Real Estate Snippets

Living Trusts

My husband has a very close relative who has just been diagnosed with bone cancer.  The dreaded "C" word causes everyone's skin to crawl, but it also gives the victim a heads up to get their personal effects in order. . . just in case.

Several years ago my husband and I sought the services of an attorney and set up a living trust.  A living trust is not an option for everyone, but in our case, it was the best fit.  With a living trust, we do not personally own any of our properties; the trust does.  My husband and I are only the trustees of the trust.  When one of us dies, the trust continues to own the property and the appointed trustee takes over the deceased's role as trustee.  This system is used to avoid probate court upon death.

However, as I mentioned, this plan may not be for everyone.  When property is owned by a trust, the property continues to appreciate from the value of the original purchase.  That means that when the first trustees die, the beneficiary trustees will take over the management of the trust but the property does not change hands in the eyes of the law.  When an investment property changes ownership (i.e., when children inherit the property), a new base value is determined for tax purposes based on the current property value.  Because the property in a trust does not change ownership upon death of the trustees, it continues to appreciate in value from the original purchase price.  At the time the trustees decide to sell the property, the trust will pay a larger capital gain because the value was not reevaluated at the time of the first trustees' death.

One of the primary reasons we chose a living trust is so our children would not have to liquidate our assets upon our death.  By providing the framework for them to "take charge" of the real estate, it gives them control rather than the courts.  It also gives them the freedom to wait a few months and then sell, or hold the property as rental and generate income.  With either option, they will be able to choose rather than a stranger choosing for them.

Lists

As corporate trainer at my real estate company, I'm asked to make lists.  Lists of what to bring to an appointment with a buyer prospect (those that we "wanna be" our clients); what things need to be done at a listing appointment; what forms must be included in a file: what equipment needs to be taken to a listing appointment; all the tasks that an agent does for a client;  the steps in the transaction; and finally, the list of what lists an agent should have! 

Because I'm an abstract random learner, I early learned to use lists for survival.  My natural tendency to jump all around is curtailed with lists.  Lists keep me on task.  Lists improve my level of performance.  They also help me remember what I forgot to remember.

Today's class of trainees was awarded the great privilege of listing what the fiduciary duties of an agent were.  There are only six and they bear the weight of true representation for a client.  Despite their recent licensing class time regarding agency, listing the fiduciary duties was a struggle for a couple.  We use the anachronym "el-see-dora" to jog memory:

• L oyalty
• C onfidentiality
• D isclosure
• O bedience
• R easonable care
• A ccounting

Every licensed agent owes their client the duties listed above.  Is your agent even explaining them to you?  If not, ask your agent to explain agency.  Remember the agent is supposed to represent you, negotiate for you as though their life depends on it, and give you each of the duties listed above.

We Remember

Memorial Day is a day of memories for those whose have sacrificed so much to maintain the freedom of our great country.  Some paid the ultimate sacrifice by losing their lives.  Others returned home forever changed by their experiences in combat.  The families of each have paid dearly as well.  Regardless of our political bent regarding war, we can all be thankful that others came before us, and even now are serving, to provide the framework for the extensive freedoms we have to work, speak in opposition, own property, move freely about, amass wealth, and provide for others.

My flag is flying today in memory of both my grandfathers, my own father, my father-in-law, numerous friends, and numerous strangers who have served over the years.  Still as teenagers or very young adults, they served in WW!, WWII, the Korean War, Vietnam, Bosnia, and Iraq.  These men are in my memories.  There are many that came before my lifetime whose war battles and memories are only in personal journals.  Each one came home with some good tales to tell, but also had horrendous experiences that forever changed their lives.  Each one knew why they went and after having gone, they each realized that home is the greatest country to go back to, especially when it's the USA.

MN Tightens Eminent Domain

It's old news now, unless you haven't heard the news. The Kelo decision by the U.S. Supreme Court alerted the whole country to the danger of one of our constitutional rights being weakened.  The Kelo decision concerns the right of government authorities to acquire property through the eminent domain process.   The Supreme court upheld a local community's seizure (for a price) of private homes in good repair for the purpose of redevelopment, not for putting in roads, or parks, or other improvements for the "common good".  A copy of the brief to the Supreme court can be read here.

A hue and cry was started across the nation among those who realized a small motel could be captured through eminent domain to build a high end resort.  Justice O'Connor stated that the "spectre of condemnation" hung over every person's property as a result of the Supreme Court ruling.  Several high profile examples of this have occurred in Minnesota including the site where Best Buy's corporate headquarters now stands in Richfield and the Target Center in downtown Minneapolis.  Both sites were acquired through the eminent domain process from their owners who battled the procedure in court and lost.  Private residences were earmarked in Richfield years before the acquisition making it almost impossible for those residents to sell their properties at fair market value.  It was a fiasco.  The excuse was that more jobs would be created, and therefore, the new businesses were in the "common good".

But Americans hold dear our constitutional right to own property.  "Kelo" alerted the nation as a whole, and Minnesota legislators were not immune to the public pressure.  As a result, the Minnesota legislature passed a new eminent domain statute limiting the government right to seize property.  The new wording does not allow the government to acquire owner A's property to transfer it to owner B based on promises of new jobs or other financial gain for the community.  The owner who lost property and was compensated only 60% or less of the property value, was given the right to sue at government expense for the action.  This new legislation is a step toward protecting the individual business or homeowner's right to own real property and installs some limits on the "process" of eminent domain.

The wording of the new bill can be viewed here.  Media release from Castle Coalition can be viewed here.

The Throne

Oooooooh, noooooooo!  A toilet!  She's showing a toilet!  Oooooooh, noooooooo!

Whether you call it the throne, the head, the John, the pot, the @#$%er, the potty, commode, lavatory, or toilet, this one fixture in the bathroom is responsible for more landlord dilemmas than any other.

Secrets of property management include how not to flush money down the toilet.  Two preventive maintenance items in rental properties are important for me:  changing wax rings on toilets and changing the "guts" in the tank.  A consistent pro-active schedule to change these two items will prevent greater expense if they wear out.

Because tenants seldom realize the importance of leaking toilets, a toilet can run in a rental unit for a whole billing cycle before the owner sees the increase in the water bill.  The bill can double, triple or skyrocket.  Calls to the water department return the pat answer, "Check the toilet."  After that response a couple times, I stopped calling the water department and called the plumber instead.

Cheap preventive maintenance can prevent these three kinds of leaks.

• The sneaky ghost:  the toilet starts running all by itself for a few seconds and then quits.
• The waterfall:  the water runs and runs and runs taking your money down the drain with it
• The creeping crud:  the wax ring has come unglued and allows flushed water to seep out between the toilet and the floor.  You don't want to be in the unit just below when the smelly crud starts dripping through!

To check for the sneaky ghost, open the top of the tank and drop some food coloring in the tank.  Do not flush the toilet.  Take the trash out and come back to check the toilet bowl.  If the food color has transferred from the tank to the bowl, there's a leak in the "guts" of the toilet.  A handy person (a husband or even me!) can usually replace the tank innards, but you can also call a plumber.  The plumber will usually cost less than the water bill you'll incur from this leak.

The waterfall usually means the flapper is shot in the tank or the chain to the handle is too short or ...  Same repair will solve this problem.  Buy a kit for the replacement parts at your local hardware store or call a plumber.  While you await a plumber, shut off the water to the toilet.  The water can be turned on for each use and turned back off until help arrives.  I know that's a lot to ask of a tenant, but careful instruction should create the desired result.

The creeping crud is gross.  Not only does the dirty water go under the floor covering, but if left undiscovered too long it will eventually drip through the ceiling in the lower unit.  When that happens, it's major repair time as flooring in the leaking unit and ceiling below usually have to be replaced.  The toilet must be lifted, a new wax ring installed, and the toilet reset (the least expensive part of the repair).

My solution to prevent these more expensive repairs is to have a plumber visit each of my rental units once a year to replace the tank works.  I ask the plumber what the replacement schedule should be for the wax ring, and we keep to that schedule.  Both the tank innards and wax rings are inexpensive and a plumber can do all my units in one day.  While he's there, I have him check other faucets and drains for leakage as well.  This annual maintenance is much cheaper than the shocking water bill I could get if the preventive maintenance were not done.

Tribute to My Teacher

I had a creative writing teacher my senior year in high school who was really tough.  I was used to getting A's, but I was not used to having to work for them.  No other teacher in my high school career thought I should have to rewrite every paper I submitted for a grade!  The self-centeredness of youth thought good enough was good enough!

Now, over 40 years later, I can't remember her name, but I remember her lessons.  She had unruly red hair and marched to her own drummer, but she truly cared that her students would be competent in English when she was done with them.

I think of her every time I write a post on my blog.  You, the reader, don't see the rough drafts.  Rough is what they are.  They're seldom full of typos, but often the sentences are boring and ramble on (Oops, that's a dangling participle, I think!).  She taught me to use one word where I used many.  "All of a sudden" could be replaced with "suddenly".  She taught me to rephrase sentences for clarity and to add interest.  This sentence:  "She tore my papers apart, but when they were rewritten, they were vastly improved." would be replaced with "Like the governor, she line item vetoed, coercing a vastly improved finished product." and finally with "Like the governor, she line item vetoed, coercing vast improvement."  She eliminated redundance.

So, this is a tribute to my creative writing teacher.  Thank you, thank you, for (delete "making me a better writer than I thought I could be" and replace with) compelling me to excel.

(c) Bonnie Erickson 2006

Eavesdropping

There is no end to the intrusiveness of some people.  I'm member of an international list serve of real estate professionals.  One member asked  what other forum members would do if they realized the seller was using a baby monitor to hear the agent and buyer client's conversation during a showing!  A baby monitor!  Now I've heard it all.

My immediate reaction to this invasion of the buyer client's confidentiality would be to take the batteries out, unplug the contraption, or get out the BFH (This is a family show so I won't translate that literally, but it boils down to using a sledge hammer with mighty force.).  How dare the seller.  The nerve!

A buyer contracts with an agent to represent him/her for many reasons.  These include:

• to keep both the buyer's and seller's emotions out of the transaction
• to get input on a reasonable price commensurate with condition, location, and other terms
• to keep confidential information from being disclosed
• to negotiate the best deal possible for their dream house

Eavesdropping on an agent's conversation with his/her buyer client could really impact the potential transaction.  Not only could the seller not like the buyer's comments, but the agent also might have pointed out issues with the house (agents are required to disclose any physical defects they see) that the seller was hoping would go unnoticed, thereby offending the seller.  Even a conversation in which the buyer kept saying, "Oh, I love this house." could compromise the buyer's negotiation for seller concessions in price, closing costs, inspection requests, etc., because the seller knows the buyer wants the house "no matter what".

Only once in my career have I known that the seller overheard my conversation with a client.   The sellers never responded to my heavy knock on the door or the announcement, "Hello, hello, REALTOR!" as we entered.  It was the "pink and green house".  Every room featured a new twist on the pink and green theme.  We got to joking about it as we went down the basement stairs and came face to face with the sellers.  I promptly turned pink and green to match the house and we abruptly exited.  Out of respect for the sellers, we would not have made comments about their decorating had we known they were there.  Out of respect for us they should have responded to my loud announcement of our presence.

So as I've rambled, I realize my outrage is based in lack of respect.  Some things are private and shouldn't be overheard.  That includes bathroom sounds from the cordless phone and private conversations between an agent and their client.  How dare they!

Friendly Dogs Don't Belong At Showings

"Hmmmm.  He looks friendly enough to me.  How about we go in and see what the house looks like!"

I'm in total agreement with Ardell in Kirkland, Washington, when she commented that one of her pet peeves is the presence of a dog in the house she's showing.  Now if I came to your listed house and the dog in this picture met me at the door, I would turn around and leave.  Granted the teeth aren't totally exposed and maybe the dog is not fully growling, but the ears are not up and that dog is big enough to take off one of my limbs or at least do some pretty healthy damage.

What the REALTOR showing this house doesn't know is this dog is smiling.  You read that correctly.  He is smiling.  This is the official greeting I get when I come home everyday.  He bares his teeth, flattens the ears back, and wags his tail like his back end is going to fall off.  No jumping or growling, just plain happy to see me.  It was so freaky  the first time that I had to check with the vet.  The vet says this is a submissive smile.  Looks more like preparation for an attack to me.  Most of my "dog" friends had never heard of a dog smiling.  I think it's fitting with my tag line "Excellence with a Smile", that I would adopt one of the rare dogs that smiles!

(c) Bonnie Erickson 2006

Crash and Burn

Property management is a misnomer.  Whoever coined the term never owned property, because the real test of rental property ownership is tenant management.  First hand experience was my teacher when I broke my own cardinal rule of rental ownership:  If the tenants get to you, hire a property manager!  Tough lessons are never forgotten.

A sunny afternoon presented my husband and I with another one of those opportunities to amass wealth.  Upon exiting my current rehab project, I saw the very agent who had listed this house coming out of a similar house just two doors away.  I waved a greeting and went to chat.  He was in the neighborhood listing the house he had just left.  My inquiring mind had to know the price and when he said $40,000 (for a house converted to a legal 2 bedroom up, 2 bedroom down duplex), I suggested we find a place to write an offer.  At $40,000, my income property rule of only paying $50,000 per unit was well met.  I could collect enough rent from one unit to cover the mortgage and expenses and use the other unit's rent to upgrade the property.

A month later my reluctant husband and I owned our first duplex.  He was scared.  To his fear I added my anticipation.  I loved the house with its character and immediately began to upgrade one of the units.  The rent, the hail storms of the late 90's, a tenant's son burning down the garage (long story for another time), all provided needed upgrades to the building.  The husband decided rental property was a good idea when he got the first year's tax returns.  He was all set to buy more!

But all did not stay so rosy.  Tenants revolved in and out, and my dream was to find some lifers, tenants who wanted to stay in one place for their lifetime.  My goal clouded my good sense, and I accepted a tenant who was a relative of the other unit.  Big mistake.  The fighting between the units turned me into a mediator.  The calls to the cops tarnished my good landlord reputation.  The garage burned down.  The tenants denied access to the property to make repairs.  The tenants reported me to the city for not making the repairs when I started the eviction process.  The tenants even denied access to the city inspector!  I crashed and burned.  A colleague was looking for a duplex for a client in the price range my duplex would sell, and I marked it sold!  Big mistake.  Huge mistake.  Dumb mistake.  Capital gains mistake.  Loss of equity mistake.  You get the picture.

Not only did I not hire a property management company, but the exchange we had set up backfired on us and we ended up paying more taxes in capital gain that year than my income.  Not to mention that property would be yielding a NOI (net operating income) of close to $1000/month today.  Did I learn a lesson?  You betcha!  I've already got the property management company picked out!

Cowtown Blogger Noticed

Cowtown blogger Maureen in Columbus, Ohio, has caught the attention of Steven Cohen of PubSub.com, a real estate bloggers directory.  Maureen is a great blogger, one of my favorites, as she takes some really boring topics and draws me in with her dry humor.  What do I care about what is "best" in Columbus, Ohio?  It's just a cowtown afterall!  Do I care about the best restaurant?  Not really.  By the time I visit Columbus the restaurant will be gone.  But Maureen hooks and plays me like a fish everytime.

Today Maureen published an impressive article on me!  ME!  Now why would she do that?  Because Maureen is a highly competitive person who believes in encouraging the competition for the betterment of the whole industry, be it blogging or real estate.  Or maybe she wants the competition to succeed so she has to work harder?!?  She's faithfully commented on different blogs to encourage the writers to increase their number of entries.  She's watched my statistics more than I have.  She informed me of when I appeared on GrowABrain which is one of the most comprehensive lists of blogs I know.  I didn't know GrowABrain was a blog about blogs, let alone that they had listed my blog.  In like manner I didn't even realize PubSub.com knew I existed until she pointed it out to me.  She knew the day I first appeared on the directory. 

In Maureen's post about me she bemoaned the fact that I was on PubSub and she still was not.  She needn't worry anymore.  Steven Cohen of PubSub.com actually posted a comment on her blog.  Now that's notoriety!  I'll bet Maureen's Discover Columbus will be there tomorrow and she'll jump way ahead of me in no time!

See ya at the corral!