Finally, there is some good news for the Metro’s single-family home investors.  Rents are rising in the Metro Area.  If you have not increased your rent in over twelve months, I believe the rent for your property may be increased 5% to 10% this year.  While the average rent per square foot works for apartments this formula does not work for single-family homes.  Apartment rents began increasing last year, single-family home rents in the metro area began rising significantly in January.  House rent increases are driven more by location and condition of the home than by square footage.  For a more in depth discussion on the metro areas housing demographics see my last post, “Domain Demand deconstructed” twister.

The first step in determining the fair market rent for your home is to analyze the latest asking rents of similar homes in the area.  As there is no MLS for rentals and most rentals are not listed in the newspaper you may have to drive around and make some calls from yard signs. If you have a property manager they will know the current rents in your neighborhood, and can also pull recent actively reports from internet sources, including other management companies listings, MLS, relocation networks etc.

Once you know the current market rent you need to consider adjustments related to your unique property.  The follow are some on the things I take into consideration: the average cost for a resident to move at your price point, the number of current available rentals in the same school district, the time the resident has spent in the home, the status of the lease (eg. month-to-month), payment history, age and condition of carpet and paint, etc.

Q: Can the landlord claim their residents as dependents for Income Tax purposes?
A: No, darn it. The following is my checklist of things to consider when getting together your rental property information for your income tax advisor. Please consult you tax advisor as to what applies to your tax return. If you are working with a professional property manager some of this information is gathered for you as part of their services.
Q: What are some of the items I should include in my gross rental revenue
A: All monies collected from renters (and kept). This may include:

• Base rental rate

• Cleaning fees (cleaning expenses are deducted in expenses)

• Parking fees

• Amenity fees

• Pet fees

• Any portion of a security deposit that you keep (e.g.: funds applied to unpaid rent)

Q: What can I deduct from rental income?
A: Documented expenditures paid out during the tax period directly related to the property or rental activities during the time the property is a rental. Some items such as depreciation and/or amortization expenses may also be deductible. Restrictions apply on deductions, so be sure to check with your tax advisor. Items to consider include:

Investment expenses

• Property taxes

• Property insurance

• Hurricane/wind/flood insurance

• Liability insurance

• Mortgage interest

• Private mortgage insurance (PMI)

• Refinance and/or closing fees
• Homeowner’s Association
• Dues Special assessments (may be amortized under capital improvements) Travel expenses to attend meetings
• Operating Expenses
• Utility bills, including power, gas, water/sewer, phone, cable/satellite TV service, Internet service, etc.
• Housekeeping expenses
• Expenses incurred to repair damages
• Out-of-pocket payments/deductibles for insurance claims
• Maintenance expenses, including pest control, lawn and garden upkeep, preventative maintenance, etc.

This article is timely and well done. I thought I would share it with you so you do not need to read the “OCC and OTS Mortgage Metrics Report, Third Quarter 2010”. However, if you suffer from insomnia I highly recommend reading it. Journal of Accounting: January 11, 2011 Foreclosures Climb, But Overall Mortgage Performance Stable Mortgage servicers reported a 31.2% jump in new foreclosures in the third quarter of 2010, but the nation’s mortgage portfolio showed some signs of stabilizing as the rate of serious delinquency dropped to its lowest point in five quarters, and the percentage of mortgages in good standing remained unchanged. The OCC and OTS Mortgage Metrics Report, Third Quarter 2010 said 382,751 new foreclosures were initiated in the quarter—the most in more than a year. The report also indicated that “new foreclosure actions are likely to continue rising as alternatives for seriously delinquent borrowers are exhausted.” The report covers about 64% of all first-lien mortgages in the country—about 33.3 million loans with $5.8 trillion in outstanding balances. The report said 87.4% of all mortgages were current and performing in the third quarter, the same rate as the previous quarter but slightly better than the 87.2% rate in the year-ago period; 5.8% of all loans were seriously delinquent (60 or more days past due, or 30 or more days past due in the case of borrowers in bankruptcy), down from 6.2% a year earlier. However, the report noted a slight uptick to 3.2% in the rate of loans delinquent between 30 and 59 days. While the number of loan modifications declined by 17% from the previous quarter, lenders continued to aggressively pursue principal and interest rate reductions of loans they did modify. In the overall portfolio, 88.2% of modifications made in the third quarter reduced principal and interest payments; and 54.1% reduced monthly payments by more than 20%.

Listening to the State of the Union address, I was ecstatic when the President said he would look into relief from the new 1099 rules effective for 2011 and 2012. I am sure I looked ridicules cheering and jumping up and down if front of the TV, but the topic is dead serious. If you are not familiar with the new rules affecting rental property, you can refer to my previous blog entry “Attention Landlords! The IRS Has Something New, Just For You”
The following Journal of Accountancy article, although very dry reading, provides an excellent recap of where the issue currently stands. I will continue to keep you updated as things progress.
Journal of Accountancy: January 27, 2011
New 1099 Rules: President's Speech Offers Hope for Some Relief; Exceptions for Rental Income Reporting Remain Vague
For small businesses that were dreading the thought of having to produce a Form 1099 for every payee to which they paid at least $600, President Barack Obama offered the prospect of relief in his State of the Union speech Jan. 25 when he said, “We can start right now by correcting a flaw in the [health care] legislation that has placed an unnecessary bookkeeping burden on small businesses.”
The Patient Protection and Affordable Care Act, PL 111-148, caught many by surprise when it became known after passage that payments to corporations are no longer exempt from information reporting requirements after 2011 and that 1099s would be required for purchases of goods as well as payments for services. The IRS National Taxpayer Advocate estimated that the new rules affect approximately 40 million businesses (including 26 million sole proprietors) and other entities, which will have to issue a Form 1099 for everyday transactions, such as purchase of a printer from an office supply store if it costs at least $600.

Q: Can the landlord claim their residents as dependents for Income Tax purposes?
A: No, darn it. The following is my checklist of things to consider when getting together your rental property information for your income tax advisor. Please consult you tax advisor as to what applies to your tax return. If you are working with a professional property manager some of this information is gathered for you as part of their services.
Q: What are some of the items I should include in my gross rental revenue
A: All monies collected from renters (and kept). This may include:
• Base rental rate
• Cleaning fees (cleaning expenses are deducted in expenses)
• Parking fees
• Amenity fees
• Pet fees
• Any portion of a security deposit that you keep (e.g.: funds applied to unpaid rent)
Q: What can I deduct from rental income?
A: Documented expenditures paid out during the tax period directly related to the property or rental activities during the time the property is a rental. Some items such as depreciation and/or amortization expenses may also be deductible. Restrictions apply on deductions, so be sure to check with your tax advisor. Items to consider include:
Investment expenses
• Property taxes
• Property insurance
• Hurricane/wind/flood insurance
• Liability insurance
• Mortgage interest
• Private mortgage insurance (PMI)
• Refinance and/or closing fees
• Homeowner’s Association
• Dues Special assessments (may be amortized under capital improvements) Travel expenses to attend meetings
• Operating Expenses
• Utility bills, including power, gas, water/sewer, phone, cable/satellite TV service, Internet service, etc.
• Housekeeping expenses
• Expenses incurred to repair damages