position realty

Position Yourself For Success

Common Legal Mistakes Real Estate Investors Make

You can’t expect to reduce your risk of getting sued to zero, but you can take steps to reduce your risk as much as possible. In any situation where your money is at risk, ask yourself, “Is there a better way?”

Know the legal and financial risks of the situations in which you place yourself, your business, your family, and your assets.

Without covering every issue involved, here are a few common mistakes that investors make, novice and experienced alike.

Poor Legal Forms

It’s amazing how short-sighted novice investors can be when it comes to shelling out money for good legal contracts. They often buy contracts at discount office supply stores, from Internet web sites, or borrow them from friends.

However, a real estate deal is only worth the paper it’s written on. Like the old expression, “every tax strategy works until you get audited,” it can also be said that “every contract works until you have a dispute.”

So invest in a good set of legal forms that apply to your practice and ask a local real estate attorney to review them. Also, make certain you fill in the forms correctly—a good real estate attorney will review contracts for just a few hundred dollars.

Too many people rely on real estate brokers to fill out contracts, which is fine for a “standard” deal. However, most brokers aren’t trained in legal matters and often create long contract addendums that are insufficient to protect your interests.

Illegal Discrimination

The Fair Housing Act of 1968, as amended, prohibits discrimination on the basis of race, color, religion, nationality, familial status, age, and gender. Many state and local laws also forbid discrimination on the basis of sexuality or source of income and the Americans with Disabilities Act makes it illegal to discriminate against disabled people.

If you harbor any such prejudices and would allow them to come into play when renting a housing unit, then you’re probably not cut out to be a landlord. However, many sincere real estate investors make honest mistakes that result in discrimination lawsuits. The best way to avoid these lawsuits is to be informed.

The Fair Housing Act may appear to be common sense and most people would never think of discriminating against people of different races or religions or on the basis of gender. However, it’s important to note that the Act extends beyond the screening process and into advertising as well, so watch the wording on your ads.

This is where many landlords and property managers make critical mistakes. Some people scour the classifieds looking for inappropriately worded ads so they can pounce on them and threaten a lawsuit. While someone must have standing to bring suit, these scoundrels often work in coalitions to ensure that all of their bases are covered.

For example, if you own a rental property in a predominantly Jewish community, its proximity to the local synagogue could be a major feature. But if your ad says “within walking distance of the synagogue,” you could be sending the message “gentiles need not apply”—even though this wasn’t your intent.

And keep in mind that you may not discriminate on the basis of whether a couple is married and whether children are to live in the unit. You may also not discriminate on the basis of age. Often, novice landlords aren’t aware of these areas of concern. And while it’s good that citizens are more aware of their rights today, it can create a bad situation for well-meaning landlords who are out of step with the law.

Be aware of your local laws and use good business sense. State law and local ordinances can extend similar protections granted under the Fair Housing Act to other groups. For example, California, Minnesota, and North Dakota prohibit discrimination based on source of income. In other words, landlords can’t discriminate against would-be tenants who rely on public assistance. Putting the political perspective of the landlord aside, such discrimination makes little business sense because people on welfare or social security are virtually assured of a fixed income.

The Americans with Disabilities Act (ADA) prohibits discrimination against the disabled and also requires landlords to make “reasonable accommodations” to disabled tenants. Who decides what’s reasonable? Typically, judges, if it comes to that. But while most landlords are aware of the ADA and would never stoop to discriminate against a person in a wheelchair, many are unaware that the ADA also protects mentally disabled tenants. A mental disability could also include recovering alcoholics and drug addicts. On the downside, these people can relapse; if they do, this can cause serious problems for you and other tenants. Everyone deserves a second chance and many recovering addicts become productive members of society. Those unable to recover typically have other problems and, thus, if you decide to reject their rental applications, it’s vitally important that you document additional reasons for rejecting their applications.

Improper Disclosures

Improper disclosures are a common mistake for investors. It’s critical to be aware of the federal and state requirements for disclosures. For example, federal law requires a lead-based paint disclosure on the sale or rental of properties that were built before 1978. State laws may have additional regulations.

It’s become common practice for real estate brokers to use a property disclosure form as a general-purpose sell disclosure for all aspects of the house. Even if you’re selling your house on your own, be sure to use one of these forms. Whenever in doubt, disclose what you know, especially something the buyer or tenant may not know about, such as dangerous conditions, water damage, electrical issues, or plumbing problems.

Illegal Solicitation of Money

Many novice investors try to solicit money for investing via public advertising or mailings. This is commonly referred to as syndication. You may inadvertently cross over a variety of federal and state securities regulations when trying to raise capital. Chatting with friends over the dinner table about a real estate deal is one thing, but advertising to the public in mass may be considered a public offering. Before soliciting money from strangers, review your marketing, paperwork, and solicitation strategies with a local attorney well versed in this area of law. You may be able to get away with a good set of written disclosures if you solicit money on a limited basis, but it’s better to be safe than sorry.

Independent Contractor Liability

The IRS and your state department of labor are on the lookout for employers who don’t collect and pay withholding taxes, unemployment, and workers’ compensation insurance. If you have employees that are “off the books,” you’re looking for trouble. If you get caught, you’ll have to pay withholding taxes and as much as a 25 percent penalty. Intentionally failing to file W-2 forms will subject you to a $100 fine per form. The fine for failing to complete the Immigration and Naturalization Service (INS) Form I-9 varies from $100 to $1,000 per form. Your corporation or LLC won’t shield you from liability in these cases, either. All officers, directors, and responsible parties are personally liable for the taxes.

If you hire people to do contract work for you on a per-diem basis, they may be considered employees by the IRS. If any workers fail to pay their estimated taxes, you may still be liable for withholding. If these workers are under your control and supervision and work only for you, the IRS may consider them employees, even if you don’t. If this happens, you may be liable for back taxes and penalties.

To protect yourself, you should:

  • Hire only contract workers who own their own corporation or get the business card and letterhead of any unincorporated contractors you may use so you can prove these workers aren’t your employees.
  • Require proof of insurance (liability, unemployment, and workers’ compensation) in writing.
  • Get written contracts or estimates on workers’ letterhead that states they’ll work their own hours and you don’t have direct supervision over the details of the work.
  • Have letters of reference from other people for whom the contractors worked to show that the contractors didn’t work solely for you. Keep these in your files.
  • File IRS Form 1099 for every worker to whom you pay more than $600 per year.

In addition to possible tax implications, an independent contractor can create liability for you if a court determines the contractor is your employee. For example, if your independent contractor is negligent and injures another person, the injured party can sue you directly. If facts show that you exercised enough control over your contractor, a court may rule that this contractor is your employee for liability purposes. As you may know, an employer is “vicariously liable” for the acts of his or her employees—the employer is liable as a matter of law without proof of fault on the part of the employer. Make certain you follow these guidelines when hiring contractors and pay particular attention to the issue of control.

Finally, under your state’s law be aware which duties are considered inherently dangerous, such as providing adequate security for tenants in a multiunit building. These duties can’t be delegated to an independent contractor without liability on your part, regardless of whether the person you hire is considered an independent contractor or an employee.

Position Realty

Office: 480-213-5251

Phoenix Residential Market Report ~ August 2013

As you can see from the first chart above, Position Realty Market Index, the first time home buyer tax credit created a great deal of demand in the market similar to the real estate boom from 2004 to 2006. Currently the numbers of transactions are slowing down due to the lack of inventory and real estate price have flat lined for the last three months.

Since September 2012 (12 months ago), the average sold price has increased approximately +18.9% (up from last month), the average days on market have decreased approximately -7.9% (down from last month) and the number of transaction has increased approximately +9.9% (up from last month). The current average sold price is $239,000 which is back to the average sold price experienced in 2008. Since January 2013, the number of transaction is up approximately +17.9% and the number of transactions are expected to increase as we enter the fall home buying season.

The volume of REO purchases since September 2012 has decreased approximately -22.5% and the volume of short sales have decreased approximately -59.5%. The volume of REO purchases are shrinking because the increase in real estate prices are causing consumer to holding onto their homes and the existing supply of REO properties are getting purchased at a faster rate.

Since September 2012 (12 months ago), the number of homes for sale on the market have been fairly stable with approximately a +1.0% increase in homes for sale. Since last month, the number of home for sale on the market have increased approximately +4.3%. As real estate prices increase, more and more sellers that purchased during the real estate boom are putting their homes on the market to break-even or sell with a small amount of equity. The inventory of active homes is consistently being replenished but prices have flat lined during the summer which is common because consumers were on vacation.

As more and more buyers enter the market and as more of the supply of residential homes are exhausted, real estate prices will continue to increase at a faster rate (lack of supply and strong demand causes prices to increase).Real estate prices are still at an all time low (near 2008 prices), mortgage rates are still at a historical low and the market is improving both in terms of prices and the overall economy. Time to buy is NOW!! Give us a call to discuss your best buying strategy, TODAY!!

Position Realty
Office: 480-213-5251

Phoenix Residential Market Report ~ July 2013

As you can see from the first chart above, Position Realty Market Index, the first time home buyer tax credit created a great deal of demand in the market similar to the real estate boom from 2004 to 2006. Currently the number of transactions is slowing down due to the lack of inventory but real estate price are continuing to increase.

Since August 2012 (12 months ago), the average sold price has increased approximately +22.9% (down from last month), the average days on market have decreased approximately -6% (up from last month) and the number of transaction has increased approximately +10.4% (up from last month). The current average sold price is $239,000 (down -0.1% from last month) which is back to the average sold price experienced in 2008. Since January 2013, the number of transaction is up approximately +39.4% and the number of transactions are expected to increase as we enter the fall home buying season.

The volume of REO purchases since August 2012 has decreased approximately -31% and the volume of short sales have decreased approximately -56%. The volume of REO purchases are shrinking due the increase in real estate prices, more banks are accepting short sale transaction as opposed to foreclosure and an existing supply of inventory is getting purchased at a faster rate.

Since the August 2012 (12 months ago), the number of homes for sale on the market have been fairly stable with approximately a +0.9% increase. Since last month, the number of home for sale on the market have increased approximately +3.8%. As real estate prices increase, more and more sellers that purchased during the real estate boom are putting their homes on the market to break-even or sell with a small amount of equity. The inventory of active homes is consistently being replenished but purchase prices continue to increase.

As more and more buyers enter the market and as more of the supply of residential homes are exhausted, real estate prices will continue to increase at a faster rate (lack of supply and strong demand causes prices to increase).Real estate prices are still at an all time low (near 2008 prices), mortgage rates are still at a historical low and the market is improving both in terms of prices and the overall economy. Time to buy is NOW!! Give us a call to discuss your best buying strategy, TODAY!!

Position Realty
Office: 480-213-5251

Phoenix Real Estate Market Report ~ May 2012

Phoenix Residential Market Report Summary

As you can see from the first chart above, Position Realty Market Index, the residential real estate market is currently experiences another buying frenzy that is caused without government intervention or relaxed mortgage underwriting standards. Consumers are jumping into the real estate market because market statistics are indicating the market has hit bottom. As found in the Average Sold Price chart above, real estate prices have been increasing steadily since October 2011 due the increase in demand. The current supply of homes for sale on the market is 19,741 where a year ago there were 48,000 homes for sale.

Since November 2011 (6 months ago), the average sold price has increased approximately +18.7% (up from last month), the average days on market have decreased approximately -7.7% (down from last month) and the number of transaction has increased approximately +15.9% (down from last month). The largest average price increase over the last 12 months was experienced in March from $168,961 in February to $184,078 in March.

The volume of REO purchases since November is down -17.7% and the volume of short sale is up +3.8%. The volume of REO purchases are shrinking due to the increased volume of trustee sales, more banks are accepting short sale transaction and existing supply of inventory is getting absorbed at a faster rate.

The real estate market has reached a level of equilibrium where demand exceeds supply and all buyers are rushing into the market to take advantage of low prices. As more and more buyers enter the market and as more of the supply of residential homes are exhausted, real estate prices will continue to increase at a faster rate (depends on the sustained level of demand).

Trying to “time the market” for the perfect time to buy is nearly impossible but there is no better time than now to purchase. Real estate prices are at an all time low (not for long), mortgage rates are at a historical low and the market is improving both in terms of prices and the overall economy. Time to buy is NOW!! Give us a call to discuss your best buying strategy, TODAY!!

Sean Heideman, Broker ~ Office: 480-213-5251 ~ Sean.Heideman@PositionRealty.com

Contact Form Powered By : XYZScripts.com
Info