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

Given the current fragile state of the economy I participate in a lot of conversations about "what if".  What if the economy collapses?   What if it turns around and begins it's path upward?  So then for us landlords and property investors is it best to have our properties paid off free and clear, or should we have them mortgaged to the hilt? 

The answer really depends on what is going to happen with the US Dollar.  If you take a look at the last few years, obviously the USD has not fared well.  The USD is no longer money and hasn't been for a long time, it's currency backed by nothing.  The same goes for the world currency.  History has proven over and over that fiat currency has a 100% failure rate.  It typically fails in the form of moderate inflation, followed by hyper-inflation, until the currently is completely worthless.

In Zimbabwe for instance their fiat currency just recently inflated well over 200 MILLION percent.  Can you imagine it costing trillions of dollars to buy a loaf of bread?  This example has repeated itself with many countries throughout history who adopted a fiat currency.  This is the fate of every fiat currency in the world, including the USD.  The only question remains is: when?

When that day comes, be it next year, or 10 years from now, will it be best to have all your debts paid off or have a ton owing?  I'm really open to AR members ideas here.

My own opinion is it's going to be best to have everything leveraged.  If moderate inflation continues, as each year passes you literally owe less on your properties.  A $200,000 loan today will be like a $100,000 loan in 5 years if inflation presses on.  If (or when) the USD goes into hyperinflation, a $200,000 loan will cost a mere couple cents to pay off in the future.

However the flip side to the coin.  What if the USD started deflating?  The exact opposite would happen.  It would be much harder to pay off a loan because we would be earning less.  Rents would go down along with other commodities.  This would be very bad, and likely the best place to be in this situation is in a free and clear position with properties.

So how likely is deflation to occur?  There might be momentary blips; however, the entire arc of power in DC and Wall Street do not want deflation to occur.  It's bad for government and it's bad for banks.  Since the government and the banks have complete control over money supply, and therefore complete control over inflation/deflation it seems unlikely. 

Inflation on the other hand seems extremely likely.  Each dollar the Fed prints, and each new loan creates more fiat currency.  Every dollar printed (or in reality, created from thin air), slightly devalues all existing dollars.  Since the government is running a huge deficit (the largest in history) now in the trillions, they have to print money faster than they are spending it to remain in business.  So they are creating money faster than ever before and inflation will adjust to compensate with some of the highest inflation we've ever seen in the USD.

I'm not a betting man necessarily; however, if I had to place wagers I would certainly go with the odds.  What would you do?

--- about the author ---

Nathan is a landlord and property investor who founded Rentec Direct which provides free software for landlords.  Because of the importance of thorough screening for prospective tenants, we have integrated tenant screening directly into the software so in just a few clicks a complete and comprehensive background check including previous evictions can be done on any new tenants.

I'm somewhat confused by our government's choices in stimulus money.  The last homebuyer $8000 tax credit was for first time home-buyers only.  Obviously any property investor is out of luck on this one.   This new one is a $6500 for a repeat home buyer, as long as it is for their primary residence.  Again, unless your willing to move, and your current primary residence would make a good rental, this procludes property investors.

Meanwhile..

• A huge quantity of vacant forclosed homes continue to sit on the market.  Quite literally rotting.
• Some banks are renting out these foreclosed homes, driving down the rental market.
• Contractors who still hold onto some of these developments do the same, rent them since they aren't selling, further bringing down rental rates.
• The dollar continues to inflate at all time highs (the other tax)

So I do get that Uncle Sam wants to prioritize first time homebuyers to get people into their own home.  That is great.  Now homeowners that want to upgrade are incented, great too!  But the point is to get these vacant homes off the market and in turn get property values back on their way up.  I would submit that many property investors who buy homes to rent are far better equipped than most first time home buyers to complete property purchases.  The $8000 or $6500 cash incentive would go a LONG ways in making a huge number of properties currently on the market profitable when converted to a rental.  I believe if this credit were opened up to investors as well, housing inventory would go down at least 100% faster, for the betterment of all.

So why does the government exclude property investors?  I've been told it's because it was property investors that caused a lot of the problem in the first place.  And to correct that, I was told it was actually builders who purchased investment loans to overbuild in so many areas and then of course they defaulted on their investment/building loans.  The banks grouped all the builders as "investors", and said that was the cause of their collapse.  Yet actual property investors who do things right are paying their monthly mortgage payment like clockwork and definitely are NOT the problem that caused the banks lending issues.

So all I can really say is that I don't understand what our government is thinking, but their line of thinking is not aimed to fix the problem is all I can tell.  I think we're in for continued inflation and continued real-estate devaluation, and despite a few sporadic mentions of housing pricing improving here and there, overall I don't believe it's happening.  Any increases in home values are FAR less than the 300% inflation our dollar has seen over the past 6 years.  Point of fact, compared to 2003, $1.00 today is worth about $0.30.

--- about the author ---

Rentec Direct provides property management software free to landlords and property managers and it includes full deduction and depreciation tracking and reporting. Because of the importance of thorough screening for prospective tenants, we have integrated tenant screening directly into the software so in just a few clicks a complete and comprehensive background check including previous evictions can be done on any new tenants.

This comes as routine for many home owners and landlords, but I find when I ask various other landlords I know they often aren't taking all their deductions.  Usually in the form of depreciable improvements, or in wild cases, depreciation on the house itself!

There's a book out there I got off Amazon a while back called 'Every Landlord's Tax Deduction Guide'.  It has a lot of great ideas and is well worth it if your a landlord needing any assistance figuring out what is deductable, what is depreciable, and what might be illegal to decuct on your taxes.  Granted my version is from 2007 and I bet there is a newer one; however, most of the items are still very current.  Here's some examples to my fellow landlords to pay attention to.

Common Depreciations - Depreciable items are items which Uncle Sam doesn't let you take up front.  You get to take a tax break over the improvement's useful life which can be anywhere from 2-30 years.

1. Most investment property owners depreciate the value of the dwelling itself.  This is usually a very large depreciable deduction.  Using the 80/20 rule (80% dwelling, 20% land) is a common way to factor it, or using the local assessed values for percentages are another way.  The typical investor gets to depreciate the dwelling's cost over 27.5 years.

2. New Roof, Add-on, remodel, deck, garage, outbuilding.  All depreciable over 27.5 years.

3. Landscaping, plants, fences, sidewalks, driveways, or swimming pools.  Depreciable over 15 years.

4. Carpeting, vinyl and non-permanent flooring, drapes & blindes.  Depreciable over 7 years.

Common Deductions

1. Repairs - If you are repairing part of the dwelling, land, or an improvement (even if your already depreciation the improvement), repairs to these items are typically always deductable during the year they are done.

2. Operating Expenses - So long as the expense was ordinary and necessary it typically is deductable.  This might include: advertising, auto and travel, cleaning, maintenance, commissions, insurance, professional fees, management fees, and mortgage interest.  Keep receipts!

Trust me, aside the massive self-inflicted national debt, Uncle Sam has plenty of money and he doesn't need any handouts.  When you are managing your own properties, or managing for someone else, please keep all that you should and don't let Uncle Sam take anything more than they are due.  Every state has different rules, and tax law changes all the time.  Do consult with a tax professional to make sure these deductions apply to you.

Keeping track of all this is usually the problem most landlords face.  If you have a property management company handle your affairs, they probably provide you a report at then end of the year with most common deductions itemized.  It's still up to you to keep track of all improvements and depreciable items.  If you manage your own property, use a property management software package which has deducation and depreciation tracking support.

--- about the author ---

Rentec Direct provides property management software free to landlords and property managers and it includes full deducation and depreciation tracking and reporting. Because of the importance of thorough screening for prospective tenants, we have integrated tenant screening directly into the software so in just a few clicks a complete and comprehensive background check including previous evictions can be done on any new tenants.

Be forewarned, this post isn't a get rich quick idea, or a magical formula to turn straw into gold.  Not much comes without some hard work to even the best of us these days, not since at least 2005 that is, when phantom property values topped out.

What I am suggessting is that investment realestate owners who are looking at their bottom line closely these days absolutely have a choice to save $100, $200 or more per month right away!  To get to the point, I'm talking about property management.  Take the following very short quiz:

1. Do you live within 30 minutes of your investment properties? Yes/No
2. Can you balance your own checkbook?  Yes/No
3. Do you have a computer with a printer, or typewriter? Yes/No

Did you answer Yes to #1?  If so you are an excellent cantidate.  Items 2 and 3 are optional because there are other tools to get around those, but I trust anybody reading this article has 2 and 3 covered anyways.

Investors are often giving up to 15% of their PROFIT on their properties away.  I'm certainly no exception, I used property management for years.  Right before I chose to discontinue their services, I discovered what they really do.  They place tenants, collect rent, post notices, and take care of repairs.  Most property management companies charge very expensive placement fees for placing tenants, and I know many successful landlords who know how to place a classified or craigslist ad and often fill their units quicker than property management ever did.  Collecting rent is easy, posting notices is just as easy, and repairs can be handled extremely cheap with all the out of work professionals in the country.

There's some that mistakenly believe property management companies take on some or all of the liability of a property owner.  This may well have been true in the past, but not so much anymore.  Every property management contract I've seen in the last 3 years has defense clauses in it that state not only are they not assuming any liability, but if they get sued by your tenant, you must pay for their lawyer as well.  Check your contract.

I missed on important item above.  You know that monthly statement you get in the mail from your property management company.  I used to love those things!  At the end of the year I could just hand the December statement to my CPA and thats all he needed for my Schedule-E on my federal taxes.

OK, here's the plug, not just for our software, but almost any property management software.  If you answered yes to #1 up there, then a good property management software like Rentec Direct can help you with all the rest of the items.

Placing Tenants - Rentec Direct, and other services can give you instant tenant screening results and also help you place property ads online for greater visibility.

Collecting Rent - Your tenants can drop off a payment to you or mail it to your address just as easily as they can send it to a property management company.  Your property management software will help you keep track of these payments and who's do when.  It will also keep track of late fees.

Post Notices - Notices can often be posted on the door of the tenant and/or mailed to their address.  There are plenty of free resources online for notice templates.  Sending them is just the cost of a stamp.  Keep track of the times/dates in your property management software.

Repairs - Open up craigslist and post an ad for a handyman, or a specialized professional for your repair needs.  With this economy, or even when times are good, there is always somebody responding to these ads.  They go in the gigs section of craigslist.  You'll probably find someone you like and continue using them for years.

Monthly Report / Taxes - A good property management software like Rentec Direct will provide these reports to you monthly, or whenever you need.  Additionally, there's a specialized form designed to track tax deductable expenses automatically that you can print out at the end of the year and just hand to your CPA.

So while some investors have a legitimate need to hire property management, or just like giving money away, others have a choice to manage their own properties.  With a good software application to help out, I've found it's hardly any more work than managing a property management company.  In most cases because you become materially involved in the property management yourself you get significant additional tax breaks as well.  Some of us only have 10-15% profit in an investment property, lets keep it!

p.s.  Before taking my advice, check your property management contract for terms and exit costs.

A couple years ago I had this question myself. At that time I visited the local credit reporting office in my town, and while they used to run screens on behalf of landlords have stopped that activity. That is also true of pretty much every local screening company. Property managers can run background screens, but only for their own clients. This leaves the question, how does a private landlord screen their prospective tenants without a huge hassle? I've been asked this dozens of times and I'm happy to say I have the answers.

If you are a landlord, it's actually quite easy. The FCRA allows "tenant screening" as a permissible purpose for running certain background checks, including full criminal background screens, bankruptsy, eviction, and judgement checks. You just need a reliable provider. This can be obtained easy enough by googling 'tenant screening'. Which ones are reliable though?

What I've found is most tenant screening companies are using extremely limited databases. None of them actually disclose what data they are using, or how they got it, or how complete it is. With that, it's more or less just a guess as to if they have valid data. Most tenant screening companies suggest you use one of their packages which include a "nationwide" search of some sorts. I've found these less than accurate as well because their nationwide results tend to only have results if they specifically have already scanned for that particular record. What are the chances? Pretty slim indeed. It often equates to a substantial investment in invalid results. I've even heard that some landlords use multiple screening companies paying two to three times what they should as a result.

Because of the guesswork, and game of chance out there, and since we have lots of landlords using Rentec Direct for it's property management software capabilities, we've worked out a partnership with a premier data screening wholesaler to be able to provide tenant screening services directly to our customers. The quality of the data is second to none.

One might ask, "how is it different than the rest"? Great question! While we offer similar nationwide and statewide searches, most of our nationwide and statewide databases are updated extremely frequently with complete records from that state. This differs from many screening companies. Additionally, and this is a major difference, we offer an intelligent search (Intellisearch) feature which at no cost to you scans the entire previous address history of your prospective tenant. It then recommends the specific local products designed to give you the most accurate results for this tenant. After all, why spend 4 times as much out there on a broad nationwide search when you can learn the specific locations this tenant has lived and run state and county level searches which produce up to date, and flawless results for as little as $6. By the way, our comprehensive nationwide criminal, which includes the nationwide sex offender database, is only $9.95 for Rentec members.

We're currently offering a 2 month FREE trial to Rentec Pro to ActiveRain members which includes a 30% discount on all screening products.