What You Missed May 2013 General Meeting
by Robert Davis
SREIA Panel of Experts
Jerry Davies, Davies & Kerr
Mike Buice, L&M Insurance Group, Inc.
Jerry Pappas, Dennis Realty
May 7, 2013
We had three expert guest speakers tonight. Jerry Davies is an expert in real estate planning and tax laws. Mike Buice is an expert in property and casualty insurance, liability insurance, and commercial lines of insurance. They were joined by Jerry Pappa, an expert in residential property management.
Jerry Davies started the talks. He lives in the Tampa Bay area. He talked about the new tax laws and how they will affect our tax returns. One thing the IRS is starting to crack down on is tracking whether you file 1099’s for all your contractors whom you pay over $600 in one year. And the IRS is being more stringent about title companies issuing form 1099’s at property closings.
Jerry talked about effective uses of our conventional and Roth IRA’s. By putting our IRA with a facilitator company like Advanta, we can invest in many different things other than stocks and bonds.
Here are some other things Jerry said. In most cases claiming for a home office is not a good idea. It may raise a red flag for your tax return. If we have an unincorporated business, we should employ our under-18-year-old kids. We can pay them a good salary with good tax advantages. Also if we exit our corporate job, we can do a ROBS, or Roll Over Business Startup. We can do this by setting up a C Corporation with a 401k plan. We then transfer our old corporate 401k plan into our new 401k plan and self-direct it. Jerry also talked about asset protection, passive income versus making over $150,000 per year, the 1099 for cancelled debt, and doing an installment sale of a property. Also if we sell a mortgage we own at a loss, we can claim that loss for tax purposes. Jerry is a CPA and a partner in Davies & Kerr Consulting and he has great knowledge of tax laws, specifically for investors.
Next we heard Mike Buice talk about various types of insurance. In hazard insurance we can choose a DP1 or a DP3 coverage. The DP1 is cheaper, but does not cover burglary or theft or accidental water damage like a DP3 does. Houses 30 years old and older must have a four-point inspection before they can be covered by new insurance. Mike also talked about wind mitigations, liability insurance, umbrella insurance, and the difference between builder’s risk and vacant property insurance. Builder’s risk applies only when we are actually rehabbing or building on a property. Vacant property insurance covers when we have a vacant property waiting to sell or rent.
Mike mentioned that apparently only Citizens Insurance will cover for sink hole repaired houses now. But he said if they find a crack somewhere they will deny coverage. When we have a claim for hazard insurance, he recommends we use an independent adjuster to help get the full value we should from the insurance company. Mike said our insurance policy will cover for catastrophic damage versus just sink hole damage. Mike is with L&M Insurance Group, Inc. and has a vast knowledge to handle any insurance need we might have.
Jerry Pappa, who is with a property management company, talked about some of the liabilities we must watch out for when handling rentals. Always be careful not to discriminate against ethnic groups, color, and other factors when determining if someone may rent from us. Another possible liability is vicious dogs. For example, insurance companies won’t cover certain vicious dogs, including pit bulls, Rotweilers, German Shepherds, Huskies, Alaskan Malamutes, Doberman Pinchers, Chows, Dalmatians, and others. So we need to be aware if a tenant has or acquires a vicious dog. Some other hazards are cracked windows or missing screens, poor lighting around the rental, and even second hand smoke from other tenants. He also said an absolute must is to change the locks every time a tenant moves out. This protects our property and our future tenant from the old tenant going back inside and causing a problem. Jerry said we need to take move-in photos and also have a mid-year inspection of our rentals. Also, we should always do a background check to avoid renting to someone who might do criminal activities on our property.
Jerry mentioned doing proper maintenance on rentals. One big cause of fires in rentals is from a clogged-up dryer vent. These need to be cleaned out on a scheduled basis to prevent this. Tenants need to replace AC filters on a regular basis as well. Dirty filters strain the AC system and make them less efficient at cooling or heating. Also, any HOA fee must always be paid. The HOA can attach a lien for delinquent fees on a property and eventually even foreclose and take the property.
Mr. Pappa said now is a good time to be buying properties. We should however, do our homework and always buy in a good area. Although war zones and declining areas may be much cheaper to buy in, they are less likely to appreciate in value, the properties are generally harder to manage, and they are harder to sell when we want to cash out. He gave some figures that indicate property prices are generally rising. The months-on-the-market length is shortening and would indicate prices should continue going up. Jerry is a team leader at Dennis Property Management. They make sure all the right things are done when managing properties.