5 Ways to Get Money for Home Renovations

One of the biggest challenges in owning a home or rental property is the need to pay for repairs. Depending on the condition of your property, the cost may be minor, or if maintenance is long overdue, your costs could be in the thousands to repair and renovate the property.

In this article, we’ll give you some easy tips to get the money you need to flip your house and either keep it or resell it for a profit.

1. Drawing on Savings for Renovations

Savings is the most traditional and challenging way to fund the improvement of your property.

If you’ve been saving for years in anticipation of the big renovation, then you’ll be set; however, most of us won’t have the money saved specifically for this purpose and it may set back other goals that you have planned.

2. Home Equity Line of Credit (HELOC)

Another very popular option is the home equity line of credit or HELOC. In short, the HELOC works something like a secured credit card that allows you to borrow against the equity in your home – the difference between what it’s worth and what you still have left to pay on it.

Home equity lines are generally less expensive than other forms of borrowed capital and carry reasonable interest rates. This is low risk for lenders as their capital is protected by your equity in the event that you fail to make payments.

3. Refinance Your Way to Home Renovations

Instead of a HELOC, you can also opt for a full refinance. This will get you the best interest rate and allow you to get cashback for repairs and renovations after the closing of the refinance.

Depending on the loan program, you may need to pay closing costs; however, the savings on interest will make it more than worthwhile in the long run.

In addition to getting the cash you need, this will also help get you out of an adjustable or high-rate mortgage and lock in a low fixed-rate mortgage.

4. Private and Hard Money Lenders

If your plan is to sell the property for big profit, you may want to consider speaking to private and hard money lenders.

These loans require no credit check (in most cases) and the loan is secured against the property.

Private lenders will loan you the money for a fixed period – usually four months to a year – to quickly fix up the property and put it on the market.

At the end of the term of the loan, you’ll need to sell the property, pay back the loan in full or refinance.

Private money typically carries with it high interest rates, often as much as 16%, due to the increased risk these lenders take.

5. Real Estate Investors

There’s yet another option that isn’t so common:

You can partner with a local investor to fund your fix up and share the profits once the property is sold.

If you’re not in the position to take out a loan, but know that your property has tons of potential, there may be a local investor that will provide the funds as part of a joint venture.

The investor will pay for all the repairs and help you sell the property. At closing, you’ll split the proceeds and never pay a cent on interest.

Picking the Best Path to Home Renovations

There you go: 5 straightforward paths to getting the money you need to make your property a pearl.

Choose the option that fits with your goals and financial situation: one of these is likely to work for you.

Just because your house will be super-marketable after the renovations, doesn’t mean you have to sell it. You can keep it and enjoy the modern finishes as long as you like: it’s your flip!

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Security Deposits In Massachusetts: What Every Landlord Should Know

The security deposit is a common source of contention between landlords and tenants. It is also one of the most heavily regulated aspects of tenant law in Massachusetts.

Security deposits constitute an added safety layer in a very tenant-friendly state. If you are planning on holding a security deposit, here are some things you should know.

Why a security deposit?

A security deposit is intended to protect the landlord against unpredictable tenants. Although the landlord holds this deposit, it remains the property of the tenant.

By law, a Massachusetts landlord cannot charge a tenant more than one month’s rent for a security deposit. As soon as the landlord receives it, they must provide the tenant with a receipt that includes:

  • the name of the person who receives the money — if a property manager handles the transaction — and the name of the landlord
  • the amount of the deposit
  • the date the landlord (or the property manager) receives the deposit

As the landlord, you should also present the tenant with a signed detailed report — within ten days — regarding the rental unit’s condition. This report is known as the Statement of Condition, and it will be used in case of conflict later. The tenant has 15 days to return the Statement of Condition to you, with any additional notes as needed.

Within 30 days of receiving the security deposit, you will need to deposit it in a separate, interest-bearing account in a Massachusetts bank. The deposit should be in your tenant’s name and protected from creditors. You will also need to provide your tenant with a receipt indicating where the security deposit is held and the account number.

Each year, the tenant should receive a receipt reflecting the interest earned on the security deposit. You can either deduct this amount from the rent or pay by cash or check.

The landlord has 30 days to return the security deposit to the tenant after the last day of the lease. You should return it in full and with interest. If you make any deductions, you will need to provide your tenant with an itemized list of the repairs. You will have to provide the estimates and receipts for each and “swear under penalties of perjury” that these are accurate.

When can the landlord keep the security deposit?

The purpose of the security deposit is to provide the landlord with the money necessary to cover potential repairs and holding costs. However, you can’t use it for everything.

You can only deduct repairs from the security deposit if you have a Statement of Condition signed by yourself and your tenant. You can’t use this security deposit for any item mentioned in the statement, even if it has gotten worse during the tenant’s occupancy.

Damages due to normal wear and tear aren’t eligible either: the longer the tenant occupies the unit, the less likely it is that you can deduct the repairs. If you wish to use part of the security deposit to fix an issue while the tenant is occupying it, you will need their agreement.

For any deduction, you will need to provide a detailed receipt. It is tempting to cut the cost and do the repairs yourself. However, hiring a contractor and saving their invoice for your records is the safe way to go.

You will need to hold the repair records for at least two years. These records should include the date of the repairs, a detailed description of the damages, receipts, and itemized list of costs incurred. Statutorily, anyone is entitled to see them.

You can also use the security deposit for unpaid rent and real estate tax increases if agreed in the lease. However, you can’t use it for eviction costs or attorneys’ fees.

Should I ask for a security deposit?

Security deposits should help a landlord protect their property while a tenant occupies it. However, they can become a liability when not handled properly.

If the landlord fails to comply with one of the steps described above, the tenants are entitled to sue for up to three times the amount of the deposit, plus attorney’s fees, even if they still occupy the unit.

Unfortunately, the security deposit may not cover the total cost of the repairs or unpaid rent, leading some landlords to avoid security deposits entirely.

Security deposits often offer little protection against bad renters and can cost you a lot if you aren’t familiar with landlord-tenant law.

Have you had any issues with security deposits? Please leave a comment.

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How to Evict a Bad Tenant in Massachusetts

Sooner or later in any landlord’s life comes the dreaded task of evicting a bad tenant. As Massachusetts is known notoriously as a tenant-friendly state, removing a troublesome occupant is even more complicated for the owner. In the best-case scenario, it can be a lengthy and expensive process during which the landlord must be prepared to respect the procedure to the letter. Failing to do so will further worsen the situation for the aggrieved landlord.

If you are considering removing a bad tenant from your Massachusetts property, here is your guide:

What You Need to Know Before Evicting a Bad Tenant in Massachusetts

To get rid of an unpleasant tenant before the expiration of their lease, you as a landlord must have valid grounds for eviction. Nonpayment of rent is the most common reason for eviction. You may also want to expel a renter who is breaking the terms of the lease or otherwise creating a nuisance to the other occupants or destroying your property, for example. Eviction is a more involved process as you need to prove that your tenant is violating the lease, but you may be able to justify the removal for ‘just cause.’ Finally, you may wish to exercise your power as a landlord and terminate a tenancy at will, also known as a ‘no-fault eviction.’

On the other hand, it is illegal in Massachusetts to evict a tenant on the bases of race, religion, nationality, gender identity, sexual orientation, age, appearance, marital status, disability, status as a veteran, any financial aid (e.g. rent subsidy or public assistance) they may receive, etc.

Although emotions often run high for both the landlord and the tenant during an eviction, Massachusetts still provides a strict procedure that you must adhere to if you want to evict a tenant successfully. However, as frustrating and time-consuming as the eviction process is, a judge is the only person with the legal ability to order a tenant to move out. As the landlord, you should refrain from taking matters into your own hands and attempt to force your renters to abandon the premises⁠—for example, by harassing them or their family, removing their possessions from the building, changing the keys, or cutting off utilities. Doing so could put you at risk: the tenant could sue you, get a temporary restraining order against you, or demand financial reparation of at least three months’ rent, plus any court costs and attorney’s fees.

The Bad Tenant Eviction Process in Massachusetts

The eviction procedure is also known as ‘summary process.’ Though designed to proceed quickly, the summary process can still take a long time, and additional delays are possible for unprepared rental owners.

The first step to remove a bad tenant in Massachusetts is to issue a Notice to Quit. This legal document both formally notifies the tenant that their tenancy is over and informs them of your intent to start the eviction process. While the Notice to Quit should include the reasons for the termination and the date upon which the tenant must move out, the delays in ejection vary depending on the grounds for the eviction: 14 days for rent nonpayment, 30 days for a no-fault eviction, and usually 7 days for a ‘just cause’ eviction.

Similarly, the landlord must be able to prove that the tenant did receive the notice. Although there is no rule as to how the notice should be delivered, court officials recommend service by a constable rather than by mail (even if certified). The date the notice is served is known as the ‘entry date.’

If the tenant refuses to relocate on time (i.e., fails to comply with the notice), the landlord must then file the eviction case—also known as the Summary Process Summons and Complaint—in the local district court or housing court. By law, the court process must start on a Monday between 7 and 30 days from when the summons was served, and a constable must serve it. The summons will state the date of the trial and the time by which the tenant may respond to the subpoena.

In the meantime, the tenant can also file for ‘discovery’ to request information about the case. By doing so, the renter will automatically force the court to postpone the trial by two weeks. As stipulated by law, you must respond to this request within ten days of receipt. The renter can also assert defenses and counterclaims against you, which further delays the hearing. Unless you can deny the tenant’s claims within ten days, a judge may admit these at trial.

Getting Ready for Court

In any event, going to court for eviction is a strenuous and costly process. Both landlord and tenants should be prepared to prove their case with hard evidence: documents, records, and testimonies from witnesses who can be cross-examined by the opposing counsel. Given the complexity of these cases and the necessity to stick to legal procedures for the case to be admitted, you should hire a lawyer specializing in tenant-landlord law to limit the likelihood of a judge dismissing the hearing due to a procedural error.

Also, you can withdraw your request for eviction. You will have the opportunity to reach an agreement with your tenant either directly or with the help of a mediator in the housing court. If the parties don’t reach an agreement, you can seek a trial in front of a judge. While the latter often takes more steps and procedures, you can usually be heard in front of a judge the same day. The judge rarely renders the decision on the same day and will place the case ‘under advisement’ and issue a written decision a few days or months later. Afterward, the tenant has ten days to appeal.

If the judge finds in favor of eviction for nonpayment of rent or another fault of the tenant, you can physically evict the tenant as soon as 12 days after the Court makes its decision. A constable and a mover will expel the tenant, and store any of the tenant’s remaining possessions in a publicly licensed warehouse. However, if the tenant is elderly, disabled, or not at fault, the court will allow some time for the tenant to move out–from a few months to a year.

Therefore, terminating a tenancy at will (without a lease) is not impossible, although it can take many months or years before the landlord can regain possession of the property if the tenant isn’t willing to move out. If the market is competitive or the tenant has school-aged children or low income, it is even more likely that the judge will take a lenient course. They will give the tenant a significant amount of time to find suitable housing.

Even in the best-case scenario, getting rid of a bad tenant in Massachusetts is a pricey and time-consuming process. It could be months before the tenant effectively moves out of the property.

Avoiding Litigation Hassle: How to Strike an Out-of-Court Settlement

Whenever possible, experts recommend bypassing the court and negotiating directly with the tenant to avoid a financially and emotionally painful process. The best policy is to encourage the tenant to move out voluntarily. Although counterintuitive, helping a struggling tenant move out (or through a rough patch) is usually a much cheaper way to get your property back than dive into the litigation process.

A furious tenant is also more likely to damage your property, which would leave you with additional costs. By discussing your tenant’s circumstances with them, you can come to an agreement that will satisfy you both without the hassle of going to court. As the landlord, you could offer to lower the rent temporarily if the tenant has financial difficulties or give them some time to resolve their issues with another tenant.

Offering ‘cash for key’ is a popular option among landlords attempting to get rid of bad tenants with minimum hassle. Tenants are often as eager as the landlord to avoid court and the emotional burden as well as financial implications⁠—like a lower credit score⁠—that may affect their chances of finding another place to live.

When It’s Easier to Let Go

Being a landlord is not for everyone. In Massachusetts, getting rid of a bad tenant can be a lengthy, costly, and emotionally taxing process. A nuisance renter can quickly transform a profitable investment property into a financial nightmare. If the tenant is particularly aggressive and may cause significant damage to your property, tackling the eviction process may be an additional burden that can go on for years. Besides the potential loss of income, you will be responsible for maintenance, property taxes, and any other damage caused by the tenant.

Selling (or buying) property with a bad tenant in place can be a challenge for the seller and buyer. However, it can be worth investing in an alternative solution provided by real estate investors specializing in handling problem tenants.

Have you ever dealt with eviction in Massachusetts? How did you remove your bad tenant?

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Home Improvement Projects for Max Resale Value: Get Your Money Back

Most homeowners have grand projects in mind for their homes; from shiny new bathrooms to additional finished space, there are many ways to turn an average house into your dream one. However, when the time inevitably comes to sell, many are disappointed when they find out that the costly projects they completed added little to no value to their property. When it comes to investing your hard-earned money into your house, it’s always a good idea to keep in mind which home improvements are the most likely to help when it comes time to sell.

Since not all home updates are created equal, we collected renovation projects that have the most attractive return on investment and are most likely to improve your resale value.

First Impression Is Priceless

When describing their dream home, a good number of homeowners tend to focus on the inside: granite countertops and stainless appliances in the kitchen, bedrooms on the same floor, lots of light, and so on. It seems logical to adopt their approach since you will spend most of your time at home indoors. However, when it comes to resale value, the importance of curb appeal takes on a new dimension. Usually, potential buyers drive by the properties they are interested in before deciding to visit it or not. House hunters immediately eliminate houses with a neglected exterior from their short-list.

Therefore, it’s not surprising to see that some of the home improvement projects with the highest return on investment (ROI) focus on the curb appeal of the property. Every year, Remodeling produces a study comparing the average cost of 22 remodeling projects with the value those projects retain at resale in 136 U.S. markets, taking into account the price range and the geographic location of the property. According to the 2019 report, you can recoup 97.5% of your money by upgrading your garage door. Updating the outside of your house by adding manufactured stone veneer elements will also help with the resale of your home, and you could regain nearly 95% of your renovation costs. Replacing your entry door with a steel model is also a good investment: you could recover almost 75% of your investment when selling the house. Although not accounted for in the report, regular yard maintenance—such as a recently mowed lawn, some flowers, and freshly-spread mulch—goes a long way to add curb appeal to your house at a minimal cost.

A lot of buyers put outdoor entertainment spaces high up on their wish lists. Hence, it is no surprise that you can recoup 75.6% of the cost of a wood deck, at resale. In comparison, composite decks and backyard patios, which serve the same function but are more expensive to build, have a cost-to-value ratio of 69.1% and 55.2% respectively.

Less Is More: A Sensible Rule for Home Improvement Projects

When starting a major renovation project (for example, remodeling a kitchen or a bathroom), many homeowners are tempted to go all-in and achieve their ‘Pinterest-fueled’ dreams of high-end finishes. However, if you plan to sell your house in the next couple of years and want to get the most bang for your bucks, you are better off sticking with smaller upgrades rather than a significant remodeling.

Kitchens and bathrooms are often selling points for homebuyers. To achieve a modern appearance that will make your house stand out without breaking the bank, you should consider some or all of the following for your home: a fresh coat of paint, new energy-efficient appliances, updated hardware, and midrange countertops. Minor kitchen remodels can help you recover over 80% of your investment compared to a major kitchen remodel, which has a cost-to-value ratio of 62.1%.

Also worth mentioning is how deferred maintenance may scare off buyers who are worried about the potential cost of significant repairs, including roof and siding. Besides, some of these maintenance issues can also harm an owner’s chance of benefitting from certain types of government-backed financing: VA, FHA, etc. Staying on top of house repairs may not be as glamorous as marble countertops, but it is a good use of your money. New windows have a cost-to-value ratio of 73.4% to 70.8%—depending on whether they are vinyl or wood—and you can recoup 75.6% of the price on vinyl siding replacement. Due to the overall cost of the project, replacing a metal roof has a cost-to-value ratio of 60.9%. Since metal roofs have a life expectancy of 50 years or longer, it may not be the best use of your money if you are planning on selling your property. On the other hand, you can salvage, at resale, close to 70% of the cost of an asphalt shingle roof replacement.

Home Improvement Projects You Should Avoid

It is possible to get carried away when renovating a house. As a result, many homeowners are surprised to find out that projects they thought would be an excellent investment are of little interest to likely homebuyers. When considering resale value, a good rule of thumb is to compare your property to the ones in the same neighborhood.

The worst home improvement projects for resale are the ones that make the house appear too fancy relative to the rest of your target market. If you over-improve your house by adding elements that are out of the price range of potential buyers—marble countertops in a midrange home, for example—you’ll be hard pressed to find a buyer willing to pay more money for something that is not a priority for him or her. Conversely, if all the other houses in your neighborhood have an element that your home is missing (e.g., an extra bathroom or bedroom), prospective homebuyers may choose a different property instead. High-end projects and extensive remodels tend to have a lower cost-to-value ratio than their lower-end, smaller-scale counterparts since these posh projects are more expensive. For instance, the cost-to-value ratio of a major kitchen remodel is 62.1%, while a minor one is 80.5%.

Another mistake you could make as a homeowner who intends to sell their house in the next couple of years is to spend too much money ‘personalizing’ your house. If a feature only appeals to a limited market, your chances of recouping the expenses of your home improvements are low. For example, the cost-to-value ratio of a universal design bathroom remodel (accessible to people with a handicap) is 62.5%. Another extravagant and impractical investment are swimming pools: they are expensive to build and maintain—although some may feel like they cannot live without one, it is a hassles and liability for others.

Improve Your House or Not? A Simple Guide

The bottom line of any home improvement project when it comes to resale is that you will rarely redeem 100% of your outlay. Some factors are entirely out of your hands, like the overall market trend: as the market slows down, so does the ROI of any home renovation.

A good rule of thumb when deciding whether to enhance your house is to consider how long you are planning to reside there. If you intend to inhabit it for many years and improving it will help you live better and stay longer, then you should proceed without necessarily prioritizing how much of your money you will get back during resale. Nevertheless, if you are considering selling your house within the next couple of years, you are better off keeping repairs to a minimum.

If you need to sell your house as quickly as possible and are not interested in expending more money on it, it is worth exploring selling it ‘as-is’ to a local investment company for a quick and hassle-free closing.

When buying a house, what are the improvements at the top of your wish list? What are the ones that will make you reconsider purchasing a property?

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Efficient & Durable Rental Design: Keeping Maintenance and Re-Leasing Costs Low

If you’re holding your rental property with the intention of making a profit, it’s valuable to consider green and sustainable design strategies to minimize your operating expenses, reduce capital expenses, and improve tenant demand. In most cases, sustainable design requires minimal additional expense and stands to reduce your costs and risks in rental property ownership. The reduction in energy expense and cost of replacing damaged flooring, counters, and appliances lends to a fast payback period on upfront renovation cost and long-term tenant satisfaction.

Durable Materials

Tired of replacing and refinishing indoor surfaces and landscaping every time a tenant moves out? Look to durable materials and xeriscaping to keep your costs low and improve tenant appeal at the time of re-leasing. Consider the typical condition of rentals in the community and the standard level of finishes expected by clients. When you’re shopping for counters, flooring, paint, and other finishes and fixtures, look for those that are of sufficient quality, resistant to staining/abrasion and are green certified and regionally sourced. Examples of durable materials include vinyl flooring, latex paint, and recycled glass or Corian counter tops. Regarding outdoor areas: keep it simple and use native plantings that require minimal watering, upkeep, and catch the eye of prospective tenants.

Building Envelope, HVAC, Moisture Control and Air Quality

Keeping warm, cool, and preventing major moisture-related repairs has a lot to do with air and it’s quality within an interior space. To prevent the loss of conditioned air, and wasted energy on heating and cooling, make sure there is weatherstripping around all doors and windows, and if the budget permits, replace all windows with new Low-E dual-pane gas-filled windows. Keeping the Sun out is as important as keep the heating and cooling in!

Whenever possible, also update/upgrade HVAC units to SEER16 minimum, and apply appropriate R-value insulation to ducting, as well as water pipes. Don’t forget a simple and low-cost upgrade: a digital/programmable thermostat. Another important feature to consider is equipment that reduces indoor moisture to prevent mold, mildew and rot in walls, ceilings, and subflooring. Effective solutions include heat exchangers, dehumidifiers, and hydrostatic sensors for exhaust fans in bathrooms and kitchens.

Energy Efficient Lighting & Appliances

Even if you’re not paying the electric bill for your tenants, it’s good to install LED lighting. It’s cost effective, environmentally friendly, required by code (in many instances), and appeals to modern tenants. The same applies to Energy Star appliances, such as refrigerators, dishwashers, and clothes washers, that are also typically more durable than unrated appliances. Another great strategy that works in conjunction with LED lighting are occupancy sensors that automatically turn lights on and off according to the presence of people in the room. Tenants appreciate the convenience and it can cut energy expenses drastically.

Reduced Risk and Enhanced Demand

Take these design strategies, which won’t cost significantly more in the short term, to save yourself a tremendous amount on operating expenses and re-leasing costs when it’s time to find a new tenant. Aside from saving you on operating expenses, energy efficient design and durable materials will protect you from excessive and unexpected capital expenditures, as well as having the benefit of keeping your tenants happy and vacancy rates low.

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When Capital Gains Taxation Applies to Residential Real Estate

Current and future taxes affect a real property’s return on investment. For residential real estate investors, capital gains taxes vary by situation. Why a property was acquired and how it was occupied will determine whether an investor will owe capital gains tax upon resale.

What Are Capital Gains Taxes?

Capital assets are generally defined as significant properties, owned by a taxpayer, that have a longer useful life of more than one year and would not be offered for sale in the normal course of business. Some governments charge taxes upon a property’s sale on its ‘capital gain’ or the difference between the original cost of the property and its later sale price. Federal capital gains taxes apply to all sales of private real estate in the United States. Individual states treat capital gains in different ways; in New England, all states (except New Hampshire) charge capital gains taxes.

The U.S. government has been collecting capital gains taxes since 1913. Federal capital gains tax laws have changed many times since then; the most recent changes came with the ‘Tax Cuts and Jobs Act of 2017’, starting with the tax year 2018. That recent act continued capital gains taxation, but it altered the tax rates, based on a taxpayer’s tax bracket.

Capital Gains Taxes on Residential Real Estate

Privately owned residential real estate is subject to federal capital gains taxation, though some special considerations apply to owner-occupied homes. By federal law, home sales are exempt from capital gains taxes when the seller has owned and used a home as their primary residence for two out of the last five years. If those conditions aren’t met, the exemption may also be allowed when ‘unforeseen circumstances’ occur, such as job loss, divorce, or family medical emergency. The exemption applies to capital gains up to $250,000 for individuals and $500,000 for married couples.

According to the I.R.S., the original cost of property—or its ‘basis’—includes its price, the fees and commissions paid to buy it, and the costs of any major improvements made to it after purchase. For property acquired by inheritance, the basis is usually the property’s market value as of the decedent’s death date. Likewise, the basis for a property received as a gift is its market value on the date it was given.

Residential real estate used mainly for rental does NOT qualify for the owner-occupancy capital gains tax exemption. However, if only a piece of the property was rented or used for business purposes while a substantial part was the owner’s primary place of residence, capital gains for the owner-occupied section is probably tax-exempt. In this situation, the I.R.S. provides detailed guidelines for calculating the portion of capital gains that would not be subject to taxes.

Planning Up Front

The ideal way to minimize capital gains taxes is to keep detailed records. Those records should include (a) complete information about the property’s use during the taxpayer’s ownership and (b) proof of all costs of any major improvements made after the property was acquired. The records will substantiate the taxpayer’s occupancy claims and support their basis estimate. When a residential property was purchased expressly for rental use, incurring capital gains taxes will be a near certainty at the time of sale. Some investors will set aside a portion of rental for those taxes; others account for them as a deduction from future sale proceeds.

Expert advice will help a residential-property buyer realize the highest return on investment. A good accountant stays current on recent real estate tax regulations, and they will be able to guide an investor to the investor’s best approach. Lastly, a real estate professional with specialized training and investment property experience is crucial to helping both buyer and seller achieve maximum returns.

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Should I Sell My House or Turn It into a Rental Property?

Sometimes, a homeowner can choose whether to sell a single-family residence or keep it for rental income. This option often presents itself to an owner who has saved enough cash to use as a down payment for a new primary residence. Also, this decision-making predicament is typical of someone who has inherited a house, has purchased a building for a child’s college years, or is relocating temporarily. Every one of these choices is viable under different circumstances; a homeowner who considers all the associating factors of each option will more likely reach the best conclusion.

Legal and Financial Considerations: Your Key to Navigating the Slippery Road of Rental or Occupancy

Local zoning laws and covenants occasionally prohibit rental of single-family residences. Check the local zoning authority and homeowners’ association to confirm that your rental is permitted. Mortgages on single-family residences often require the borrower to be the principal resident of a home. This will require an owner to have either paid off existing loans or work with the lender to modify the terms of those loans.

Using a house as a rental property is a form of investment. A wise investor compares a house rental with other investments to determine whether rental generates the greatest return. Return on investment usually includes both net cash flow and change in equity: a house’s resale value determines equity change. So, an investor also needs to research the housing market to know if their house is likely to increase in value over time.

Investors also consider the tax implications of renting out a house. Normal expenses—such as repair, maintenance, real estate taxes, and leasing costs—can be deducted from rents, resulting in a lower taxable income. The costs of acquiring and improving a house can be also be subtracted from taxable income by using a depreciation process. But a homeowner’s standard exemption from capital gains taxes is not allowed for rental property.

Practical and Management Factors

Renting out a house is an active (rather than passive) investment. That means the owner must deal with leasing, management, and maintenance concerns. The owner will not only have the time and ability to take care of these issues, but they must also set aside some money for scheduled maintenance or unexpected emergencies.

The landlord role can be daunting and aggravating; if a house owner instead opts to pay for professional management, that cost will substantially reduce net income flow. Risk for a rental house investment can also be relatively high. Tenants may damage the property, leave without paying rent, or require eviction. Liability insurance can offset some of these risks as well as relieve the owner of any responsibility should a tenant be injured in the rental house.

A Third Option: Providing Seller Financing

An alternative way of generating cash flow while avoiding the complications of rental is to sell a house and provide the financing for part or all of the sale price. Again, if there is still a mortgage on the house, the original loan may not allow owner financing. Even when owner financing is permitted, the original loan is primary, meaning the lender has first right to repayment; the owner-lender becomes secondary or junior. Therefore, if a buyer defaults, the first owner is still responsible for mortgage payments, and the house still is collateral for the original loan. Besides that, providing owner financing does carry some tax benefits. Income tax applies only to the interest portion of loan payments and capital gains taxes are spread over the life of the loan.

There are certain financial insecurities associated with providing owner financing. The buyer-borrower could default on the loan. Most borrowers do not remain in homes for the regular financing periods of 20 to 30 years, suggesting that the original owner will require a balloon payment upon resale. Professional legal and accounting services are necessary for the owner-lender to ensure safety and maximum investment returns.

Research, Then Decide: Equip Yourself with Market Information before Investing

A variety of factors will influence a home owner’s decision to sell or rent out their house. Rental must be permitted under local zoning laws and covenant restrictions. The existing loan on a primary residence will likely prohibit rental use. Rental might be dependent on free and straightforward ownership or available commercial financing. Once in a while, other investments out-perform rental houses: a homeowner should thoroughly investigate the rental market, probable expenses, and potential rental income, and compare the net income to competing investments. Part of the total investment income will be the eventual resale proceeds from a house. In a stagnant or declining market, those proceeds may be minimal. Managing rental property requires time, resources, and resilience. A possible alternative is selling the property with owner financing to generate an income stream with much less active owner involvement, yet with tax benefits.

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Homeowners Associations: What Investors Need to Know

Homeowners Associations (HOAs) are common throughout the United States, and it is fundamental every home buyer knows the requirements and limitations imposed by a prospective HOA. This familiarization with an HOA’s norms is especially necessary for investors who for purely rental income are contemplating a purchase. Being aware of an HOA’s conditions and requirements before acquiring property will prevent future problems and even enhance property value.

The Why and How of HOAs

The concept of homeowners associations has been around since the late 19th century. But they didn’t become common in American residential neighborhoods until the post-World War II real estate boom. Planned unit developments became increasingly popular and, with them, the need for owner organizations to maintain common areas, fencing, and landscaping. Today, there are more than 345,000 HOAs in the United States; 61% of new residential constructions include some form of community association. Massachusetts has the 7th most HOAs of all U.S. states.

State laws regulate HOAs’ formation and management. HOA rules (also known as ‘covenants, conditions and restrictions’) are an additional layer of governance over municipal laws. HOAs have the legal power to impose dues for normal maintenance and conduct special assessments for large repair or improvement projects. Property subject to HOA rules cannot opt out of membership. An HOA’s covenants, conditions, and restrictions are included in a property’s title and run with the land and cannot be assigned to someone other than the owner.

HOAs are typically governed by a citizen board and are often managed professionally. An HOA manager collects dues, enforces rules, and provides centralized information. When owners become delinquent in their dues and assessments, HOAs can place liens on member properties. Liens blemish a property’s title, making it more difficult to sell. Most states allow HOAs to foreclose on properties if unpaid fees accumulate over a specified period.

HOA Due Diligence for Buyers

A prospective buyer should thoroughly investigate an HOA before purchase. A title search may reveal HOA liens, but the buyer would be wise to contact the HOA directly to verify a property’s full compliance. The buyer should also carefully review an HOA’s rules to confirm that the property can be used as planned; this is a logical move should the buyer intend to offer the property for rent: some HOAs prohibit rentals.

A buyer can also ask for an HOA’s current budget and balance statement to verify that such an association is in sound financial condition. It is a good idea to research an HOA’s reputation: local sales agents can alert a buyer if an HOA is lax in its maintenance duties or overzealous in enforcing rules.

Landlords’ HOA Issues

Landlords must remember that they alone are responsible for HOA dues and assessments since these can’t be assigned to tenants. The rental rate, then, should account for these owner expenses. Similarly, the landlord will be responsible for any rules a tenant violates. HOA rules should be clearly laid out in a lease document, and the landlord should ensure that an HOA board or manager contacts them, rather than the tenant taking on this responsibility, if issues arise.

Tenants’ violations of HOA rules are often first noticed by neighbors. Common violations include landscape neglect and pet nuisances. A landlord can minimize issues by being sure that nearby neighbors know how to contact the owner rather than just complaining to the tenant.

Maximize Homeowner Association Benefits

Homeowners associations can increase home values by enforcing property maintenance standards, maintaining open spaces, preserving a neighborhood’s design character, and upholding a sense of community. However, HOA issues can also spell disaster for the residential investor. Some HOAs prohibit short- or long-term rentals or both. Use restrictions may apply to pet ownership, noise, building improvement/decoration, and exterior maintenance. A deteriorating HOA can complicate title transfer and fail in its governance responsibilities. Over-zealous HOAs can develop reputations that will deter buyers. An investor must carefully research an HOA prior to purchase and be prepared to enforce HOA requirements with tenants.

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Short-Term Rentals in Residential Investment Properties: Analyzing the Latest Trend in Real Estate Market

The definition of a residential rental property is changing. Until recent years, a residential property investor planned on tenants to stay 6 months or more. But the online marketplace has added the possibility of renting single-family homes as if these properties were hotels, on a weekly or even daily basis. Present-day rental property owners may wonder how this new trend affects their investments. So, should short-term rentals be explored by investors planning to buy properties? There are many factors to consider before answering this question.

Short Term Rentals in a Property You Own

As short-term rentals have become common, their impacts on neighborhoods, public safety, and hospitality tax receipts have received increasing attention. As a result, states and cities in the US are placing legal limitations on short-term rentals. Massachusetts now has a statute that specifically addresses short-term rentals; Boston also recently enacted laws for such rentals. Similarly, some homeowners’ associations and many managers of condominium projects regulate short-term rentals.

In Massachusetts, owners whose short-term rentals exceed 14 days in a given year must pay a 5.7% room tax. All short-term rental properties must be state-registered, and all must have liability insurance. The Boston ordinance is even stricter: only owner-occupants may offer short-term rentals and for only one unit per residential property. Owners must provide contact information to both the city and tenants, and they must notify owners of adjoining properties when these homeowners register for short-term rental.

Short-term rental in Boston, then, is not an option for a residential investor unless the investor plans to occupy that residence. The Boston ordinance also specifies that only an owner can rent all or part of his property on a short-term basis: long-term tenants cannot offer a property for short-term rent.

Other municipalities have different ordinances. Vacation communities tend to be more permissive towards short-term rentals by absentee landlords. Because short-term rental laws are new and evolving, it is critical that an investor-owner examines all applicable laws, ordinances, and regulations before offering his property to the short-term rental market.

Buying a Property for Short Term Rental: Exploring the Benefits and Limitations of an Enterprise

Once an investor has confirmed that short-term rentals are allowed in their target location, other factors will influence the purchase decision. What is the market demand in that location? Which is to say, how many visitors typically arrive in that area every season? The availability of rental units for supply is also essential. If there aren’t local registries for short-term rental units, an investor might check online listings to estimate the depth of supply.

Short-term rental units require more marketing and management than needed for long-term rentals. Units are perpetually listed for rent, and each rental reservation generates management and maintenance duties. Short-term rental is similar to hotel operation: attendants are hired for cleaning, repair, and customer contact. While daily lease rates are typically higher for short-term rentals, expenses are relatively steeper. Long-term rentals’ more passive management may well justify their lower unit rental rates.


The first and most important consideration in using an investment property for short term rental are the legal limitations. States, municipalities, and homeowners’ associations have implemented new rules for short term rentals. Such rentals may even be prohibited. In others, the number and duration of permissible rentals are strictly enforced. Successful short-term rental depends on a property’s location, design, and layout. An investor must know what the competition is for a potential short-term rental property. The investor must also be prepared for additional marketing, management, and maintenance expenses. Lastly, a well-informed investor may decide that long term rental is a better option.

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Resolution for the New Year: Grow Your Property Value

The start of a new year is the perfect time for actions that will increase your property’s market value. Real estate sales activity slows and many improvement projects must be postponed during the winter months. Income tax season is just starting, and both buyers and sellers are planning for the coming spring. Here are four simple strategies that can increase your property’s resale value.

Organize Ownership Expenses

Keep a detailed record of your property’s annual expenses even if you don’t rent the property. Prospective buyers will appreciate your having an expense history ready for their review. If you do receive rental income from your property, you’ll need to have expenses itemized every year for your income tax return.

The IRS specifies which expenses you can deduct for rental properties. These generally include expenses to own and maintain the property, such as real estate taxes, repairs, management fees, utilities, insurance and supplies. Taking all allowed deductions may reduce an owner’s income taxes, making the property that much more attractive for resale.

There are many ways to organize your expense records. It can be as simple as keeping a file folder and handwritten ledger. You can create a simple spreadsheet in Excel or Apple Numbers. It’s possible to use personal accounting or small business software, such as Microsoft Money or QuickBooks, to record expenses. Or you can purchase specialized property management software. Whatever method you use, be consistent and to keep all receipts to prove your expenditures.

Check Up on Your Real Estate Assessment

Another way to make your property more saleable is to be sure that your property taxes are fair and comparable to those of other properties. Review the assessor’s description of your property to verify that you’re not being taxed for features your property doesn’t have.

You can compare your property taxes with those for similar properties by researching tax records kept by your local treasurer or tax collector. You can use this public record information to your advantage.

Have all your research materials organized and ready when the next assessment/tax notices arrive. The faster you address any issues, the easier it will be to work with local authorities to reduce your tax burden.

Consider Improvement Projects to Boost Property Value

Winter months are a great time to plan improvement projects. First, be sure the basics are covered. Look at your property as if you were a potential buyer. Is the property clean? Are touch-ups, like painting, needed? Is the landscaping tidy? Are there minor repairs to be done?

For bigger projects, like remodeling or new construction, keep in mind that what you spend may not be totally recovered in a resale price. Buyers value some improvements over others, and buyer trends change over time. Sources like Consumer Reports and Realtor.com publish articles every year to report which improvements add the most value.

Keep in mind that buyers may not share your taste when it comes to style, materials and color. For investment purposes, the most valuable improvements are those that are mainstream. If you absolutely want something out of the ordinary, know that your enjoyment of that feature will be part of your pay-back, rather than increased sale price.

Shop the Competition

A surefire way to ensure your property’s marketability is to compare it with others that are listed for sale. Be on the lookout for “for sale” signs in your neighborhood. Review local publications and flyers for houses for listings. You can verify actual sale prices through your assessor or clerk/recorder. Sale transactions are also public record.

Do visit open houses in your neighborhood. Professional real estate agents know that prospective buyers often are friends or relatives of neighbors. Talking to an agent might gain you some valuable information about the market for your property. The agent will see you as a possible future listing client. Pay careful attention to features in a listed property: these can suggest which would be the best improvement projects for your property.


An accurate history of property expenses can both reduce income taxes and help future buyers. Reduce your ownership costs by making sure that your property is assessed and taxed fairly. Plan improvement projects now. Be sure the property is clean, fresh and in good repair. If you’re considering a major improvement project, will it bring you an equitable return on its cost? Keep an eye on the market for your property. Take note of “for sale” signs in your neighborhood, as well as listings from local brokers. Visit open houses in your neighborhood: how does your property compare? Together, these strategies can earn you a higher sale price when you’re ready to sell.

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