What Is the Deduction Limit for a Home Office?

By Erin Eberlin

Even if you have qualified to take the home office deduction on your taxes, you may not be able to deduct all of your expenses in the year they were incurred. You may be subject to a deduction limit.*

Who Is Subject to a Deduction Limit?

Not everyone who takes the home office deduction is subject to a deduction limit. Those whose gross business income is equal to or greater than their expenses are able to deduct all of their home office business expenses for the year.

Those whose gross business income is less than their home office expenses will be limited in their ability to deduct certain expenses.

How Is the Home Office Deduction Limit Determined?

You begin with the gross income from your business.

You then subtract expenses you would deduct even if you didn’t have a home office (mortgage interest, real estate taxes, and casualty and theft losses), but only the percentage for your home office.

What Are Business Tax Deductions?

For example, if you have determined that your home office takes up 10% of your home, then you can only deduct 10% of each expense.

Now you subtract expenses related to your business activity (second phone line, office supplies, depreciation on equipment). You can subtract 100% of these expenses.

This will give you your deduction limit.

Once you have determined your deduction limit, you can then deduct your other applicable business expenses (maintenance, insurance, utilities and depreciation), deducting depreciation last. Again, you can only deduct the home office percentage of these expenses, such as 10% from our above example.

If your expenses are more than your deduction limit, you are able to carry over the remaining expenses to the next tax year.

Keep in mind, anything you carry over will be subject to next year’s deduction limit.

An Example of the Deduction Limit

Your Gross Business Income is $10,000.
Your total home office expenses are $12,000.
You are therefore subject to a deduction limit because your expenses are more than your income.

Gross Business Income........................................................................$10,000 

MinusHome Expenses (Real estate taxes, etc.) 10%.......................................$6,000 

MinusBusiness Activity Expenses (Second phone line, etc.) 100%...................$2,000 

EqualsDeduction Limit......................................................................................$2,000

Your deduction limit is $2000, but you have $4000 in home office expenses that you still want to deduct. You can therefore only deduct up to the $2000 deduction limit and will have to carry over $2000 ($4000-$2000) to the next tax year.

Deduction Limit.......................................................................................$2,000
MinusAdditional Home Office Business Expenses (Utilities, etc.) 10%................$1,800 

MinusDepreciation Allowed ($2200 allowable, but can only deduct $200 this tax year 
because of the deduction  limit)..........................................................................................$200Equals

............................................................................................$0
Depreciation Carryover to the Following Tax Year ($2200-$200)................$2000

*You should always consult the IRS or a certified accountant to decide what deductions are applicable to your specific situation.

Real Estate Wholesaling - A Viable Real Estate Investment Strategy

By James Kimmons

Real estate wholesaling in articles and books gets both good and bad coverage.  Let's look first at a general definition:  Real estate wholesaling is taking a position between a seller and a buyer and profiting from an immediate resale of a property without significant rehab or time of ownership.

That's my definition, but it fits my view considering my extensive freelance writing work as a ghost writer for real estate investment "gurus."  You could call it "flipping," but wholesaling seems to add a bit of professionalism.

 Contrasting it to other wholesalers in various industries, it's a really very low overhead and high profit margin business.  You don't have:

• • warehouse space rent and upkeep.
• • office space to manage and sell from.
• • employees to manage inventory.
• • trucks to transport inventory.
• • insurance to cover all of the above.
• • necessity to purchase from manufacturers in bulk before sale.
Those overhead costs are significant, and most wholesalers have profits in the very low single digits.  The real estate wholesaler on the other hand:
• • can work from their kitchen table.
• • doesn't need to warehouse anything.
• • doesn't need employees nor insurance for them or facilities.
• • can control a large value asset with relatively little money out of pocket.

Who is your customer in real estate wholesaling?

Before you ever investigate real estate for purchase or control, you need buyers-in-waiting.  It's called building a buyer list, and it's crucial to your success.  Your primary customers are other investors, either rental property buyers or fix & flip investors.
 You can sell at retail to consumers, but it's more risky and costly due to marketing and commission costs.
You need to build out a list of buyers through building relationships with other investors.  You can join real estate investment clubs to meet them.  You can advertise to them through running property for sale ads in newspapers and Craigslist.
Basically, you need to meet as many real estate investors as possible, and you need to keep a database or file with a minimum of this information about each:
• their neighborhoods of interest.
• their primary interest; are they going to fix & flip or are they buying rental properties?
• their price range and profit goals; in other words, what will they pay for a home?
Do not go out and search for properties or run marketing until you have at least a few active investors on your buyer list.  You'll not want to commit to a property without a reasonable prospect of selling it quickly.
What are your sources for properties for real estate wholesaling?
Once you have buyers on your list, it's time to go out and find properties that will make you a profit as a wholesaler.  They could be:
• foreclosures.
• owner occupied pre-foreclosures.
• owner occupied by distressed sellers.
• abandoned pre-foreclosures.
• government auctioned foreclosures.


Foreclosures are easy to find through foreclosure websites and other sources that publish foreclosure property lists.  Owner occupied properties normally require marketing.  Real estate wholesaling marketing methods include:


• bandit signs.


• newspaper classifieds.
• Craigslist ads.
• wholesaler website.
• wholesale investor blogging.
• social sites marketing.
• relationships with real estate agents and mortgage brokers


When you locate a property that could be right for one of your buyers, running the numbers and due diligence is next.  You'll need to be very cautious in getting all of your costs covered, as well as a pretty close idea of what your buyer will have for costs, especially in the fix & flip deal.  In other words, you need come up with what the property is worth in the current market, then subtract these items to see what you can pay for it:


• the rent that can be charged if your buyer is a rental property investor.
• the costs of rehab if your buyer is a fix & flip investor.
• your costs in getting it to the closing table.
• your desired profit.




If you run all of the numbers and you see that this property can be quickly re-sold to one of the buyers on your list, it's time to contract to buy it or lock up control through one of two methods:


1. Assignment Contract - You sign a deal with the seller that allows you to "assign" your purchase rights and responsibilities over to another (your buyer ultimately).  You'll need some earnest money, but you'll need no further financing with this method.  You go to your buyer and do an assignment of your rights for a price that includes your profit.  Your buyer takes over and takes it to closing.
2. You Contract to Buy - You actually sign a deal to buy the property.  This will require two closes, one for your purchase and another right after for your buyer to purchase from you.  You'll need earnest money, and you'll need transaction funding to pay for the home and collect their fee and reimbursement from the second closing.

Squatters' Rights and Adverse Possession

By James Kimmons

Let's start with a fictional situation relating to land ownership rights, but landowners in many states have experienced similar situations over the years.

You buy a 50 acre wooded unimproved parcel of land as an investment.  You also think that you may convert it into a retirement or vacation home property sometime in the future, but that's years away. It isn't in your state, and you go years without visiting the property.

You ask locals to check it now and then, but you don't really follow up.

Seven years later you get an official document in the mail telling you that someone is taking possession of your land.  You call an attorney, and after some research you find that you can do nothing about it, as in that state a squatter can take an Adverse Possession action after seven years.

You just lost your investment and your retirement home.

No, it doesn't happen often, but adverse possession in some form or other with different time limits is on the books in almost every state.  A squatter is someone who moves onto your property and takes up residence without your knowledge or approval.  If they stay long enough without discovery and removal, you could end up in this situation.

What they need to do:

In most states, and these vary in language, there are five basic requirements a squatter must satisfy in order to successfully use adverse possession.

1. 1.They must take actual exclusive possession of the land.  It can be residential or for a business, but they must take over the use of the land.

1. 2.The use of the land must be open and obvious, meaning they can be seen using the property, not hiding in a grove of trees at one corner.
2. 3.They can't share the use of the land with anyone else, in other words exclusive possession and use.
3. 4.They can't be there with the owner's permission in any way.  The owner would have no knowledge of their use of the land and would oppose it if known.

1. 5.Their possession of the property must be continuous for the statutory period.  In our example, this means that they used and occupied the property every day throughout the seven year period.

 As regards the continuous use requirement, owners who check their land regularly and discover a squatter can put a kink in their plans.  If you inspect your property and find squatters, check with the local authorities and an attorney about your rights and take the action required to evict them from the property.  Even if they return again, the statutory time period starts over again.

This is important stuff because the squatter can take your land and title away from you. And, they do not have to compensate you in any way.  You simply lose your property.  If you can't or do not want to visit the property at least annually, pay someone to go out and take a lot of photos with a GPS camera every year and submit you a written report that nobody was found on the property.  This could be a real estate agent, appraiser, surveyor, or just about anyone willing to do it.

If you think about this, there is plenty of motivation for some people to do this to you. Perhaps you own a lot of land, maybe 100 acres or more, and it's pretty remote.  You don't watch it, and someone finds that out.  They drive an old bus out, live in it, put in an outhouse, and maybe even some solar power.  They have free rent, and their goal is to someday own your land.  Guard your interests.

How Long Does It Take To Start A Real Estate Business?

By Than Merrill

How long does it take to startup and kick off a new real estate business?

Is starting a real estate business something that should take just a few hours, or do you need to patiently invest years of hard work? What are the critical steps in getting to where you want to be? What barriers should more real estate entrepreneurs be breaking down?

Some never take the next step towards formalizing a real estate business. They just get into the game and start doing deals. Some add a few helpers, but don’t start an actual business. Others keep going at it solo. Then there are those that have no desire to engage in hands on real estate, but want to own businesses and start at the top, and work down instead. So do you really need a company?

For the select few that just want to do their own thing, running a company can become a distraction, and add to expenses. However, this doesn’t mean the benefits and protections of LLCs and other legal entities can be overlooked.

Many are missing out, big time. They are not focusing on building a business. This is especially true for those that want scale, and who want to just see the profits from real estate and being an owner versus having a job. That’s true, no matter how much better and higher paying that new job is.

Basic Steps in Starting a Real Estate Business

Technically, ‘starting a business’ is easy. Its maintaining a successful business that can be tricky. These simple steps should help:

• Research
• Business plan
• Choose a name
• Incorporate
• Get a tax ID number
• Open a business bank account

With the exception of comprehensive market research, most of the above can’t be done in a day. Some will take months to get there. While thorough planning is wise, many let the process drag on too long, while continually rethinking and second guessing themselves. Don’t fall into that trap.

Raising Capital

Some real estate entrepreneurs will also be keen on raising funds for their startups. Some will find it unnecessary, thanks to mortgage finances and other working capital options that this industry is privy to. Others just feel they need a big war chest to strike out and get going. There is nothing wrong with that, but there are two things to watch out for. The first is realizing that more money doesn’t always help. Normally a good business model can work with or without extra capital. More money just speeds up the pace and scale. If it isn’t working, $10M is just going to be burn money, and extend the decline. The second lesson is not to spend forever in fundraising mode without getting started. It can take anywhere between 0 to 40 weeks for startups to secure seed capital, according to research by DocuSend. But that doesn’t mean you just sit there and put life and business plans on hold in the hope of getting it.

Ensuring a Profitable Business Start

How can you ensure a profitable business start? This is crucial, especially for those taking a little longer to get going. Once the clock starts ticking, you’ve got expenses. That could simply be renewing your LLC, insurance or business checking account fees. No matter how small, you want income coming in as fast as possible. In reality, while it is entirely possible to generate income in real estate within 30 days, some closings can take 90 days to happen. Even if you hit the ground hard on day one, you might not see any cash coming back in for a couple months.

Don’t wait to start lining up deals and income. Most will find that they can begin lining up revenue and deals in advance. This may depend on your exact type of business and your organization, and maybe even the season, but most should be able to set up closings to happen in their first and second month of being in operation. Kicking off with six figures in income your first month will make a world of difference.

The earlier you get started, the better. The earlier you organize yourself as a business, the more tax breaks and legal protection you’ll have. If you can act faster than the competition, you’ll have the advantage. It can take anywhere from a few hours, to a year to get a real estate business going, but that doesn’t mean you have to put off activating revenue producing activities.

15 Tips For Building The Best Real Estate Team Possible

By Than Merrill

Want to build a better, stronger real estate team? Check out these 15 tips:

1. Appreciate the Value of the Team: You can’t really build the best team until you really appreciate the value of a team. It doesn’t matter how great of a real estate sales person, deal maker, or organizer you are. You only have so much time. You never know when that time is going to be impacted by other factors and forces. If you want to go big, you have to have a team, there is no question about it. Your team is your income; your wealth building machine.

2. Focus on Building a Good Team: Recruiting, hiring, training, managing, and firing is far too expensive. It’s only going to get dramatically more expensive over the next few years. The quality of your team is your competitive edge, or lack of it.

3. Allow No Room for Bad Eggs: Don’t mistake hot shots for great team members, nor cheap ones either. At least if they are not also team players. All it takes is for one rotten player to spoil the rest. No hiring system is perfect. Some bad ones, or poor fits will skip through the cracks. Just make sure you spot them fast, and have a plan for getting rid of them swiftly and gracefully, without creating any bigger issues.

4. Reinforce Team Player Mentality: Not all of your hires will come from a team player environment. A little healthy competition can be good, but if it becomes too dog eat dog, team members won’t just be sabotaging themselves, but your real estate business too.

5. Prevent Burnout: It’s your job to ensure your team doesn’t suffer burnout. Don’t expect them to handle this by themselves. Lead by example, know when to recognize the symptoms, and create a system that prevents it. Working hard is expected, but there has to be proactive distressing too.

6. Create a Path for Growth: One of the worst things that can happen in a real estate company is for the very best talent to split and start a competing enterprise. Sometimes they’ll even take a crew of your best team members with them. So create a path for them to grow with you, and let them know about it before they make their own plans.

7. Unite Them behind the Mission: Unless the most important part of your real estate company mission, vision, and goals is visible daily, and is clearly important to their role with you, you can’t expect them to have that mentality. Most are too used to getting lost in their little tasks.

8. Empowered as Brand Ambassadors: Most won’t stay with your firm for long unless they love your company and what it is about. But even if they love the brand most are sorely underutilized as brand ambassadors. Are you getting them company branded t-shirts, encouraging them to support the venture on social, and rewarding them for bringing in leads?

9. Potential Customers: Your team should be some of your best lead generators and customers. Everyone. If you sell and rent houses you can bet every one of your team members is using some form of housing. If you aren’t serving them, then the competition is.

10. Get Their Families Engaged: The company isn’t just the corporate entity, or the executive team, or individual workers. Each employee’s family member is a part of the team, whether you like it or not. They impact how your workers perform, their loyalty, and perhaps have even more influence on public brand opinion.

11. Provide Coaching: None of us stays on top of the game forever without constant learning and improvement. The same goes for the whole team. You want them to stay as an elite force, and get even better. Help make that a possibility.

12. Share the Successes with Them: Does your team know how the company is doing? Do they know if their input is making a difference? Do they know they are bringing value, and that the company is on good footing? If they don’t what might be going through their heads?

13. Get Together: Team meetings can be a pain for everyone. Big corporate retreats can be a big investment. But the more community and bond you build the more productive the team will be, and the lower many of your other expenses will be.

14. Get Their Input: Real estate companies can spend thousands if not hundreds of thousands or millions, and plenty of hours on research. Yet, they mostly completely overlook all the front line intelligence and mental capital they have on staff. Recruit their input, and thank them for it.

15. Use Your Team to Recruit: Use your existing team to recruit. Have you been paying or spending time on job ads? Have you even asked if anyone wants to move up or knows someone? Some of your existing team might have more experience than you think, or they may know awesome additions that can be brought on easily.

How Are You Networking Yourself?

By Than Merrill 

Regardless of your current marketing and lead generation strategy, you need to do more if you want to maintain your current level of success. The best way to grow your business is by networking yourself and constantly meeting new people. Sure, you may be able to close a few deals by sending letters or mailings, but when times get tough you need to be able to rely on your network and contacts for new deals. How you cultivate existing contacts, or meet new ones, will go a long way in determining how long you will be in the business.

Fortunately, networking yourself at meetings and investment clubs provides limitless possibilities. Regardless of where you live, you can probably find a real estate investing meeting in your area. These meetings usually have a headlining speaker to learn from, but that is not the only reason you should go. There are also dozens of area investors, realtors, mortgage brokers and attorneys that typically attend. Bring lots of business cards, as you should introduce yourself and pass out a card to everyone you come in contact with. You never know when networking yourself may lead to the deal of a lifetime.

In addition to physical meetings, you can gain contacts through social media. Nothing replaces physical meetings, but connecting with someone on these sites should lead to a quick cup of coffee or lunch. People want to work with people they feel comfortable with. You gain trust by talking to people about what they think, like or want out of the business. The more you continue networking yourself, the more opportunities that will come your way.

If you are not already, you have to find time every week to market yourself and connect with others. Your business will thank you for it.

Sample Move Out Checklist for Landlords and Tenants

By Erin Eberlin

Tenant move out can be a confusing time for landlords and tenants. Checklists are one way to keep both parties on the same page about what is expected during this time. This sample checklist outlines the condition the property should be left in.

What Is a Move Out Checklist?

The tenant move out checklist is a form that should be attached as a rider to the original lease agreement. This checklist provides instructions for the tenant on the procedures and the tasks they need to complete upon moving out of your property.

Every landlord's move out checklist can be different. Some like to break down detailed procedures by room, while others only provide general terms of what is expected. Therefore, you should tailor your checklist to meet the specific needs of your property 

Why Is a Move Out Checklist Important?

Move out checklists are especially important when it comes to the security deposit.

If the tenant understands how they are supposed to leave the unit, it will help minimize disputes. Following these instructions, and adhering to the terms of their lease, will help ensure the tenant receives their security deposit back in full. 

Sample Move Out Checklist

    1._____Please call 3-5 days prior to your move-out to schedule your inspection

1.  2._____ Apartment must be broom swept clean, mopped, and vacuumed 
2.  3._____ All kitchen(s) and bathroom(s) must be completely clean 
3.  4._____ All walls must be clean and painted the same color as before tenancy began (Unless Tenant has been given prior written permission from Landlord) 
4.  5._____ Vacuum and clean any/all carpet(s) 
5.  6._____ Clean all windows 
6.  7._____ Remove all of your personal possessions and belongings.
7.  8._____ No trash shall be left behind; Do NOT leave garbage at the curb
    9._____ If applicable, all exterior areas shall be cleaned of debris and left clean
8. 10._____ If applicable, exterior lawn and landscaping shall be presentable 
9. 11._____ Leave all kitchen appliances, window treatments, phone jacks, etc.
10. 12._____ All keys shall be returned at inspection 
1. 13._____ All light fixtures are to work properly with working light bulbs
2. 14._____ All electric is to work properly
3. 15._____ All plumbing is to be free of any leaks or blockages
4. 16._____ All heating is to be working properly
5. 17._____ All smoke alarm(s) and carbon monoxide alarm(s) shall be working properly
6. 18._____ Leave ALL utilities on until your move-out inspection has completed
7. 19._____ Please call 3-5 days prior to your move-out to schedule your inspection.
8. 
   
9. All of the aforementioned items need to be done PRIOR to your move-out inspection so that you can RECEIVE YOUR FULL SECURITY DEPOSIT BACK (less any withholding from earlier tenancy). Any and all repairs, repainting, trash removal, cleaning, and/or any other expenses that are attributed to restoring your home to its condition prior to your tenancy will be deducted from your Security Deposit.
10. 
    
11. If additional money is needed to restore said home, Landlord will send Tenant a bill and/or file legal suit for said money in court. Your Security Deposit will be mailed within 30 days of your move-out inspection to the address you provide Landlord (if no new address is given, any remaining Security Deposit money will be mailed to current mailing address and the Post Office will be responsible for forwarding any/all mail to your new listed address). Please also note the replace/repair cost(s) for items you leave in disarray.
12. 
    
13. Please remember to deliver your home in the same condition it was in prior to your     tenancy. This will ensure YOU RECEIVE THE MOST MONEY POSSIBLE!
14. 
    
15.  Good luck with your move.

1. 1.