Rentec Direct - Property Management Software

Earlier this year, a bill named H.R. 5297: Small Business Jobs Act of 2010 amended tax reporting rules for landlords.  Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property”.  Previously unincorporated landlords were not considered a “business” and therefore complicated tax reporting rules that generally only applied to corporations did not apply; however now they do!

While this bill expands government (the IRS specifically) and increases administrative costs to taxpayers to the tune of 3.3 billion dollars per year, its stated intent was to help small businesses.  Unfortunately landlords have got caught in a political crossfire and now have a significant new tax reporting burden.

Here’s how to comply.  This law takes effect for all payments made after December 31, 2010.  Be prepared by following these steps.

1. Before hiring anyone who may bill for services greater than $600 during the year for their service, have them fill out and provide you with a W9 form.  Do not do business with them until they return the form otherwise the IRS has heavy new penalties they will be imposing next year.  Retain these forms, or best yet, scan and upload them to your file library for safe keeping.

2. Retain complete records of all expenses from each service provider (vendor).  You are required for 2011 taxes to file a 1099 for any vendor whom you have paid greater than $600 through the year.  The easiest way to maintain these records is with good property management software.  With Rentec Direct you simply go to the Properties tab, and click Post Expense.

3. Prior to January 31, 2012 you are required to send a 1099-MISC to the vendor, and by February 28th a copy must be sent to the IRS and State.  This is made easy with Rentec Direct’s 1099 assistance.  During January 2012 provided all vendor expenses were entered throughout the year, simply click to print your 1099s with no further work to do.

Remember, these rules are for tax year 2011.  This means any transaction after December 31st, 2010.  CPAs, accountants, and tax preparation firms typically charge from $50 – $100 per form, plus hourly for research to compile information which can cost landlords thousands, possibly tens of thousands in tax preparation costs if you have them do this task on your behalf.  By being prepared and following the simple steps above you can eliminate this potentially massive cost in your 2011 tax return.

HR5297 information obtained from: http://www.govtrack.us/congress/bill.xpd?bill=h111-5297

Some say to keep business and personal completely separate.  Others feel that practice is hogwash.  I tend to lean towards keeping them separate except around Christmas time.  If I've seen the property has been being taken care of I really enjoy giving a gift around the holidays.  It's often sometimes as simple as a discount on rent for the month.  Generally its reserved for longer term tenants.

Anyways, this is just a quick note to stimulate discussion rather than to go on and on about something to make a long blog post. ;)  I would love to hear other property managers takes on the topic.

My feeling is that it generates long term good-will and therefore longer term tenants, which means less vacancies, which ultimately means better return on the property.

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The author is a founding member of Rentec Direct, an property managers, and a business owner.  Rentec Direct provides property management software which includes ach for landlords, tenant screening, and online documentation and file storage.

So there's a bit of a misconception out there for landlords, especially, private landlords who aren't incorporated that it is difficult to do a proper tenant screen.  I've heard not just from my friends in the industry but from countless customers things like:  "I'm not allowed to get credit reports", "criminal data is only available to PIs and police", and "it's too expensive".  I must say I can debunk all those myths in about 30 seconds!

Simple fact is, all these reports are available TODAY to landlords, as well as property managers.

• Credit Reports
• Criminal Reports (nationwide, state, or county)
• Eviction Reports
• Judgments, Liens, Bankruptcy Reports
• many more..

The cost is often completely paid for in a $25-35 application fee which virtually all states allow for.  To do a good background check you would do at minimum Credit and Criminal, and expect to pay about $17.00 for this.  A $25 application fee covers your cost plus some.

Another thing I've heard is "it's too hard to get setup", or "it requires a site inspection".  False, and True; however, the site inspection can be easier than you may think.  I'm not sure how all other companies do it, but Rentec Direct provides a single page form you can have a neighbor or friend fill out on your behalf which replaces the typical expensive and long wait a typical site inspection carries.  There's no costs, and the entire application/setup process takes no longer than an hour.  Literally it's not unreasonable to get setup and operational the same day ordering credit & criminal reports just a few hours later.

I think I just debunked the myths.  Rentec Direct isn't the only tenant screening outfit out there; however, it's the only one I have access to, so I created a video using our system on just how quick and easy it is to order background reports.  Better quality tenants = better quality income.  Better quality tenants = fewer legal expenses.  Better quality tenants = better property care.  Better quality tenants = Huge Benefit!

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The author is a founding member of Rentec Direct, an property managers, and a business owner.  Rentec Direct provides property management software which includes ach for landlords, tenant screening, and online documentation and file storage.

This topic applies to every property manager in the room, private landlords, and brokers who manage properties.  It's a serious step taken by Uncle Sam to increase regulations and requirements on an industry which is already FAR too regulated and taxed.  I for one am not excited about even more paperwork to run my simple property management business.  I encourage any affected to call, write, or email your local representative and ask for their support in repealing this unnecessary law.  There are many organizations out there, such as NARPM, which are already taking the fight to congress and could use help.

There are two separate 1099 issues that should be repealed

1. New 1099 requirements going into effect in 2011 for any person who receives rental income
2. Expansion of 1099 requirements going into effect in 2012 for all businesses who make payments of $600 or more to any payee

2011 Change for Landlords
Earlier this year Congress passed H.R.5297 which expanded reporting requirements for owners receiving rental income beginning in 2011. Specifically, Section 2101 establishes that, “a person receiving rental income from real estate shall be considered to be engaged in a trade or business of renting property.” This change will now require any person who receives rental income to file a Form 1099 for payments of $600 or more in a given year for each service provider. The new requirement does not include purchases of goods. Prior to this legislation, only real estate professionals such as those working in property management were considered to be in the “trade or business of renting property,” and thus required to file 1099 forms with the IRS for these types of payments.

Exemptions were included in the legislation for military/intelligence personnel, those whose rental income is no more than a “minimal amount”, and for those who would experience a “hardship”. The second two exceptions have yet to be properly defined by the IRS.

Reasons to Repeal this Provision:

1. Creates an unnecessary paperwork burden for homeowners
2. Increases the paperwork that service providers must now handle
3. Further complicates the Federal tax system which will inevitably lead to reporting mistakes and subsequent fines on homeowners who are already struggling with a difficult economy

2012 Change for Property Managers
Earlier this year Congress passed H.R.3590 which is a health care bill that has nothing to do with property managers and business, other than the fact that they sneaked in requirements for small businesses.  This bill expanded reporting requirements for all businesses beginning in 2012. Specifically, it requires the filing of Form 1099 for any business (including independent contractors and those who are self-employed) that makes a payment of $600 or more in a given year to any payee for goods and services. A separate Form 1099 will need to be filed for each payee. Payments to tax-exempt organizations are not included in this new requirement.

There have been several attempts to repeal this 1099 requirement but so far none have been successful. It’s unclear if there will be any further repeal attempts before the end of 2010. Click here for more information from Bloomberg Businessweek on recent repeal attempts.

Reasons to Repeal this Provision:

1. Creates an unnecessary paperwork burden for property managers
2. Increases the paperwork that goods and service providers must now handle
3. Will force small businesses and independent contractors to spend a large percentage of time and money simply to track payment amounts and submit 1099 requests
4. Further complicates the Federal tax system which will inevitably lead to reporting mistakes and subsequent fines on small business owners who are already struggling with a difficult economy
5. The housing industry is going through a difficult period, this is not the time to modify tax reporting requirements and further exacerbate the situation

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The author is a founding member of Rentec Direct, an property managers, and a business owner.  Rentec Direct provides property management software which includes ach for landlords, tenant screening, and online documentation and file storage.

One of the most important steps a landlord can take to protect their property, cash flow, and sanity is to properly screen tenants prior to placement. Failing to properly screen a tenant can result in any or all of the following problems, all of which are far more costly than a tenant screening report.  Be warned, this is a meaty document; it's not your typical "3 simple steps" report, but it is a comprehensive guide to making the best possible screening policies.  The two minutes it takes to read and understand it are well worth the time for serious property managers and landlords.

Problem 1: Tenant has had past evictions, and run landlords through the court system numerous times costing landlords thousands, to tens of thousands of dollars in lost rent. Generally a tenant frequently delinquent on rent if uncollectable, so the landlord who takes this tenant stands to lose a great deal of money both in lost rent and legal fees.

Problem 2: Criminal activity. Criminal activity in a rental property can lead to significant damage to the property, irritated or irate neighbors, case civil suits from neighbors or renters for landlord neglect. Worst case would be liability which can extend in to the hundreds of thousands of dollars, perhaps even more if somebody gets hurt, for an action by your tenant which could have been prevented with proper screening.

Problem 3: A history of poor credit decisions and late payments can indicate how a prospective tenant may treat you, their new landlord, with the same late payments, bounced checks, and other financial woes. Many landlords count on the rent arriving and clearing in order to pay the mortgage payment. Statistics show that renters with past delinquencies are significantly higher risk to have future delinquencies than those with better credit.

You can protect yourself from these common problems by taking a few simple steps to verify the eligibility of the tenant prior to placing them in your property. This is a guide explaining best practices with resources to get you started today.

Step 1. When you have a vacant property or unit the first step is to get the word out through whichever means you find works best. To some this is the local classified, craigslist, or other online rental databases. When placing the ad, provided you are not limited by wording it is best to keep those who would not qualify from calling in the first place. This is done by announcing within the ad the qualifications and screening process. This often costs nothing and can save you quite a lot of time showing the property to unqualified applicants. It can be very simple and those who know they would fail any of the listed criteria won't call in the first place saving you quite a bit of time. Here is an example message following an ad:

Tenant references, background, and eviction history will be verified.

Step 2. Be sure your application packet includes wording to give you permission to verify the information they provided. The FCRA stipulates you must have permission from a prospective tenant in order to run a background check on them. The best permission is written permission. Be sure to check with your local state guidelines and verify the application form you provide meets any local regulations. Most states allow the collection of an application fee to cover your reasonable cost in processing their application, including your costs to run background checks. Reasonable costs vary from state to state, but generally range from $25 to $65. Check to see what other local property management companies charge, and set your rate near there's to be safe.

Click here to download a sample application form.

Step 3. Credit, state and national criminal, and nationwide eviction records are best obtained from a trusted source and all can be returned instantly. The simplest way to obtain these are via an online source which can take your order, query the necessary databases, and return the results to you right away on your computer screen. Your cost for a credit report should be no more than $15.00, nationwide criminal, around $10, and eviction searches also around $10. For reference, as of December 2010, Rentec Direct's tenant screening division offers the following discounted rates to members:

• TransUnion Credit Report: $8.95
• Nationwide Criminal Search: $8.75
• Statewide Criminal Search: $6.00
• Eviction Search: $8.50
  

Rentec Direct provides these products as a service to property managers and landlords near cost to ensure the success and well being of landlords within our care. 

Step 4. Verify references. Tenants who have created problems for past landlords generally do not get good references. Taking 10-15 minutes to verify references is always a worthwhile effort. Previous landlord references are generally far more valuable than personal references. Always require the tenant provide previous landlord contact information. If there is a gap in periods of time, it probably means there is a landlord they do not want to list and that is important to follow-up on. If the tenant is of age 22 or older and claims to not have had a previous landlord, be sure to verify that fact with the parents.

Step 5. If it's within reasonable distance, drive by their current address and observe the current condition of the property they rent today. The state of that property is going to be very similar to how your property is treated. Likewise, when showing them the property, take a look inside their car to get an idea of how well they take care of their possessions. Generally speaking a renter will take better care of the car they own, than the property they rent. If the inside of the car is a mess, you can be sure your property will look the same or worse very soon.

Step 6. Be fair and treat everyone equally. Virtually every state requires landlords to maintain equal criteria regardless of age, race, religion, or any other status. Set your criteria in advance on what you are willing and not willing to accept for your rental and use that same criteria throughout the applicant process. Any unfair actions by treating one person differently from another are often against the law.

Step 7. Finally, before the tenant moves in, take pictures or video of the condition of the property. Even the best screened tenants have accidents, or visitors who can cause damage. It is vital that you have a permanent backed up record of the condition of the property prior to move-in. It's best to store this data in a safe location such as online secure file storage to ensure they are never lost and readily available if needed.

If you have any questions about these steps, best practices for screening tenants, or anything else related to property management, feel free to contact the property management experts at Rentec Direct for answers or pointers whether you are a customer or not. If we aren't able to directly answer or help, we'll point you to somebody that can.

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The author is a founding member of Rentec Direct.  Rentec Direct provides property management software which includes ach for landlords, tenant screening, and online documentation and file storage.  While the above article may speak of products we offer or use screenshots from a product we offer, we encourage landlords to do their research and make up their own minds when selecting a new product.  That said, we of course welcome ActiveRain members with open arms.