paint in government buildings.  The detrimental effect of lead on health has long been documented. Studies in the late 1800’s showed the ingestion of lead to be the cause of a wide variety of health problems, particularly in young children. As early as 1904 a link was made between lead-based paint and health problems among children. The wisdom of the day was that even though adults are also adversely affected by lead, they were not at as much at risk since children were more likely to ingest lead. The slightly sweet taste of lead (the ancient Romans added small amounts to their wine) often tempted young children to eat paint chips or “chew on the window sills.”

 

Albuquerque Can Attract Venture Capital For Tech Startups

Excerpted from an Article by Steve Case the chairman and CEO of Revolution, a Washington, D.C.-based venture capital firm; co-founder of AOL; and the bestselling author of “The Third Wave: An Entrepreneur’s Vision of the Future.”

“This month, more than 100 startup leaders from Albuquerque and other rising cities will join us in Washington, D.C., for our inaugural “Rise of the Rest Summit”, to exchange ideas and information to accelerate the Rise of the Rest. This gathering will include the winner of our Rise of the Rest pitch competition in Albuquerque,”

Albuquerque Startup Invited to “Rise of the Rest Summit”

“Raghu Kopalle, founder of a company called Innobright. Innobright is disrupting the way rendering is done in computer-generated imagery (CGI) by developing a system that renders fantastic quality in less time and at a fraction of the cost….”

“Since the early ’90s, venture capital has been heavily concentrated in a few geographic regions. Last year, 78 percent of venture dollars went to three states: California, Massachusetts and New York. And more than 50 percent went to California alone….”

Albuquerque One of 26 Cities Targeted For Venture Capital

“Over the past three years, I have traveled 6,000 miles to visit 26 U.S. cities, including Albuquerque, and meet with people who are helping startups thrive outside of the coastal tech hubs. In the process, I have also learned a lot about the challenges these innovators face. And while some of the challenges each city breeds are different, there are also quite a few similarities….”

“At the Summit, we will discuss what governments are doing to create strong startup ecosystems. City and state leaders across the country are learning from Silicon Valley while capitalizing on what makes each of their cities unique. They are implementing plans to attract capital by offering angel tax credits or creating incentives to help get local investors off the sidelines. They are creating incubators and accelerators to support entrepreneurs at every stage in their company’s development….” See full Article in  March 23, 2017, Albuquerque Business Journal.

Residential Rentals and Sales Effected by Unemployment Rate

New Mexico unemployment rate highest in the nation for second month in a row

Residential rental  and sales markets in the metro area may be affected if the regional  unemployment rate remains this high.   The unemployment rate is an economic indicator about the strength of the job market and the status of household finances. Rising unemployment can lead to reduced levels of consumer spending and higher instances of delinquency, default, and bankruptcy. Low unemployment indicates a tight labor market, where employers have a tougher time finding people to fill jobs and often must pay more to attract them.

Bernillo County’s rate is better than the state overall

The U.S. Department of Labor released a new report Monday showing New Mexico with a 6.7 percent unemployment rate for January, surpassing Alaska and Alabama. This is the second month in a row that New Mexico has posted the highest unemployment rate in the country.  New Mexico’s unemployment rate remained unchanged from December. Alaska’s unemployment rate dropped to 6.5 percent, making New Mexico’s unemployment rate the highest.   The New Mexico private-sector job market has been struggling for several years. New Mexico’s unemployment rate in January 2016 was 6.5 percent. New Hampshire had the lowest January 2016 unemployment rate at 2.7 percent, followed by Hawaii at 2.8 percent.  The current unemployment rate for Bernillo County is 5.9% according to the area specific unemployment profile published by the  New Mexico workforce Connection.  This is better than the state and  below the national average.

Residential Rentals in Albuquerque and Rio Rancho remain stable

Residential Rentals in Albuquerque and Rio Rancho are still strong.  This is driven by a lack of new apartment communities coming on line in the past couple of years.  Currently, there are several apartment communities under construction.  So far, residential sales have remained steady from last year.   Albuquerque and Rio Rancho have not been hit as hard as the rest of the state.  We are hopeful, the area  unemployment rate will start to come down as we see increased construction in the better weather.

This is the first time New Mexico has had the highest rate

According to the Albuquerque Journal, this is the first time that New Mexico has had the nation’s highest unemployment rate, however, stubbornly high unemployment has dogged the state since 2006,  Albuquerque private sector jobs have declined by almost 15,000 between September 2006 when there were 318,200 private-sector jobs and September 2016 when there were only 3o3,300 private sector jobs.

The national unemployment rate is 4.8 percent. Employers added 238,000 jobs, higher than what was expected.Employers boosted hiring in 13 U.S. states in January, while employment changed little in 36 states. , New Mexico’s unemployment insurance trust fund balance was $378 million as of October.

Albuquerque Businesses Create West Downtown on Central

New Albuquerque Business Coalition

Albuquerque businesses want a strong retail and dining culture in downtown Albuquerque, this not only benefits the Albuquerque businesses  involved, it benefits the entire City. If you have driven through downtown Albuquerque on Central in the past few months you have  navigated through a thick forest of  orange cones, heavy construction activity and blocked-off side streets.  The construction on Central, through the heart of downtown, started last fall and will last through this August.  This is causing serious disruption for the small businesses along the corridor, especially on Central between Edith and Rio Grande. The businesses affected by this long construction phase need the support of our community to survive.

The small Albuquerque businesses along the western downtown section of Central between Eight and Rio Grande have been hit the hardest.  To help one another survive this common financial crisis,  they recently created West Downtown, a new business coalition.  The coalition meets weekly and they are cross-promoting each other’s businesses.  One recent promotion is the Westdown Wednesday, a weekly promotion with special discounts for customers and cross promotions between businesses as well.    They are also planning to have West Downtown T-shirts and signs.  Now is an important and cost effective time  to come out to shop and dine in West Downtown.

Albuquerque businesses say ART is only part of the problem

The main construction event is the Albuquerque Rapid Transit, (ART).  This is a $119 million project to create a bus lane running down the middle of Central Avenue between Louisiana and Coors boulevard. The project, is being built by Albuquerque contractor Bradbury Stamm, and extends nine miles down the middle of Central Avenue and through the heart of the city.

 ART spokeswoman Joanie Griffin said that West Central Avenue is one of the most impacted areas — but not just because of ART. Along with ART, there is a separate construction project on Rio Grande Boulevard in addition to Albuquerque Bernalillo County Water Utility Authority construction replacing underground infrastructure that is nearly 80 years old. One of the main beneficiaries of the completed ART project will be easier access and more traffic for the locally owned businesses on the route.

Len Romano, owner of Ripe Inc., an Albuquerque graphic design firm, said he wanted to get involved with the effort and lend his company’s services.  Romano said Ripe helped create the group’s name, logo and branding. “We’re happy to provide marketing and branding advice,” he said. “We feel fortunate to be a part of this community and together we’re building something remarkable … ”   He said Ripe moved to West Central because he saw the area expanding and wanted to be a part of it.

Below are just some of the businesses participating in West Downtown:

  • Albuquerque Little Theater
  • Vinaigrette
  • Aveda Institute
  • Duran Central Pharmacy
  • Garcia’s Kitchen

Should you allow cats or dogs in your rental home?

First, I believe renting to people with pet cats or dogs can be good business.   Approximately, eighty percent of the people applying to rent a single-family home own a cat or dog (“pets”).  This discussion is limited to these two types of pets. I do not recommend accepting renters with Parrots, but that is another story for another time.    In my thirty years experience, the risk and the cost of small-unsupervised children causing property damage above the security deposit is higher than the risk and the cost of dog and cat damage. This risk is harder to screen, as Fair Housing Laws do not allow most landlords to discriminate against families with small children.  Pet risk is also much easier to manage, and when managed correctly, pet damage rarely exceeds the security deposit.

The pet owning renter demographic provides a favorable supply and demand curve for landlords.  I would define a low risk renter as: a single professional with no children or pets that also has perfect credit, a spotless background check, plays well with neighbors, and has plenty of income to cover the rent.  Unfortunately, for single-family rental homes this renter is scarce.  They often prefer the no maintenance, amenity laden, high-end apartment over a single family home.  Further, they need to be looking for your rental home when it just happens to be vacant. Since, vacancy is normally the landlord’s biggest expense, occupancy percentages favor renters with pets.

When landlords allow pets their gross rental income is higher.  Renters are usually willing to compensate the owner for allowing their pets.  The common term in our area for this compensation is pet rent.  I recommend pet rent over collecting a separate pet deposit.  In the Albuquerque and Rio Rancho metro areas the landlord must pay interest if combined security deposits and pet deposits exceed one month’s rent. Pet rent is simply a higher rent for the privilege of renting with a pet. Be sure you treat everyone the same as to pet rent.  Further, a pet deposit can only be used to cover pet damage, while a security deposit can be used for rent and other charges the resident may owe, including pet damage. The extra pet rent is is not refundable.

To manage the risk, I recommend my clients accept pets on a person-by-person, pet-by-pet basis. I believe that three should always be the most pets allowed in a rental home. We find that when pets are well screened, pet damage, if any, rarely exceeds the security deposit.

 

 

 

Single-Family Rentals 2017 Tax Strategies

Real estate investors in single-family rentals should update their tax strategies annually.  Most investors in single-family rentals include their rental income (loss) on their personal tax return (IRS 1040). The IRS recently released its personal income tax changes for 2017. Changes to personal income tax rules are important to investors in single-family rentals as they need to look at the whole individual tax return  as they develop their single-family rental tax plan for 2017.  I timed this article for the first part of March, as many single-family real estate investors put off assessing their tax strategy for the current year until they are preparing their taxes for the year just passed   Remember these changes will not affect your 2016 taxes, which are usually filed in the next 30 days.

 These changes pertain to your  2017 taxes which most of you will file in the first three months of 2018.  I have chosen only a few of the updates for 2017 that I believe may be most helpful for single-family real estate investors. Be sure to check with your tax adviser if these or any other changes effective in 2017 need to be considered in conjunction with your tax strategy for your  single-family real estate investment portfolio.  There are other changes to personal income tax as well you may need to know. For a more detailed  look at these changes and other changes check out this tax change portion of the  IRS website.

The standard deduction for married filing jointly rises to $12,700

For tax year 2017, the standard deduction is up $100 from the prior year. For single taxpayers and married individuals filing separately, the standard deduction rises to $6,350 in 2017, up from $6,300 in 2016, and for heads of households, the standard deduction will be $9,350 for tax year 2017, up from $9,300 for tax year 2016.Tax brackets adjusted for inflation.

The individual income tax brackets have been adjusted for inflation

The good news is that inflation has been nominal, meaning there wasn’t a large shift upwards in the tax schedule. For tax year 2017, the 39.6 percent tax rate affects single taxpayers whose income exceeds $418,400 ($470,700 for married taxpayers filing jointly), up from $415,050 and $466,950, respectively.

Limit on itemized deduction rises

The limitation for itemized deductions to be claimed on tax year 2017 returns of individuals begins with incomes of $287,650 or more ($313,800 for married couples filing jointly).

Exclusion for Estate Taxes rises

Estates of decedents who die during 2017 have a basic exclusion amount of $5,490,000, up from a total of $5,450,000 for estates of decedents who died in 2016.

Changes to the AMT

The Alternative Minimum Tax exemption amount for tax year 2017 is $54,300 and begins to phase out at $120,700 ($84,500, for married couples filing jointly for whom the exemption begins to phase out at $160,900). The 2016 exemption amount was $53,900 ($83,800 for married couples filing jointly).  For tax year 2017, the 28 percent tax rate applies to taxpayers with taxable incomes above $187,800 ($93,900 for married individuals filing separately).

Tradition and Roth IRA phase-out adjusted higher

Among the various retirement tools at your disposal, the traditional IRA is among the most popular. Traditional IRAs are tax-deferred accounts, meaning you’ll pay tax once you begin making withdrawals during retirement. But, they can also provide an ancillary benefit of lowering your current-year tax liability. In 2017, the phase-out range for taking this deduction increases $1,000 to $62,000 to $72,000 for single taxpayers, and $99,000 to $119,000 for married couples filing jointly.For those of you investing with a Roth IRA — a retirement account with no upfront tax deduction, but which has the ability to grow tax-free for life — the individual phase-out to be able to contribute rose $1,000 for single filers to a range of $118,000 to $133,000, while it jumped $2,000 for married couples filing jointly to a range of $186,000 to $196,000. In other words, a few extra people should be able to contribute to a traditional or Roth IRA in 2017 because of these modest increases.

 

 

 

Rio Rancho Resource Guide

AMMRE is the premier property management company for Albuquerque and Rio Rancho. Rio Rancho properties make up a large percentage of our portfolio. We take pride in knowing the community and the market. If you are interested in renting a house or renting out your house in Rio Rancho we would love to here from you.

 

Rio Rancho

Please take advantage of this handy guide of Rio Ranch resources

Important Numbers

Non-Emergency Police/Fire # ………….. 505-891-7226
Utilities (Water & Sewer) ………………….
(After Hours) ……………………………….
505-891-5020
505-975-1581
Traffic Signals …………………………………..
(After Hours) ……………………………….
505-891-5016
505-896-7300
Municipal Court ……………………………….. 505-891-5999
Animal Control ………………………………… 505-891-5075
Code Enforcement ………………………….. 505-891-5862
Roads ………………………………………………. 505-891-7224

Rio Rancho Facts

Rio Rancho Census Quick Facts

Rio Rancho City Info

Important Websites

City of Rio Rancho Website

City of Rio Rancho Event Calendar

Rio Rancho 360

Rio Rancho Chamber of Commerce

Rio Rancho Convention and Visitors Bureau 

RRCVB Event Calendar

Santa Ana Star Center

Rio Rancho Public Schools

Utilities

MVD

Animal Control

Graffiti Removal 

Fair Housing

Sandoval Economic Alliance

Yelp Rio Rancho

Trip Advisor Rio Rancho

Taste of Rio Rancho

Pork and Brew

Self Directed IRA and Investment Property

Self Directed IRA and Income Tax

More people are purchasing investment real estate in a self-directed IRA.  The Albuquerque Metro economy, like the national economy, is improving as are retirement contributions.  Rentals still remain a good way to diversity a retirement portfolio.  It you are thinking of taking a distribution from an IRA and rolling it over into a self directed IRA  to finance an investment property be careful of the rollover deadlines.   According to Jim Hamill’s article in  On the Money, January 23, 2017. “Taxpayers who receive distributions from qualified retirement plans, or  IRAs, can avoid paying taxes by rolling the distribution into a new plan or IRA. It is not possible to use this strategy to avoid tax on required minimum distributions.

A qualified rollover must be completed within 60 days of the distribution. It is best to use a direct rollover, where the funds transfer from one trustee to another. This ensures the 60-day period is satisfied.

For various reasons, people often receive a distribution themselves and then accept the responsibility to roll the funds within the 60 days. This sometimes doesn’t go well.

Distributions from qualified plans, 403(b) plans and 457(b) plans that are eligible for rollover, require the administrator to notify the participant 30 to 90 days before the distribution of the ability to do a direct rollover.”

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