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November 27, 2007

Protect Your Investment Through Tenant Screening

The most common way to generate cash flow with real estate is through renting your property to a tenant. Good tenants are some of your most valuable assets, while a bad tenant can be your worst nightmare. So how do you get the good ones? The answer is tenant screening, and it applies whether you have properties for low-, moderate-, or upper-income tenants.

When you rent residential properties, the two primary types of tenants you’ll be dealing with are a traditional rental tenant and a tenant/buyer. Tenant/buyers are different from traditional tenants in that they have taken an option to purchase the property at some point in the future and the terms of their lease are usually somewhat different than the terms of a traditional rental agreement.

Screening is critical regardless of whether you’re looking for traditional tenants or tenant/buyers. Set effective policies and procedures, and follow them consistently. These tips will help you get started:

• Prescreen on the phone before you show the property. Don’t make it sound like you’re conducting an inquisition, but ask questions to get a sense of who you’re dealing with. Ask where the prospective tenant is living now, how long, and why he is moving. An answer such as needing a larger or smaller place, or wanting to be closer to work or family members is good—but if the caller has just been evicted, that’s certainly a red flag. Find out where he works, how long he’s been employed there, and what his total monthly household income is. Tell the caller that you conduct credit and criminal background checks on all tenants and see what kind of a reaction you get.

• Prospective tenants should complete and sign a written rental application that includes references, contact information for previous landlords, previous addresses, employment information, and consent for a credit and criminal background check. You may want to charge an application fee to cover the cost of pulling those reports.

• Log in every application, including the date and time it was received and whether it was hand-delivered or mailed.

• Provide prospective tenants with a copy of your rules and ask them to sign an acknowledgement that they have received and understand the rules and the consequences of violations. Rules can cover your policies on pets, parking, smoking, noise, use of common areas, access to the unit by management, maintenance issues, guests, occupancy standards, and more. Your rules should also be incorporated into your rental agreement.

• After prospective tenants pass your initial evaluation, conduct an in-depth screening. Contact references, verify employment, and conduct credit and criminal background checks.

• Be flexible in evaluating first-time renters. You may not have a rental history to check, but there are other ways to assess their trustworthiness and stability. Ask to see student transcripts; get references from teachers, counselors, or coaches; and find out why they are renting for the first time. Consider a policy of accepting cosigners on leases with first-time renters or other tenants who might not meet all of your financial requirements.

• Develop a consistent system for reviewing and evaluating applications. Make notes and document your decisions. Be prepared to demonstrate that your decisions were based on sound business practices, not on anything that may be construed as discrimination.

• Understand what constitutes illegal discrimination and set policies and procedures that are non-discriminatory. Remember that even innocent remarks can lead to discrimination charges; take the time to educate yourself so you can avoid problems.

• Protect confidential information provided by applicants. Use care when reviewing, storing, and disposing of applications and related documents, including credit reports and criminal background reports. Store these documents securely where only someone with a valid need can access them. When it’s time to dispose of them, they should be burned or shredded, according to the disposal rule of the Fair and Accurate Credit Transactions Act of 2003.

Be sure you comply with all local, state, and federal regulations regarding fair housing and landlord/tenant laws. Have an attorney review your documents, policies, and procedures. You can also get information from your local fair housing agency or the U.S. Department of Housing and Urban Development (HUD) at www.hud.gov.

Learn more through Wealth Intelligence Academy!

In Lease Option advanced training, you’ll find out more information about lease options as a real estate investing strategy. You’ll learn more about finding and keeping good tenants, as well as other effective, profitable property management techniques, at Property Management and Cash Flow advanced training. For details and schedules on these and other powerful wealth-building programs, visit www.wiacademy.com.

Partnerships are a Great Way to Fund Real Estate Investments

Finish this sentence: “I’d like to invest in real estate, but ____________.”

If you said, “I don’t have the money,” there is a solution.

Remember that while it takes money to invest in real estate, it doesn’t have to be your money. If you have a good deal, you can find the funding. One alternative is a simple partnership.

There are plenty of people who have money and would like to invest in real estate, but they might not know how and aren’t interested in taking the time to learn, or they want to invest in real estate but don’t want to take the time to do work involved in finding and structuring deals. If you take them a deal and present it well, they may be willing to use their cash and/or credit to fund it, and you split the profits.

Think you don’t know anyone who has enough money? Think again. You probably know dozens of people who have money in retirement accounts and who would like to see that money earning a higher yield than mutual funds provide. Many high-income professionals—doctors, lawyers, accountants, engineers—are looking for strong investments that will provide a level of long-term security their jobs do not.

If you’re shy about asking these people to invest in your project, use an indirect approach. Simply tell them you have a great deal, you’re looking for a partner, and if they know of anyone to please pass the name along. If they’re interested, they’ll ask questions—and if you have the right answers, you’ll have your funding.

The key to successful partnerships
The foundation of a successful partnership is a clear and comprehensive written agreement. No matter how well you know (or don’t know) your prospective partner, no matter how much you trust him or her, you need to clearly state in writing who is responsible for what, who has the authority to do what, and how the profits will be divided and paid.

Many people view contracts as what protects them when things go wrong. While that’s certainly a good reason to have written contracts, they are also a great tool to use to eliminate misunderstandings before they have a chance to happen.

For example, let’s say you have agreed to split the profits with your money partner 50-50. But you assume that you’re also splitting expenses and your partner thinks that he’ll get his share before the expenses are paid. Without a clear written agreement, you’re going to have a problem when the time comes to distribute the profits. By addressing the issue ahead of time, you’ve eliminated the potential for an argument over how the profits are calculated.

Savvy businesspeople expect and even prefer to work with clear contracts. If you’re concerned that insisting on a written agreement will make it look like you don’t trust the person (especially if this is a close friend or family member), let your attorney take the blame. Simply say, “I trust you and I know you trust me, but my attorney insists that we put all this in writing.” Good attorneys don’t mind being the scapegoat in situations like this, because it protects their clients—and that’s a key part of their job.

The first one is the hardest

Getting your first partner will likely be the most challenging, but once you do a deal and the partner makes a profit, it will be much easier to find other investors to work with. Someone who makes money by funding a deal with you is likely going to want to do that again—and he’ll probably brag to others about how smart he was to partner with you and some of those people will want to do the same thing. When your investors are making money, they’ll be happy to help you build a stable of funding sources.

Tax Actions to Take Now

Tax Actions to Take Now

What to do before the year ends to prepare for your 2007 tax return

By Jacquelyn Lynn

The one sure thing about taxes is change, and some significant legislative changes made over the past year could affect your 2007 tax bill. Because few tax strategies can be applied retroactively, it’s a good idea to be aware of this year’s changes now so you can consult with your tax advisor and take the most appropriate action for your circumstances while you still have time. Brian M. Lewis, CPA, a certified public accountant in Maitland, Florida, says primary issues you should be aware of include:

• All charitable contributions, regardless of the amount, must be supported by written documentation, such as a canceled check, credit card statement that clearly indicates the charity, or receipt from the charity. “Cash put in the collection plate at church or spontaneously given under circumstances such as when the firefighters collect on street corners for charities or even the Salvation Army Christmas kettles is no longer deductible,” Lewis says. “If you prefer to contribute cash to a house of worship and want to deduct it, use a donation envelope so you can get an accounting for tax purposes.”

• Some key deductions that ended in 2005 have been extended through 2007. Two such deductions are those for higher education expenses and state sales tax in states that don’t have an income tax. If you live in a state without a state income tax and are planning to make a major purchase such as a car or boat in the near future, Lewis suggests finalizing the sale prior to the end of the year to take advantage of the sales tax deduction.

• Tax preparers are going to be asking for increased documentation for expenses, particularly in areas such as automobile expenses, meals and entertainment, and the valuation of non-cash charitable contributions. “Congress is attempting to close what is known as the tax gap, which is the difference between what the U.S. Treasury thinks it should be collecting and what it actually is collecting,” Lewis says. “The IRS is setting a higher bar in regard to the documentation necessary to support many deductions, and it is enlisting the tax professional community to insure that those who are entitled to deductions have adequate documentation and that frivolous deductions are not being taken. Penalties for tax preparers that fail to meet the IRS requirements are being increased.” Be sure you know exactly what you can deduct and talk to your tax advisor to determine the best way to track and document those items.

This is also a good time of year, Lewis says, to be sure your records are completely up to date so that you can make appropriate year-end decisions. Pay your state and local taxes before the end of the year so you can take the deduction on your 2007 federal return. If you own investment property, get your miscellaneous repairs and maintenance done and paid for before the end of the year.

If you have bills on hand, get them paid before December 31. Stock up on office supplies that you’ll need in the near future so you can take that deduction this year. Consider accelerating equipment purchases, but be aware that there are some times when this strategy is not effective. Also, for any equipment purchase, you need to determine if it’s better to take an immediate write-off or depreciate the equipment over a period of years.

A common year-end tax strategy is to defer revenue to reduce your total taxable income, but this doesn’t always work and Lewis doesn’t recommend it. He says that if you voluntarily defer receipt of a payment, the IRS considers that “constructive receipt” and counts it as income for the year in which you earned it. “There are some exceptions, but for the most part, if you’ve earned the income and they’re ready to pay you, it’s income.”

Of course, before implementing any tax strategy, consult with your tax advisor. Consider not only your current situation but also what you expect to change in the coming year so that you can make the best short- and long-term decisions.

Finally, Lewis notes, Congress usually passes a substantial tax bill in November before they break for the holidays, so it’s a good idea to check with your tax advisor in early December to see if any additional changes have been made to the tax code that could affect you or your business.

Jacquelyn Lynn (www.jacquelynlynn.com) is the author of Entrepreneur’s Almanac. Brian Lewis, CPA is a Certified Public Accountant in Maitland, Florida.

November 21, 2007

Happy Thanksgiving!

On behalf of the entire Wealth Intelligence Academy team, have a safe and happy Thanksgiving!


November 19, 2007

A great approach to life

I saw a quote recently I wanted to share with you. Cotton Fitzsimmons, head coach of the Phoenix Suns, said, “You’re not going to make me have a bad day. If there’s oxygen on earth and I’m breathing, it’s going to be a good day.”

What a great attitude!


November 16, 2007

It’s a buyer’s market – when are you going to buy?

In most areas, it’s a buyer’s market. That means real estate prices are down and sellers are making concessions to close deals.

In their recent newsletter, real estate agents Jerry and Irene Stoffer had an article about the buyer’s market. While it’s targeted more toward end users (people buying homes for themselves) rather than investors, it has some valuable points you may want to consider—especially if you’re just getting started. Click here to get to the main page of the newsletter, then click on the article, “It's A Buyers Market. So, When Are You Going to Buy?”


November 14, 2007

Kelsey Grammer invests in real estate

I like the show “Frazier” and still enjoy watching the reruns. I also like Kelsey Grammer’s new show “Back to You.”

Why am I telling you this? Because I just saw an article about Kelsey Grammer’s real estate investments. You might not learn anything profound from it, but if you’re a fan, it’s entertaining. Click here to check it out.


November 13, 2007

Rich Dad Education Forum – a “must attend” event!

It’s going to be three exciting days of networking and knowledge. Reserve your place now at the Rich Dad Education Annual Forum in Orlando March 30 through April 1, 2008. Click here for more information.

November 05, 2007

Is the time right to invest in real estate?

In many areas, real estate prices are dropping, inventory is up, and the doomsayers are predicting the worst.

But let’s get personal about this: is the right time for you to invest in real estate? Only you can make that decision, but don’t let “the current market” fear mongers scare you away from achieving your financial goals. Any time is the right time to invest in real estate if you know what you’re doing.

The National Association of Realtors® ran an ad in yesterday’s Orlando Sentinel that was interesting. Though it was targeted to individual homebuyers, investors could learn from it as well.

Some of the points in the ad:

• Right now, interest rates are still at historic lows, conventional financing is available, and FHA-insured mortgage applications are on the rise.

• On average, the value of a home nearly doubles every 10 years.

• During the past three decades, home values have increased an average of 6.6 percent per year.

• The average homeowner today has 36 times the wealth of the average renter.

Definitely something to think about.


November 02, 2007

IRS Warns of E-mail Scam Soliciting Donations to California Wildfire Victims

Scammers never miss an opportunity, do they? Here is an alert from the IRS about a bogus e-mail that’s going around asking for donations to the California wildfire victims. If you respond to that e-mail, you'll probably find yourself a victim of identity theft.

IRS Warns of E-mail Scam Soliciting Donations to California Wildfire Victims

WASHINGTON — The Internal Revenue Service today warned taxpayers to be on the lookout for a new e-mail scam that appears to be a solicitation from the IRS and the U.S. government for charitable contributions to victims of the recent Southern California wildfires.

In an effort to appear legitimate, the bogus e-mails include text from an actual speech about the wildfires by a member of the California Assembly.

The scam e-mail urges recipients to click on a link, which then opens what appears to be the IRS Web site but which is, in fact, a fake. An item on the phony Web site urges donations and includes a link that opens a donation form which requests the recipient’s personal and financial information.

“People should exercise caution when they receive unsolicited e-mail or e-mail from senders they don’t know,” said Richard Spires, IRS Deputy Commissioner for Operations Support. “They should avoid opening any attachments or clicking on any links until they can verify the e-mail’s legitimacy.”

The bogus e-mails appear to be a “phishing” scheme, in which recipients are tricked into providing personal and financial information that can be used to gain access to and steal the e-mail recipient’s assets.

The IRS also believes that clicking on the link downloads malware, or malicious software, onto the recipient’s computer. The malware will steal passwords and other account information it finds on the victim's computer system and send them to the scamster.

Generally, scamsters use the data they fraudulently obtain to empty the recipient’s bank accounts, run up charges on the victim’s existing credit cards, apply for new loans, credit cards, services or benefits in the victim’s name or even file fraudulent tax returns to obtain refunds rightfully belonging to the victim.

The IRS does not send e-mails soliciting charitable donations. As a rule, the IRS does not send unsolicited e-mails or ask for personal and financial information via e-mail. The IRS never asks people for the PIN numbers, passwords or similar secret access information for their credit card, bank or other financial accounts.

Recipients of the scam e-mail who clicked on any of the links should have their computers checked for malicious software and should monitor their financial accounts for suspicious activity, taking measures to prevent unauthorized access as necessary. Any unauthorized activity should be reported to law enforcement authorities and to the three major credit companies. More information on how to handle actual or potential identity theft may be found in IRS Publication 4535, Identity Theft Protection and Victim Assistance, available on the IRS Web site. Recipients of the scam e-mail can help the IRS shut down this scheme by forwarding the e-mail to an electronic mail box, phishing@irs.gov, using instructions found in “How to Protect Yourself from Suspicious E-Mails or Phishing Schemes” on this site. This mail box was established to receive copies of possibly fraudulent e-mails involving misuse of the IRS name, logo or Web site for investigation.

The IRS and the Treasury Inspector General for Tax Administration (TIGTA) work with the U.S. Computer Emergency Readiness Team (US-CERT) and various Internet service providers and international CERT teams to have the phishing sites taken offline as soon as they are reported.

Since the establishment of the mail box last year, the IRS has received more than 30,000 e-mails from taxpayers reporting almost 600 separate phishing incidents. To date, investigations by TIGTA have identified almost 900 host sites in at least 55 different countries, as well as in the United States.

Recipients of questionable e-mails claiming to come from the IRS may also call TIGTA’s toll-free hotline at 1-800-366-4484.

The IRS has come across numerous schemes in which e-mails claim to come from the IRS. More information on these schemes may be found on the genuine IRS Web site, IRS.gov, by entering the term phishing in the search box.

November 01, 2007

A brief explanation of bankruptcy

If you’re investing in foreclosures, you may encounter prospective sellers who can’t pay their mortgages and are considering bankruptcy. In fact, as a foreclosure investor, your biggest competitor is not other investors, but bankruptcy. You’ll find it helpful to have a good understanding of the bankruptcy process and what it can and can’t do for debtors.

Here’s a link to a post on MyFico.com that discusses bankruptcy basics: click here to read Bankruptcy FAQ.