A 1031 Exchange is a federal tax code designation that allows property investors to sell one property and buy another without losing money to capital gain tax in the process. In order to qualify for a 1031, an investor must first sell his property and then buy another like kind property within a designated amount of time.

What do I stand to gain from a 1031 Exchange?
The answer is simple: Money. Generally, property sellers are taxed a 20 to 30 percent (or more) capital gain tax. This exchange allows you to put this significant amount of money straight back into an investment, thereby keeping it in your own portfolio.

What exactly is “like kind”?
According to the website 1031ExchangeMadeSimple.com, there are two elements that investors must meet to qualify for like kind purchases:

1. The total purchase price of the replacement like kind property must be equal to or greater than the total net sales price of the relinquished property.

2. Federation of Exchange Accommodators (FEA) requires that all the equity received from the sale of the relinquished real estate property must be used to acquire the replacement like kind property.

If you fit these parameters, chances are a 1031 may be the most savvy move for you. Essentially, this program allows you to increase your investment value. Whereas you would only be able to apply 70 to 80 percent of the proceeds from your sale to a new property under a simple sale, a 1031 allows you to put 100 percent of your sale income back into your investment portfolio.

It’s also important to note that you may still qualify for a 1031 even if your new property costs less than the money earned from your previous sale or if all money generated from the sale is not put toward a new property. In such cases, however, a tax penalty will likely occur.

Basic Qualification Rules
Anyone considering a 1031 Exchange should carefully research the U.S. Tax Code and consult with a REALTOR® or financial professional. With this in mind, a few basic rules apply to qualify for a 1031 Exchange:

1. Property must be used as an investment or for business purposes.

2. Sale proceeds must be handled by a qualified intermediary (ideally, someone who deals solely and specifically with 1031 exchanges). It’s important to note that this person cannot be your real estate agent, a family member, or someone with whom you have previously done business in a different capacity.

3. The new property must be “subject to an equal or greater amount of debt than the previous property.”

4. An identification period must be adhered to. This 45-day timeframe is the time an investor has between the sale of one property and the identification of a potential new property. Note that this can be a list of property and refers to properties the seller wishes to buy. A transaction is not necessary within this timeframe.

5. The exchange period refers to the 180 days following the sale of the initial property which the seller is granted to purchase a new investment property.

Sure, it all sounds like a lot of information. But with the assistance of a qualified professional and some organization, a little effort may well pay off to the tune of an additional 20 to 30 percent profit in your pocket.

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Having a go-to list of contractors is imperative. Trust us, you never want to find yourself up to your knees in water with no one to turn to … literally. The following links will help you compile that ever-important  list of emergency contractors.

• Yelp.com was mentioned in in our latest post about contractors, but it bears mentioning again. Sure, 100 percent of the reviews may not be accurate, but if a contractor has 20 reviews or more, chances are the overall score is reliable.
• Contractors.com is your one-stop-shop for contractor reviews.
• Even if you don’t keep a bulky hard copy on hand any more, the YellowPages.com website is a great place to find local contractors.
• Although many contractors advertise on Craigslist, use this resource with caution. The lack of consumer reviews means that it’s often difficult to tell the good ones from the bad.
• AngiesList.com is recognized as one of the most reliable cyber-destinations for accurate consumer reviews of contractors.

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Having a good stable of contractors at your disposal is one of the more underrated tools for property management success. Following are some points to consider and a few tips for finding contractors that will make you (and your property) look good.

As a property manager, you’re not expected to know how to solve every single issue that arises under your watch. But you are expected to know exactly who to go to when problems occur. Contracted specialists are crucial to your business for a couple of reasons:

1. You want your tenants to feel taken care of at all times. From a renters’ standpoint, one of the biggest benefits of renting is that the responsibility for repairs and maintenance falls on someone else’s shoulders. One of the best ways to earn your tenants’ trust and loyalty is to demonstrate that you are reliable when it comes to resolving any necessary repairs as efficiently as possible. It’s also important that these problems are solved correctly the first time.

2. Fixing problems as soon as they arise is one of the best ways to save money in the long run. When there are dozens of things to address on a daily basis, it can be so tempting to let that dripping pipe or cracked window wait until next week. In property management, though, putting things off is never a wise idea. A dripping pipe can turn into a water-damaged ceiling; a cracked window can turn into a full-blown window repair.

With both of these points in mind, it’s important to anticipate future needs before problems actually arise. Whether the repair you ultimately need is big or small, it will be far easier to take care of if all you have to do is pick up the phone and call a contractor with whom you already have a relationship. Not only will you spare yourself the stress of frantically trying to find someone who’s available on short notice but, chances are, in a rapid-fire situation, you will not have the time necessary to thoroughly research the best and most cost-effective person for the job. Having a pre-established relationship with a contractor also increases your odds of receiving priority treatment, which can be invaluable when a pressing situation arises. And, sooner or later, it will.

If you don’t already have a list of preferred contractors, move this to the top of your to-do list. On this list you’ll want to include specialists including: a plumber, a heating specialist (and air conditioning, if applicable), an electrician, and a handyman. Think carefully about your property’s amenities and structure and compile a list of other specialists as applicable.

As with so many other things, recommendations from people in the business and trusted friends are a good place to start. REALTORS® are often a great source for contractor recommendations because they deal with clients that need to make repairs and upgrades on a frequent basis. Also utilize reliable review sites such as Angie’s List. When you’re asking people for referrals, make sure that you inquire not only about the contractor’s pricing, but also about his efficiency, reliability, and track record in terms of getting things done right the first time.

Now that you’ve got a list, give your top candidates in each specialty a call. During this conversation, you want to ask about the contractor’s clients and his history in the business. Also be sure to get a feel for his personality. Is this someone you would feel comfortable inviting into your tenants’ apartments? Does he sound like he will have your best interests in mind? Does he appear to be knowledgeable enough in the field to get the job done right the first time?

Once you’ve found your list of preferred contractors, make sure that you remain alert once they’ve begun working for you. While you don’t want to micromanage, do be sure that you’re verifying their quality of work and efficiency. Property owners often run into trouble once they’ve become comfortable with contractors. Always check their work. It’s important to make sure that the quality of work and reliability holds up even after a contractor feels confident that he has won your business. While loyalty is desirable in business (and will likely work to your own benefit in the end), it’s also important that you remain diligent about maintaining and increasing the value of your property.

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In our last post we discussed how energy efficiencies, greenery, painting, and general upkeep can increase the value of your properties. But guess what? There’s even more you can do to make sure your property puts more money in your pocket. Following are some additional ideas for squeezing more out of your property.

• Install low-flow showerheads to reduce water comsumption by up to 40 percent.
• If it’s time to replace your windows, reduce monthly costs by installing energy efficient windows.
• Feeling adventurous? Cut back on energy consumption by installing solar panels. Sure, it’ll take some work but the dividends will make the investment worth it.
• The U.S. Green Building Council is a great resource for locating areas of your property that you can save on by being green.
• Time is money. Save time by using property management software.

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No matter how big or small your budget is, there are always ways to increase the value of your investment property. Whether you’re looking to make updates for efficiency, improve aesthetics, or just make general miscellaneous upgrades, following are some ideas for boosting your property’s worth.

Roofing
If you suspect you may be selling your property any time in the near future, consider your roof’s condition. Yes, this is a high-ticket item (approximately $10,000 to $15,000 to replace your current roof), but it’s also one of the first thing inspectors, real estate agents, and potential buyers will look at. Even if your roof isn’t in need of repair at this precise moment, chances are your property value will go down if buyers think that they may have to re-roof within the next few years.

If your roof is on the older side but not quite ready for replacement, consider getting a roof certification. For the comparatively inexpensive price of about $250, a roofer will guarantee that your roof will not leak for two years—and if it does leak within that period, he will make the necessary repairs free of charge.

Energy Efficiency
When the time comes to replace unit appliances, you should strongly consider installing energy-efficient upgrades (such as EnergyStar). This is a great selling point for tenants and buyers alike and it will also pay off on a month-to-month basis that really adds up in the long run. If you are covering your property’s electric bills, energy rates can be cut down significantly with energy-efficient appliances. Also, many states offer significant rebates or tax credits for upgrading to energy efficient or green appliances, which means that you may actually pay less for eco-conscious new appliances than you would for their less efficient counterparts.

Greenery
This may sound silly, but trees often drive up the price of property based on their aesthetic appeal and because the shade they create can result in a significant energy savings. Even better, planting trees requires an extremely nominal investment on your part (some cities even have programs that provide free trees for planting). Select a low-maintenance tree that offers a lot of coverage and be sure that you carefully consider where to plant it (unwieldy tree roots may cause significant damage to your property). Visit your local nursery for suggestions and planting tips.

Painting
Many states require that you paint the interior of your units on a regular basis (such as between tenants). But have you painted the exterior of your property lately? This is one of those visual cues that will tell potential buyers and tenants whether they are dealing with a property that is well maintained or not.  (Along the same lines, colorful flowers and clean gutters and windows also make for great curb appeal.)

General Upkeep
General upkeep costs only a little bit but can pay off big in the long-run. Stay on top of things like squeaky doorknobs, torn screens, and other miscellanea in your units and the building’s common areas. This will both help prevent against more significant repairs down the line and will help keep your property in top-notch condition at all times.

These are just a few of the countless things you can do to ensure the price of your investment property continues to move in the right direction. If you’re looking for new ideas, open houses (particularly for comparable properties) in your area are a great way to consistently generate new ideas for improving upon your investment.

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Converting units to increase cash flow sounds easier than it is. Here are some tips to help you along the way:

• As mentioned in the Converting Your Units: Why, When and How? blog post, researching contractor ratings on Yelp will reduce the risk of getting in over your head.
• When converting units, you should always compare quotes. With the help of Contractors.com you can do comparative research from the comfort of your own computer.
• If you’re feeling really ambitious, it is possible to split larger units into multiple units. Be sure to obtain all the necessary permits and zoning requirements before beginning this undertaking.
• Also consider maximizing cash flow by charging by tenant (as opposed to charging by bedroom). Offer to partition a bedroom or the living space for extra people and charge as if the unit were larger.
• Learn other ways to increase cash flows and make money work for you by reading Rich Dad, Poor Dad.

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Although converting a unit into a larger (or different) space may be cheaper than purchasing a new property that fits your expanding investment property needs, it’s nonetheless a huge undertaking, both in terms of logistics and expense. If you’re thinking about a conversion, make sure that you carefully consider three important questions: Why? When? How?

Why should I convert my unit?
For the purposes of this blog, we’ll consider unit conversion in the context of creating more bedrooms (for example, converting a one-bedroom unit into a two-bedroom unit). The obvious reason for this sort of conversion is to increase your cash flow.

Examine rental rates in your area to determine how much more money can be generated by renting out a multi-bedroom unit. Also consider the type of tenants that are generally seeking rentals in your area. For example, if your demographic is college students (who generally like to rent with roommates) or families (who generally have more people and, therefore need more space), chances are you would benefit by offering units that are set up for more than one tenant or couple.

Research is essential. In some cases, multi-bedroom units may generate only slightly more rent that single-bedroom units. Also, consider the costs of the conversion and calculate if the additional rent will not only cover the renovation, but also generate a higher profit margin over time. Last but not least, when considering the costs of conversion, make sure you account for rent that will likely be lost (not only in the unit undergoing conversion, but potentially in other units as well) during the construction process.

When should I convert my unit?
If you’re at a point where you feel as though your tenant pool has outgrown the spaces you are offering or if you’re looking to increase the value of an investment property, it may be time to consider a conversion. You may also want to think about converting units as an alternative to buying additional property. Particularly during periods when it’s a seller’s market, converting may actually be more profitable than purchasing a new property with larger units in the long-run.

There’s another element of the “when” equation to consider as well: What time of year is the best time to convert your units? If you live in a region with harsh weather or unpredictable patterns at certain times of the year, plan your construction schedule accordingly. The last thing you want to do is have the project extended (i.e., lose rental income) due to factors beyond your control. If you live in a more temperate climate and weather is not a factor, consult with local contractors to find out when their slow season is. This may well guarantee you more attention and better rates. Finally, timing your conversion around natural rental cycles such as a month when the majority of your leases expire or (if you rent to college students) summer break will help minimize income lost during the construction period.

How should I convert my unit?
Conversion is one of those instances where you are definitely best to hire a professional. Even if you have the know-how to handle this undertaking on your own, chances are the process will move along much more efficiently with a professional on the job.

Any way you cut it, converting your units will be a significant expense. Make sure that you thoroughly research potential contractors, striking a balance between cost and quality. Not only do you want to find an affordable contractor, but you also want to make sure the work is done correctly and efficiently. Ask other property owners for referrals and look on dependable review sites such as Yelp. Also be sure that you talk to a few different contractors so you can carefully weigh different options and, ultimately, choose the one that works best for you.

Much like investing in a new property, converting your units involves a significant up-front expense that can pay off in spades in the long-run. Carefully consider your whys, whens, and hows before beginning the conversion process and you’ve already mastered half the battle.

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We’ve all heard it before (including in the previous blog post): Location, location, location. The more you know about a neighborhood, the better you can feel about your real estate investments and properties. Use the following links to hep organize your location search strategies.

• David Cowgill begins 5 Steps In Helping Choose an Investment Property Location with those three famous words: Location, location, location.
• Learn what residents are saying about local neighborhoods.  RentWiki.com is a user-generated service that provides social info about neighborhoods.
• Homebuying tips can also be applied to investment properties. About.com explains what homebuyers should look for in a location when searching for a new home.
• Learn more about an area’s demographics by searching the U.S. Census Bureas’ website for data.
• Test the public transportation in an area with Google Transit. Map the best routes from prospective investment properties to area landmarks.

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When it comes to locating the investment property that’s right for you, you’re shopping not only for the perfect property but also for the neighborhood that best suits your financial goals. In fact, before you even beginning to hone in on potential properties, it’s wise to first narrow your options by targeting a few specific neighborhoods in your desired area of purchase.

Begin by asking yourself what your ideal tenant pool looks like. Do you want to target the evergreen student population? If so, you’ll want to make sure that you’re looking in areas that offer easy access to nearby colleges and universities. Are you looking to cater to young professionals? Consider trendy or up-and-coming areas that are in close proximity to business districts and local restaurants and shops that will likely appeal to 20- and 30-somethings. If it’s families you’re after, narrow your search to quieter neighborhoods in desirable school districts.

Once you have the generalities out of the way, it’s time to drill down to some specifics that take both your current budget and your long-term investment goals into account.

Long-term prospects

Choosing just the right neighborhood requires that you are both a good historian and a good forecaster. Remember, this is an investment so you want to hedge your bets and utilize any resource possible to ensure that this neighborhood is not just a good fit today, but that it also will be five, ten, fifteen, or even twenty years down the line. Ask yourself these questions: Does this neighborhood have a good reputation? How has it changed over the past five or ten years? Have property values increased or decreased? Is this neighborhood up-and-coming? In decline? Stable?

Crime rate

Regardless of the tenant demographic you’re catering to, the safer a neighborhood is, the easier it will be to get good tenants in the door. Crime statistics are a matter of public record and can generally be found on your town or county’s local police website. If you are unable to identify this information online, give your local police department a call and they will be able to either provide you with the information you need or point you in the right direction.

Number of rentals vs. owner-occupied homes

It’s not uncommon for homeowners in primarily owner-occupied areas to view rental properties with some skepticism. While this doesn’t mean that you shouldn’t purchase in these areas, it does mean you should be aware that you may have to deal with some opposition should you purchase a rental in this sort of neighborhood. On the other hand, if you’re purchasing a property in an area that caters to renters, this may mean that there will be more competition when it comes to placing good tenants.

Parking

Particularly in urban areas, a general lack of parking can be a real headache for tenants. Be aware, however, that if you do locate a property that offers on-site parking in an area such as this, you will most likely be able to rent units at a higher rate. Likewise, in an area where parking can get sticky, residents are more likely to utilize public transportation than they may be in other scenarios—finding a property that offers easily accessible public transportation in this sort of instance can significantly increase the appeal of your units for potential tenants.

If you’re working with a real estate agent, chances are she will be able to provide much of this information for you. If you’re going it alone, though, don’t rely solely on the internet. While e-research is obviously a great way to narrow your search, first-hand experience is essential. Talk to friends and fellow landlords or homeowners in your target area and stroll or drive through the area on at various times of the day. Call local property management companies and look at rental sites to see what the average rent in these areas is. Because, as we all know, in the end it’s all about location, location, location.

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