By now, many property owners have received their county/state property tax assessment.  Read the notices and don’t be afraid to question the values reported by the assessor.  Because many areas of the US real estate market have had DRASTIC price increases in the past year or two, you may be paying much more than needed.

Keep in mind that as property values have increased, many local/state/federal governments have INCREASED SPENDING (ie HUGE budget deficit/shortage coming! ) The result is a scramble to “find” additional revenue to “feed the beast”.  Property taxes are one method local/state governments have to raise revenue.  As prices increase, governments will look to increase the RATE or amount at which they tax to make up the difference.  Keep in mind that government RARELY decreases (or eliminates) a tax once it is in-place.  To head-off the pending increase, you should consider protesting your tax assessor’s estimate (tax assessment).

There are benefits and drawbacks to protesting the assessment.

One benefit is a lower tax bill. This may also result in a lower insurance bill.  Lower bills means more money in your pocket.  And this lower tax bill will help you for the next two or three years (plus many more years if you’re a long-term real estate investor) or until the next assessment.

One drawback is the resale value of your property may be decreased. Some buyers (and online property valuation tools…zillow, yahoo, etc.) will see the decreased assessed value and assume that your property is worth less than you are asking (you can counter with proper analysis and show the increased cash flow or more affordable home).  Remember value is a function of the net cash returned.

Protesting the assessment is easy.  Contact your local Realtor and ask for help with finding comparable (comps) properties to help protest the assessment.  Once you have the comps, determine which comps are most like your property.  Then determine the value of your property using three different methods (comparable sales to find the price-per-square foot, income basis and replacement costs).

If your research shows that your property value assessment is too high, then simply tell the assessor (on the paperwork provided with the assessment notice) that you disagree with the assessment and what you think the value should be.

The assessor may agree or disagree with your suggested valuation.  If the assessor agrees with your valuation, congratulate yourself!  You just saved some money.

If the assessor disagrees with your suggested valuation, you should prepare to support your valuation.  Keep your information secret until the assessor questions your valuation and method that you used to arrive at your value.  Once you can logically show that the valuation should be lower than the assessor’s value, you should have little difficulty lowering your tax assessment.

Keep in mind that the assessor is busy YEAR-ROUND looking at many, many, many properties and assessments.  The assessor most likely won’t know your property or neighborhood as well as an informed property owner does.  The worst thing that can happen is that your assessment stays the same.  In rare cases, does the assessment increase because of your protest.  Most of the time property owners are successful in reducing their tax assessment.

If you need a list of comparable (Comps) properties, contact me and I’ll email you a list of properties comparable to your property.  JUNE 1st is the deadline to protest in many jurisdictions in Colorado.

Transferring real (real estate) property to an heir or beneficiary can be accomplished many ways, including Power of Attorney, Probate, Wills and Trust Estates.  Power of Attorney (PoA) are instructions while living.  Wills are instructions upon death.  Deeds are devices to transfer property.  Trusts are holding entities for assets (including real estate).

Power of Attorney (PoA) are instructions from one party (Grantor) to another party (Grantee).  The person given the PoA can sell, lien, or encumber the real estate of the Grantor anytime.  The Power of Attorney terminates at death.  Careful to give this power to only those you have complete confidence and trust in.

Probate is a court process.  Probate requires the “state” or courts to transfer the property (by court order, usually upon death) of the owner of the property, using the “probate” process.  The courts are presented information (Wills, Deeds, Trusts and interested parties) and then decides what the law and instructions of the owner are/were upon death.

Probate is required in Colorado if the estate is more than $63,000 in value OR has real estate.  For estates without real estate AND less than $63,000, a simple process to transfer the assets can be done with or without an attorney.

During the Probate process, no property can be transferred, sold or encumbered until the PR has the “Letters” or court orders designating what can or cannot happen.  Letters are the “Letters of Testamentary” (via directions from the Will) or “Letters of Administrations” (via directions from the Court without a Will).  Property transfer (sale) is usually recorded with a PR Deed prepared by the probate attorney (not title company).

When selling a property under Probate, the priority for payment is:  Property held as Trustee, Expenses of Administration, Funeral expenses, Debts and taxes under Federal law, Expenses of last illness, Debts and taxes under Colorado law, Medicaid recovery, everything else (including heirs).

Wills should be drafted by an attorney and kept updated yearly as needed.  The person(s) designated to carry out the instructions of the Will is called the executor or PR (Personal Representative in Colorado).  If no Will, the state decides who will be the PR.

Deeds can be recorded anytime to transfer property or encumber property with other parties.  Care should be used when transferring property as many tax and estate planning issues should be considered.

If a property was transferred or “Deeded”, then the type of deed used will transfer the property before or upon death.  For example, a Beneficiary Deed may be useful to transfer property (or a portion of the property) from one owner to another, but must be recorded prior to death (avoids probate).  Another type of deed, the Joint Tenancy, can be used to transfer ownership (while living) to the surviving spouse upon death (make sure to include “in joint tenancy”, “as joint tenants”, or “JTWROS” in the deed, these will exclude the asset from probate!)

For investment property, the Tenants in Common Deed (the default type of deed in Colorado) can be used to transfer ownership interest to heirs.  (Probate required when property is/was titled as Tenants in Common.)

Deeds are useful to plan for what should happen upon death.  Recording of the Deed should take place far in advance of death or illness so the courts can easily understand the desire or plan of the person granting the Deed.

Trusts (both revokable or irrevocable) are useful to avoid probate.  Trusts are established during the lifetime of the owner with specific directions in the trust agreement (not recorded) address how a property should be used, who should receive the benefit and who should administer the trust (before, during and after death).  The major parts of the trust are the Grantor, Trustee and the Beneficiary.  Note: When using a Deed to transfer a property to a trust in Colorado, the Trustee should NOT be mentioned in the Deed or Probate will be required!!! (Mrs. Mitchell, Attorney, Ambler & Keenan, LLC, 9/5/13, “Transferring Property in Probate and Trust Estates”, CE Class, Windsor, CO).  When selling a property out of a Trust, a “Trustee” Deed is used and the title company can prepare.

Estate planning is complicated and problematic with numerous issues including Medicaid, Social Security, Taxes and other issues.  Competent legal and financial advisors should be consulted prior to implementing your estate plan.

Tenants facing bankruptcy may present additional problems for property owners and property managers.  When a tenant files for bankruptcy protection, the tenant’s debts and obligations become a matter of public record.  The court (or designated trustee) will most likely terminate the tenant’s existing lease.  Since many tenants want to stay, you will need to get a new lease approved and signed by the court/trustee.

Property owners and managers should have a clause in their lease to address tenants filing for bankruptcy.  Owners and property managers should be notified if a tenant files for bankruptcy protection, but many times the tenants forget to notify the property manager or owner.

During the application process, property owners and managers should ask if prospective applicants have ever (or plans to) filed for bankruptcy protection.

Note: Owners and property managers should always consult a competent legal professional for their specific situation.

When buying a property with a residential mortgage (loan), you may be bombarded with solicitations from various companies offering you “mortgage life insurance” that offers to pay-off your mortgage if you or your spouse dies.  These policies are usually much more expensive than a term-life policy and decline in value over the term of your mortgage.

The mortgage life insurance policy usually declines in value as you pay down your mortgage, so the value in 25 years (if you have a 30 year mortgage) is worth much less than if you died 2 years into the policy.  This type of policy usually becomes worthless once you have paid off the mortgage.  And if you die, the bank gets the pay-off; your beneficiary gets the deed (what happens if the house has become worthless?) The policy may not pay-off for the first 5 years until you paid enough to the insurance company, so double-check before you sign up for this type of mortgage life insurance.  If you sell the property, refinance the mortgage, get a 2nd mortgage or home-equity loan, the policy may terminate with no remaining value!

A better solution for many people (especially young healthy people under 30 years) is a term-life insurance policy.  This type of policy is a fixed-benefit type of policy meaning that the value doesn’t change over time and worth the same on day 1 or the last day of the policy (10, 20, 30 year policy, or any number of years).  At the end of the term, the policy expires and becomes worthless.  If you die before the term ends, then your beneficiary gets the value of the term-life insurance policy to payoff the mortgage, help with the funeral or do whatever with the money (if the house becomes worthless, your beneficiary can go buy a new house with the insurance money and leave the worthless property to the bank).  The insurance payout may be tax free money to the beneficiary!  This type of fixed-term life insurance policy can be found for about $10 per month for $200,000 worth of life-insurance.  And the policy goes with the person and IS NOT tied to the property or mortgage!  As long as the premiums are paid, the policy usually remains in place.

Many insurance agents and investment advisors will offer “universal life” or “variable life” or “whole-life” policies.  These may or maynot have a cash value at the end of the term.  But most likely, you’ll be better off buying term life insurance and investing the difference (or save for a rainy day) to pay-off your mortgage or invest in a good stock like Coca-Cola or Home Depot.  If you are a high-earner (over $200,000 per year), then this type of policy may provide tax savings and benefits.

Any insurance policies that you fail to pay usually will terminate immediately.  Any of the “cash value” may be converted to pay the premiums until you:

  • 1) Repay the missed premiums (with a penalty) or
  • 2) The “cash value” is converted to payments to the life insurance company until the policy value is exhausted, then the policy will terminate (leaving you with NOTHING!)-BEWARE!

Consider that you may become jobless sometime during the mortgage period and if you fail to pay the premiums, the policy may become worthless….   You should consider which insurance policy will allow you to cash-out (the policy or the stocks you bought with the savings) with minimal tax or legal penalty to help you survive during the joblessness?  Or did you save the difference and put it into a rainy day fund to carry you through the joblessness?

Most of these scenarios have significant tax penalties (except for the rainy day fund) and you should consult with a CPA or certified financial planner (pay by the hour) to get unbiased advice.  Also check with your insurance agent and get quotes from several sources.

Owners that manage rental property should learn about the various “Landlord-Tenant” laws.  There are many laws that must be followed or the resulting legal action and penalties can be severe.

For example, security deposits must be handled properly when received, held and disbursed.  A final accounting is extremely important and failure to correctly account for the deposit can result in treble (3 times) damages and legal fees on top of that!  Also, late fees should be spelled out in the lease and notice given to tenants when they are due and the amount.

For property managers of public or subsidized housing or mobile homes, the laws are different than single-family or 1-4 unit dwellings.

The lease is one of the single most important documents that can protect owners, managers and tenants.  Care should be used when drafting the lease and legal help should be used.

Colorado passed the “Law of Habitability”.  This law provides for “basic living standards” that owners and property managers need to provide to tenants.  All property owners, managers and tenants should read this important law for “Rights & Responsibilities” that each party to the lease should know and understand.  Consult your favorite attorney for better understanding.

A common scam circulating on Craigslist is the rental property scam.  Thieves take the pictures of a property currently on the market and then re-market it on Craigslist (or other websites) as a rental.  The thief then steals the prospective tenant’s money.

The common story begins with the property owner that had to leave the country on an emergency mission and the property needs to be rented.  The thief takes the property information and photos directly from a listing agent ( or or any site that “syndicates/shares” the photos) and re-posts them on Craigslist.

The typical ad has a picture with a phone number to call for a showing.  Prospective tenants call the phone number and the thief usually gives you the address and tells you to drive by.  The thief may show the property or send pictures and then pressure prospective tenants to pay (or wire) the deposit to reserve the property since the rental market is tight and the property will rent quickly.  The rental price is usually very low and the thief claims it is a “great deal”.  BEWARE!


Do your homework and look out for the signs such as “out of area phone number” or “wire the money” or “cash only”.  Reputable parties usually use a well-known local company or the property owner’s name to accept deposits.  When renting a property, a personal check, money order or cashiers check is usually sufficient and should be made out to a property management company, if not-BEWARE!


How can you as a tenant protect yourself?  Call a local Realtor or property management company to verify that the property is available for rent.  Most likely, the property is FOR SALE, not for rent.  Most property management companies know what properties are for rent and the employees/owners know each other.  If you meet at the property, make sure you get a business card and license plate number of the person’s vehicle.  You should take pictures of the person or see some sort of identification to verify that they own or manage the property.  You should sign the lease at the property manager’s office or other location where other people know the owner/landlord (a local bank or real estate office is good).

As a real estate agent (Realtor), you should watermark your photos with the address or company name or statement “Not For Rent”.  Post a sign near the entrance of the property “Not For Rent” or agent contact info.

How can you protect yourself as a FSBO/FRBO of a property that is currently for sale or for rent?  Owners should post on reputable websites.  All photos should have a watermark with your phone number or other contact information.

If you have been scammed, contact the local police department and the FBI Internet Crimes unit.

There is plenty of news indicating that now is the time to get back into real estate… Careful, each market is different.  Unlike the stock market where the price of a stock is the same regardless of the location, real estate is highly variable depending on the location.  And even then, within each town, the values are highly volatile.

For example, if there is a foreclosure in a nice neighborhood, chances are that the neighbors know about the pending foreclosure and the value of the property is easily determined with comparable sales.

But what happens if the foreclosure is on the “bad” side of town?  Neighbors may not be in a position to know (or care) about the pending foreclosure.  Maybe there are many rentals in the area; maybe there are declining values for the neighborhood.  Buying a property in this situation may not be the best investment decision.

Some national news outlets are stating that now may be the time to invest in real estate.  My recommendation is to tread slowly and perform due dilligence.  Know your strategy before investing.

Word on the street is that now may not be the best time to buy a home.  If the predictions are correct, a drop in housing values of 15% to 25% may be on the horizon.  Source:  CNN/Money

Depending on your particular situation, it may be cheaper to buy now instead of renting.  If your rental payment is more than your monthly payment, it usually makes sense to take the plunge and buy.  With interest rates, mortgage interest deduction, itemized deductions (for property taxes, etc.), you may end up paying substantially less to own a home instead of continuing to rent.

In the event that housing values fall another 25%, you may still be ahead by buying when interest rates are still historically low.  For example, if the house value decreased $50,000 (from $200,000 to $150,000) but the interest rate rose 2% (from 5% to 7%), the monthly mortgage payment would $1074 ($200K @ 5%, 30 yrs) vs $998 ($150K @7%, 30 yrs), a difference of $76/month that is easily offset by the tax benefits; especially to the person that previously had no tax deductions!

If housing values fail to drop the “predicted” 25% and interests rates rise, then the savings are negligible and you may miss out on the historic-lifetime-home-affordable-opportunity of your life!

The best solution is to examine your particular situation and determine if now is your time to become a buyer.

Recent guidelines for FHA loans will make getting a FHA-backed loan on a meth (methamphetamine) contaminated (or remediated) property virtually impossible.  Since most new loans today for buyers are FHA loans, this will probably severely limit lending on any property that was once a “meth contaminated” property.  The net effect will most likely mean a halt to “buying and rehabbing” meth contaminated properties.

Note that a “meth contaminated property” can be any property where meth was USED or MANUFACTURED!  Yes, meth use may cause your property to be classified as a “meth lab”.  Owners should carefully screen tenants and visit their properties to prevent meth USE (or manufacture) on the premises.  Once a property has been classified as a “meth lab” in Colorado, only a state certified “hygienist” can certify the property is “clean” or remediated…And the cost to remediate is VERY EXPENSIVE and may not be covered by insurance.

Meth contaminated properties are usually encountered when buying REO (real estate owned) or bank owned properties.  Typically, banks don’t provide disclosures or the disclosures are AS-IS, meaning that the bank is either “playing dumb” or disclaiming all knowledge (thus responsibility) for any and all problems or issues.

Even if the property has been remediated to current state standards, FHA loans will be nearly impossible to be used to purchase a current meth property or a previously contaminated meth property.

It seems that the “stigma” of a meth property lasts far after the actual meth problems.  Buyer (and investor) beware!

FHA loan rules are constantly undergoing revision.  In 2012, FHA was not providing financing on “meth” remediated properties.  Buyers would have to use conventional financing (20% down) or non-FHA financing to buy meth-remediated properties.  Check with your loan officer for the latest information regarding FHA loans or call/email us for a list of FHA authorized lenders.

Properties that had FHA, VA or other government backed loans that were then foreclosed are returned to the market through the HUD, VA or FDIC selling process.  These properties are inspected by HUD, VA or the FDIC.  The inspection process will usually reveal if the property was a meth property.  These properties may qualify for special government financing programs, but the number of meth properties found through HUD, VA or FDIC are few and uncommon.

Each state has its own laws how to handle a meth property.  Consult your local Realtor, sheriff or county office for more information.

If you are rehabbing an older building  (built before 1978), then new EPA rules are in place.

It is suggested that you first test the property for lead based paint.  If the building tests positive for lead based paint, you need to follow the new RRP (Renovate, Repair or Paint) Rules.

The basic rules state that if the property:

  • is Non-owner occupied
  • was Built before 1978 and Tests positive for lead paint (test MUST be performed if built prior to 1978, and test results must be filed)
  • Will disturb more than 6 square feet interior, or 20 sqft exterior
  • Will disturb the window(s)

then the property owner must follow the EPA RRP Rules.

Effective April 22, 2010 (Earth Day), the EPA implemented new rules governing lead paint removal.  The regulations dictate work-site practices, reporting  requirements, and require training and certification of contractors/workers.

The purpose of the RRP Rules is to minimize lead hazards in affected properties.  The RRP Rules have the backing of federal law and penalties are severe.

The rules dictates how to prepare an area for work, (to be sealed off with plastic to prevent dust contamination). Renovation methods that stir up dust such as sanding, scraping, power washing are prohibited. The law also dictates how the daily (and final) clean-up is to be performed.

For EPA certification,  an 8-hour training course is mandatory with a final test. At least one EPA certified “renovator” must be present at the job site. The fine for non-compliance is up to $37,500 per day.

If your property receives HUD funds (Section 8 or other HUD/Government assistance), RRP Rules must be followed.  Local and state laws also apply.

Note:   All handyman/contractors (licensed or unlicensed) performing renovation and repair that disturb painted surfaces in homes built prior to 1978 must be RRP certified.

Older buildings (built before 1978) are more likely to have lead paint:

  • 87% of homes built before 1940 have lead paint
  • 69% of homes built between 1940 and 1960 have lead paint
  • 24% of homes built between 1960 and 1978 have lead paint

Lead poisoning can affect anyone and the physical damage caused by lead, including impaired mental ability, is irreversible (of which children are more susceptible).

The federal government estimates the additional costs to the property owner to comply with the RRP Rules is about $170 per job.  Keep in mind that the equipment necessary to comply will be at least $200 (respirators, plastic, protective clothing, etc.)  Additional costs (labor, paperwork, permits, notification, etc) are not factored in.  Some contractors are estimating an additional $1,000 to $2,000 per job for compliance; your mileage may vary.

In Colorado real estate, there are several types of deeds, depending on the type/amount of protection given and received from the seller and buyer.  From the Colorado Real Estate Manual, Chapter 8:

Types Of Deeds
There are four major classifications of deeds:
(1) General warranty deed,
(2) Special warranty deed,
(3) Bargain and sale deed,
(4) Quitclaim deed.

The types of deeds differ solely in the degree of protection that the grantor (seller) promises or warrants to the grantee (buyer). No type of deed transfers any greater or lesser interest than another.  For example, if a grantor conveys title in fee simple by a general warranty deed, the same fee simple ownership is conveyed as if he or she had used a quitclaim deed.

However, the general warranty deed grantor promises to defend against any loss incurred due to any title defect, whereas transfer by quitclaim deed contains no such warrant.

1. General Warranty Deed.
A deed in which the grantor warrants or guarantees title against defects that existed before the grantor acquired title or that arose during the grantor’s ownership. It does not warrant against encumbrances or defects arising from the grantee’s own acts. The usual covenants or warranties contained in a general warranty deed are:

a. Covenant of seizin. Guarantees the grantor’s ownership and that he or she has the right to convey it. The fact that the property is mortgaged or is subject to some restriction does not breach this covenant.
b. Covenant against encumbrances. Guarantees that there are no encumbrances or claims against the property except those specifically excluded in the deed.
c. Covenant of quiet enjoyment. Guarantees that the grantee will not be evicted or disturbed in possession of the property. Threats or claims by a third party do not breach this covenant. The grantee would have to actually be dispossessed before being entitled to seek recovery under this covenant against the grantor.
d. Covenant of further assurance. Guarantees that the grantor will procure and deliver any other instruments that are subsequently necessary to make the title good.
e. Covenant of warrant forever. Guarantees that the grantee shall have title and possession to the property. Sometimes considered part of “quiet enjoyment”.

The first two covenants relate to the past, and generally do not generally “run with the land” – meaning that only the current grantee may sue the grantor for a breach. The last three covenants protect against future defect and are said to run with the land – allowing any subsequent grantee to seek remedy for breach against any previous grantor. According to Colorado statute, “Covenants of seizin, peaceable possession, freedom from encumbrances, and warranty contained in any conveyance of real estate, or of any interest therein, shall run with the premises, and inure to the benefit of all subsequent purchasers and encumbrancers.”  (38-30-121 C.R.S.)

2. Special Warranty Deed.
The grantor of a special warranty deed warrants the title only against defects arising after the grantor acquired the property and not against defects arising before that time.

3. Bargain and Sale Deed.
Technically, any deed that recites a consideration and purports to convey the real estate is a bargain and sale deed. Thus, many quitclaim and warranty deeds are also deeds of bargain and sale. Bargain and sale deeds often contain a covenant against the grantor’s acts, whereby the grantor warrants only that the grantor has done nothing to harm the title.

This covenant would not run with the land. Examples of bargain and sale deeds with a covenant against the grantor’s acts are an executor’s deed, an administrator’s deed, and a guardian’s deed.

4. Quitclaim Deed.
The grantor of a quitclaim deed warrants absolutely nothing. A quitclaim deed conveys the grantor’s present interest in the land, if any. A quitclaim deed is frequently used to clear up a technical defect in the chain of title or to release lien claims against the property. Examples of such deeds are correction deeds, and deeds of release.


Most smoke alarms (smoke detectors) have a useful life of 7 to 10 years. After this time period, the detecting elements start to wear out. Newer smoke detectors are more sensitive and more reliable. Homeowners should consider changing their smoke detectors every 7 to 10 years. (Remember: Batteries should be changed at least yearly).

Most newer homes have combo “hardwired” (with battery backup) smoke detectors. The smoke detectors are wired to a 120 Volt circuit as well as have a backup 9 Volt battery (when power fails).  Changing the smoke detectors can be done in about an hour.

Here are the basic replacement instructions:

  • Turn off the power (the circuit breaker) to the smoke detectors.
  • Remove the old detector and mounting plate.
  • Remove the old “pigtail” electrical connection (1 black, 1 white and 1 red wire).
  • Install the new pigtail (per manufacture’s directions).
  • Install the new mounting plate.
  • Connect the new detector.
  • Install new battery.
  • Continue replacing the remaining detectors.
  • Turn on the power (the circuit breaker) to the smoke detectors.

Now, push the test button and this should signal all the detectors in the house to activate. Remember to discard the old detectors per the manufacture’s recommendation.

If you’re unsure or unable to perform these repairs, make sure you contact your favorite handyman or electrician.

Lowe’s & Home Depot have hardwired (with battery backup) smoke detectors for about $15 each. Most homes are wired for 5 to 12 detectors. Newer-combined “smoke & carbon monoxide” detectors are available for about $45 each.

Recently passed Colorado Law requires all rental (and For-Sale property) units have a Carbon Monoxide detector within 15 feet of the door to any sleeping area (or installed per manufacturer’s recommendation).  Owners are responsible for the initial installation of the detector.  Tenants are responsible for the general maintenance and notifying the owner if the unit is defective or a repair is needed.

Many homes in Colorado have a natural gas-fired furnace.  In the middle of cold Colorado nights, when the furnace starts and stops many times, the “igniter or ignition” or glow-plug may quit working.  This is one of the most common reason for no heat from a furnace.

When the igniter stops working, the furnace electronics usually flash an error code…. short and long flashes. Interpreting this code requires you take off the cover (like changing the air filter) and read the instructions on the door cover.

If the igniter is defective, simply replacing this part may keep you out of trouble (and significant expense) on those cold Colorado nights.

The cost for the igniter is about $30 to $50 depending on your model.  Many local furnace supply locations (Appliance Factory Outlet, Lowe’s Mail Order, Carrier Dealer, Trane Dealer, etc.) can get you the exact replacement to keep as emergency backup.  Make sure you have the correct parts BEFORE you need them (usually in the middle of the coldest night).

If you’re unsure or unable to perform these repairs, make sure you contact your favorite HVAC or furnace repair company.

When buying property in Colorado, there are many ways to visually represent the piece of land on a sheet of paper.

The four popular methods used in Colorado are:  ILC, Land Survey Plat, Improvement Survey Plat and an Alta Survey.

ILC – This is NOT a Survey!  This is a rendition of a visual inspection of the property.  The surveyor ties the fixed improvements to what “he perceives” to be the visual edges of the property.  The surveyor uses the recorded plat or recorded deed for all measurements.  An ILC is not required to show encroachments unless they are of improvements.  Normally, they are prepared for lenders and/or title company – not for owners!  The Improvement Location Certificate (ILC) usually shows the major structures, distances from structures to the deed property lines, (may also show easement areas).  Most of the time, an ILC will clearly show that a property has no encroachments, and will be sufficient for most mortgage companies.  If an obvious encroachment exists, or if  surveying shows a possible or debatable encroachment, you may want a more detailed land survey plat or a monumented land survey.  This is the most commonly requested type of “survey” on the Colorado real estate sales contract.  (Also useful if doing home improvements that require a “site plan” to obtain a building permit.) This is usually the “cheapest” or least costly of the “surveys” and costs about $300.

Land Survey Plat – Typically known as a boundary survey or property survey.  Also unofficially called a “pin” survey.  Required to set all corner points of the property boundary.  This plat DOES NOT SHOW improvements.  Typically used for “raw land” sales.

Improvement Survey Plat – Known as a “Land Survey Plat Plus”.  Same as a land survey plat, but also shows many types of improvements, utilities, encroachments, etc.

Alta Survey – Takes the Land Survey Plat and adds additional criteria set by the American Land Title Assoc (ALTA) and American Congress on Surveying and Mapping (ACSM).  Additional survey items can be added based on a menu of available options.  Usually on commercial and high-end residential sales.  Criteria updated frequently (every 2 or 3 years).  This is the most expensive “survey” and costs typically start around $1,000.

A fiduciary is someone who has undertaken to act for and on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. [1]


Buyer’s/Seller’s Agent or Transaction Broker?

To help you navigate the complicated path of buying or selling a home, you need an experienced and educated agent. With the numerous laws protecting buyers and threatening sellers, now more than ever you should have an advocate on your side.

In Colorado, you can have a “transaction broker” or an “agent”. In almost every real estate transaction, I recommend that you use a buyer’s agent (if you’re the buyer) or a seller’s agent (if you’re the seller). The difference between a transaction broker and an agent can best be explained with a sports analogy.

  • A transaction broker is similar to a referee. The duties of a referee are to ensure the game is played fair and NOT advocate for any particular team or party.
  • An agent is similar to a coach or manager. An agent is looking out for your best interests and works in your favor to your advantage; your agent’s goal is to win the game while playing within the rules in an honest manner.

A transaction broker helping you to buy a house should treat all parties (buyer AND seller) fairly, honestly and disclose all known relevant information to all parties of the real estate transaction. This can hurt or help you depending on which side of the transaction you are sitting (buyer or seller). The transaction broker does NOT have a FIDUCIARY duty to you (i.e. will not advocate for you …. will not seek a better price or better terms).

A buyer’s (or seller’s) agent helping you to buy (or sell) a house should treat all parties fairly, honestly and disclose ONLY permitted information to the other party (the seller or the seller’s agent or the transaction broker). Your agent should do what you ask (within the Law) and guide you through the entire process while always looking out for your best interests. Your agent HAS a FIDUCIARY duty (dictated by Colorado Law) to you DURING AND AFTER the transaction is complete. If your agent KNOWS that the seller may be open to accepting a lower offer, then your agent should inform you and make appropriate recommendations that favor you.

For these reason, I encourage and recommend that you hire a Realtor that CAN and WILL operate as your BUYER’S AGENT to help you in your home purchase (and as a SELLER’s AGENT when selling). Whenever possible, I will operate as YOUR BUYER’s (or SELLER’s) AGENT!

A fiduciary duty[1]is the highest standard of care at either equity or law. A fiduciary (abbreviation fid ) is expected to be extremely loyal to the person to whom he owes the duty (the “principal “): he must not put his personal interests before the duty, and must not profit from his position as a fiduciary, unless the principal consents. The word itself comes originally from the Latin fides , meaning faith, and fiducia , trust.

[1] Breach of Fiduciary Duty Law & Legal Definition. Legal Definitions Legal Terms Dictionary. (

Water Rights in Colorado can be as valuable as gold, sometime more valuable than gold!  In order to develop land or build upon it, an owner is required to supply water.  Due diligence should be exercised when buying a property with water rights, a well or municipal water.  Diverting or storing of water (catching rain runoff, snow melt, etc.) is illegal; enforcement of water rights is very active and the penalties for violating water laws are severe.  Note, well rights are junior to river rights (unless exempt).

The major division between rules and regulations is determined where the well is located.  If located within the “Denver Basin” check with the Colorado Ground Water Commission who has sole authority to grant permits and water rights.  If located outside the “Denver Basin”, the following applies:

There are two main types of wells – Exempt & Non-Exempt.  Exempt meaning not subject to the priority system of water rights AND permitted by the State Division of Water Resources.  Non-exempt are governed by the priority system and are under the jurisdiction of the courts.

Domestic well is used if you have 35 or more acres to supply the property.  With a domestic well, you can supply water to the property, animals or irrigate up to 1 acre of land for garden or lawn.  This is a very desirable type of well to own.  This is “exempt” from the priority system of water rights in Colorado.  (These wells are capped at 15 gallons per minutes, gpm, if drilled after May 1971, 50 gpm if drilled before May 1971).

Household well is used if the land mass is less than 35 acres.  The well can only be used to provide water to the household.  No exterior watering is permitted (no outdoor animals, no irrigation, etc.)  This is also “exempt” from the priority system of water rights in Colorado.

A Grandfathered well is a well that was in use prior to 1976.  It is exempt from the 35 acre rule and should be recorded with the state water board.  This is also “exempt” from the priority system of water rights in Colorado.

Diverting (pumping, damming, funneling, etc.) water from a river, stream or ditch without appropriate water rights is against the law.  Storing water (from rainfall, snowfall, etc.) is also against the law.  You must let the water (in whatever form) freely flow.  As you can see, because of water law & water claims, water becomes more valuable as demand for water increases.

As the owner of any well in Colorado, you should make sure the well is recorded with the State Division of Water Resources (  All wells should periodically be tested for flow rate, proper operation and the presence of bacteria and contaminants.  Typically, the local health department can advise on testing procedures and requirements for safe drinking water.

In the event a well can be drilled but doesn’t supply enough water directly (flow rate is too slow), the water can be pumped into a storage tank (cistern) for later high-demand use. These are common in mountain homes and cabins where drilling deep into granite and rock can be very expensive.

If planning to build or develop property in Colorado, you should account how water will be supplied.  If the water is supplied by a municipal provider (city, county, etc.), then you will pay to “tap into” the water source.  The fees are known as “tap fees” and can be quite expensive.

If municipal water is not available then a well is typically the next reasonable solution.  An alternate (and very expensive) solution is to “truck-in” water.

When buying or selling a property with a well, care should be taken to make sure your real estate agent knows the right questions to ask before considering a property to purchase (or sell).

Note:  Information Believed To Be Accurate, But Not Guaranteed.

Effective January 1, 2010,  the Department of Housing and Urban Development (HUD) modified the RESPA (real estate settlement protection act) rules.  This is the first major change in 30 years.  It is designed to help consumers comparison shop for mortgage loans by “bundling” the fees that lenders and title companies charge consumers.

Some highlights include:

  • The GFE (good faith estimate) that you get when you request a loan from a lender must be issued no later than 3 business days after the loan originator received a loan application.  The GFE settlement costs expire after 10 days, unless specified by originator.
  • The GFE interest rate lock deadline bay be set for any period of time established by the lender.
  • A GFE must be issued within 3 business days of receiving information.
  • If no real estate issues change nor borrowers situation changes, the GFE can not change.
  • The initial Truth in Lending (TIL) must be delivered at least 7 days before closing.  The final TIL must be delivered at least 3 business days before closing.
  • A revised TIL is required if the APR increases by 0.125% and must be received by the borrower at least 3 days before closing.

Issues to be aware:

  • No more RUSH closing.  Be prepared to extend or modify closing dates.
  • Pay attention to the rules and be aware of the effect on dates.
  • Work with your loan originator and make sure they understand the process.
  • Watch for issues that can cause date changes (appraisals, boundary issues, flood plains, environmental issues, etc.)
  • The HUD lines are now correlated to the applicable GFE references.
  • Bundled costs are no longer itemized (credit report fees, mailing costs, recording costs, etc.)
  • Buyer and Seller Credit and Debits are relocated in the 200/500 section.  Pay attention to the Owner’s Title Insurance and how it is recorded.
  • When lenders make a loan, they are paid via a Yield Spread Premium, YSP, (the cost of funds to the lender – the price the consumer is paying is the “spread”).  The YSP will be reported as an “origination charge”.
  • Understand which costs cannot change from the GFI, which costs CAN vary by 10%, and which costs are allowed to change at closing.  The lender must cure and reimburse any violations within 30 days of closing.

When working with a Realtor, Lender and Title Company, make sure all three are competent and understand the buying (and selling) process.

If you opened your year-end retirement account statement, you were probably surprised about the substantial loss in account value.  Many people are reporting account losses around 40% compared to the beginning of the year.

Did you know that real estate has only lost about 30%-40% of value?  And not all areas of the country have suffered a loss-some are reporting gains in value (many areas of Texas and New Mexico, many communities in Colorado, areas of North Carolina/South Carolina, etc.)

What are you going to do now that your portfolio is down?  Are you going to buy more stocks (dollar cost averaging?)  You can liquidate your portfolio and stick the money in a “high-yield CD/savings account” earning a paltry 3% (negative after you index for taxes and inflation.)  If you could invest in real estate with your IRA, Roth or 401K and receive “income” tax-free (or tax deferred) and earn returns that would amaze your accountant, would you be interested?

The tax code allows you to use your Roth, IRA or 401K to invest in real estate as long as you (and your IRA/401K) meet a few basic requirements.  Remember that Roth rules allows the “investment” to grow TAX FREE while regular IRA/401K accounts grow TAX DEFERRED.  Use these rules to grow your retirement account.

Imagine if you “directed” your  Roth IRA (today worth $55,000) to buy a property for $200,000 and obtain a loan for 75% of the purchase price ($150,000).  Your Roth would be responsible for making the mortgage payments (about $900/mo at 6%, 30 year) and taxes/insurance payments (about $150/mo).  Any rent above this would flow back into your Roth TAX FREE!  If you rented the property for $1,500/mo that would be about $450/month ($5,400/year) that would flow back into your IRA each month for as long as you held the property (and it was rented).  Assuming you held the property for 10 years (that’s $54,000 tax free into your Roth IRA), and then you sell the property in the 11th year at $220,000 (about 1% appreciation per year-THIS IS RIDICULOUSLY LOW for real estate!!!) for a profit of $15,000.  And yes, the $15,000 would flow back into your Roth IRA TAX FREE!

The return on your initial investment ($50,000 down + closing costs…about $55,000 total) could return the initial $55,000 plus the monthly rents for 10 years (about $54,000) plus the sales profit of $15,000 for a net TAX FREE PROFIT OF $69,000. (Initial investment=$55,000, profit=$69,000, total after 10 years=$124,000).

If your “regular” Roth were to grow from $50,000 to $124,000 ($55K + $54K + $15K) it would have to have an average annual growth rate of over 9% each year!

Other benefits to holding real estate in an IRA/Roth are:  yearly rental increases, loan reduction, property value appreciation and leverage (using other people’s money) allows you to borrow/buy more properties.  Plus you control and direct the investment…unlike the big brokerage houses!

Imagine if you took advantage of the Roth IRA rules and invested $25,000 to buy a “fix-and-flip” property.  Then sold the property for an improved price of $75,000.  The profit of $50,000 (plus the original investment of $25,000) would flow back into your Roth TAX FREE!  The result is a tripling of value over the course of several months and your investment bypasses the short term capital gains (and long term too).  This catapults your returns to over 500%!

The rules for buying investment real estate with an IRA, Roth IRA or 401K are easy to understand, but the IRS is strict about enforcement.  Care and due dilligence are required to stay out of trouble.  If you are interested in learning more about investing  in real estate with retirement funds, call or email me.  Robert: ph: 970-372-0691.

If you need to sell your property, and you owe more than the property is worth, you may be a candidate for a short sale (or other solution).

Whatever the reason:

  • Loss of Job
  • Business Failure
  • Damage to Property
  • Death of Spouse
  • Death of Family Member
  • Severe Illness
  • Inheritance
  • Divorce
  • Separation
  • Relocation
  • Military Service (SCRA relief may be available for active duty personnel)
  • Insurance or Tax Increase
  • Reduced Income
  • Too Much Debt
  • Incarceration

You need to talk with a Certified Distressed Property Expert.  Follow this link to find a CDPE in Colorado.

Other solutions to a Short Sale include:

  • REINSTATEMENT: Bring the loan current and restore the loan per the original terms.
  • FORBEARANCE: Temporary repayment plan until the property is sold or missed payments are payed in full.
  • REFINANCE: New loan with reduction in monthly payments.
  • LOAN MODIFICATION: Modify original loan terms to make the loan affordable.
  • SELL THE PROPERTY: Use equity to payoff or pay difference.
  • RENT THE PROPERTY: Make the loan current and then convert the property into a rental property.  You can turn the property over to a local property management company like:  RentalWorks
  • DEED IN LIEU OF FORECLOSURE: “friendly foreclosure”.  This is when the homeowner returns the keys and “deed” the property back to the lender.
  • BANKRUPTCY: Will stall foreclosure but not prevent it.
  • SELL TO AN INVESTOR: Sell or deed your property to an investor or 3rd party can cause bigger problems.

Visit the site for more information about these solutions.

When offering a property for rent, you should have a “Meth Clause” and “crime-free addendum” in your lease. (here is a sample “Crime Free-Drug Free” addendum) This will let tenants know that you do not tolerate any type of illegal drug use or criminal activity on or in your property.

Because methamphetamine is cheap and readily available, use in the US has continued to grow.  No segment of society is immune from its effects.  Once a user starts using the drug, most eventually turn to manufacture the drug.  Once your property is declared a drug lab (from either USE or manufacture), the costs can be very high to re-mediate or clean the property.

There is a quick test for the presence of iodine that is a by-product during the manufacturing process;  A yellow tinge or yellow streaking (similar to yellow stains from heavy cigarette use) can be sprayed with spray starch.  If the starch then turns purple, there is a good chance that iodine is present.  (Iodine present in a home without the manufacture of meth would be VERY, VERY rare…it is most likely meth manufacture).

There is NO QUICK TEST for the presence of meth residue from using meth.  Only a laboratory that tests for meth is capable of determining the presence of meth residue from use.

When selling a property that may have been exposed to meth (either by use or manufacture), the owner should disclose the possibility of the presence of meth (or meth by-products).  Serious legal and financial consequences can result from failure to disclose the presence of meth (or the use or manufacture of meth) in a property.  Colorado Law does allow sellers to “not disclose” if the property was remediated to state standards.  As a seller, you should consult with your attorney if your property was ever declared a “meth lab” prior to selling.

The owner can have the property tested by a state-certified hygienist.  The hygienist will take samples and have them tested.  The results of the test will indicate the presence and level of meth in a property; or will give indication that no meth was found in the property.

Cleanup and remediation can be simple and inexpensive or cleanup can be very costly, depending on the level of contamination.

Once a property has been declared a drug lab (either from use or manufacture), city, county and state authorities are notified and the process to cleanup and re-mediate is closely monitored.

Join the latest trend in housing – Go Green!

Installing a “photocell or dusk-to-dawn lights” on your exterior lighting can cut your electricity bill by over $100! A photocell will automatically control the lights so that they turn-on at dusk, and turn-off at dawn. This provides safety and security as well as eliminates the waste caused by leaving lights on.

The process to install a photocell is simple and takes about an hour or two. Here are the basic instructions:

WARNING:  If you are unsure about this project, consult a qualified contractor or electrician.  We disclaim any and all liability should you suffer any loss or injury.  Perform at your own risk!  Do not use a photocell with a dimmer switch.

1. Start by turning off the power to the light fixture.


light switch

2. Next, remove the existing light fixture from the wall. Mount the electric box to the wall (you may have to “punch” out some holes in the electric box). Ensure that the mounting holes for the light aligns with the mounting holes on the electric box.

Note: The existing house wiring should have 2 or 3 wires – ONE Black, ONE White, and ONE Ground/Green/Bare wire (may not be present on older homes).

  • The black wire is usually the “hot” wire and will “shock” you if the power is not off.
  • The white wire is usually the “neutral” wire and should not have any voltage.
  • The green or bare copper is the ground (if present) and should not have any voltage.

3. Now mount the photocell in the electric box. Make sure that the photocell points toward the sunlight, not toward a dark area. Otherwise, the light(s) may come on too early and stay on too long. Read the instructions that came with your particular photocell.

Photocell and mounting box

Photocell in electrical mounting box

4. In this example, the black wire on the photocell connects to the existing black wire coming from the house. Strip, connect, wire nut, and tape these wires together.

5. The white wire on the photocell connects to the existing white wire from the house AND the white wire on the light fixture. Strip, connect, wire nut, and tape these wires together.

6. The red wire on the photocell connects to the existing BLACK WIRE FROM THE LIGHT FIXTURE. Strip, connect, wire nut and tape these wires together.

7. The ground wire (if present) should be “grounded” to the electrical box, and then connected to the light fixture (if the light fixture has a “ground” wire/connection). Wire nut and tape.

8. Bunch up all the wires and push them into the electric box. Mount the light fixture over the electric box and secure with the mounting screws you removed in step 2. Be careful not to “nick” or damage the wiring.

photocell installed and mounted

Operating photocell mounted in electrical box

9. Turn the power back on. If the circuit breaker activates, check your wiring.  If all is fine, the photocell will now act as an automatic daylight switch.

Note: To test the photocell during the day, place a piece of black tape over the photocell. After a couple of minutes the light should turn on. Remove the tape and the light should turn off. Now you’re ready for the evening to arrive.

You can also download PDF instructions (approx 2 megabytes) how to install a photocell to control lighting for your property. (installing_photocell)

Enjoy the piece of mind knowing that you’re doing your part to save money and reducing your energy use.

Renovation loans are a great way to purchase a property that requires rehabilitation or renovation prior to occupancy.  Buyer’s can use a renovation loan to update, rehabilitate or renovate a property.

There are currently two types of loan programs:  FHA and Fannie Mae.

The FHA program requires:

  • Current seller on title for 90 days
  • For Condo projects: 51% owner occupancy in association
  • Borrow needs to contribute 3.5%
  • FHA Loan limits apply

The Fannie Mae program requires:

  • 20% down payment on investment property (contract + renovation cost + fees)
  • 10% down payment for owner occupied property (contract + renovation cost + fees)

Within each loan program, there are two programs:  streamlined and standard.  For the streamlined program, the project must not be a "complicated rehab/renovation", such that no engineer, consultant or architects needed.  Typical projects include:

  • Remodel kitchen/bath
  • Painting (interior or exterior)
  • Disability access improvements
  • Basement waterproofing
  • Window/Door replacement
  • Re-siding
  • Septic/Well repair/replacement
  • Update Appliances
  • New Flooring
  • New Cabinets
  • New Roof, gutters, downspouts
  • Replace/Upgrade Furnace or HVAC
  • Green Loan
  • No structural repairs

Important points to remember regarding many of the renovation loans:

    • Must become owner occupied after renovation
    • Maximum loan $35,000 for streamlined, higher limit for non-streamlined (standard)
    • Timeline:  30 to 60 days to close on this loan
    • Closing costs, carry costs, etc. can be rolled into total loan amount
    • Budget 10% to 20% for contingencies/cost overruns.  Any balance remaining will go toward principle reduction
    • Owner CAN NOT do any work.  Work must be performed by a contractor that is approved by lender (detailed list of work, permits needed, etc.) Note: some jobs can be performed by general handyman.  Homeowner may work under a contractor as a 1099 Independent Contractor and then the labor costs can be reduced.
    • Any Change Orders/Work Changes MUST be approved by lender
    • Multiple contractors are allowed (different contractors for HVAC, electrical, plumbing, windows, painting, etc.)

    The type of property is limited to residential properties including:

    • 1-4 unit properties as long as one of the units is owner occupied
    • Condominium, Townhouse, single-family home, duplex, triplex, etc.
    • Can be used to demolish house as long as foundation is reused
    • Property must have certificate of occupancy (CO) for minimum one year
    • Manufactured homes
    • Moving a home

    Buyer’s need to be aware that the renovation loan is a complicated process that requires much up-front work to ensure a successful project.  Contact us if you want more information regarding the renovation loan process or need a lender.

    No gain or loss shall be recognized on the exchange of property held for productive use in a trade or business or for investment, if such property is exchanged solely for property of like-kind which is to be held either for productive use in a trade or business or for investment. ”  IRS, IRC Section 1031 (a)(1)

    When selling investment property (non-owner occupied or not-principle residence) the seller may realize a hefty federal and state capital gains tax.  One way to defer the tax is through the use of a 1031 Tax Deferred Exchange (1031 Exchange).

    Currently, the gain is 15% of the “profit” (or 5% or 0% depending on tax bracket).  In addition, the depreciation is also “recaptured” and payable upon the sale.  The recapture is 25% of the depreciation (whether taken or not!). (There is a 15% rate for 10% or 15% bracket). (Note: These rates will probably increase in the coming years as the US Government looks for more ways to increase tax revenue to the US Treasury.)

    To defer the capital gain, a seller of a property subject to capital gains can purchase another property and defer the tax.  The basic 1031 rules are:

    • Take title the same way you sold property
    • Reinvest all cash proceeds (no “boot” allowed-otherwise “boot” taxed)
    • Replace equal or greater debt
    • 45 day identification period (can identify up to 3 properties)
    • 180 days to complete exchange
    • Qualified Intermediary must handle money

    For real estate exchanges, if there is “dirt” underneath, then the exchange will probably qualify.  (Sample exchanges include: condo for land, land for single family home, land for apartment building, single family home for shopping center, etc.)

    Some examples that don’t qualify include:  Personal/Primary residence, fix and flips, condo-conversions, vacation homes, land developments, etc.

    For the investor wondering how the 1031 Exchange helps build wealth, consider this example:

    Pay Tax :  Investor sells a $200,000 property that he bought for $100,000 ten years (10) ago.  The depreciation taken was $2,909 per year (house=$75,000, land=$20,000, closing cost=$5,000) or $29,090.  If the investor pays the tax on his profit of $100,000, he would be left with $100,000 – $15,000 (15% tax) – $7,272 (25% depreciation recapture) = $77,728 (remember to subtract your states capital gains tax).

    Using 1031 Exchange :  Investor sells a $200,000 property that he bought for $100,000 ten years (10) ago.  The depreciation taken was $2,909 per year (house=$75,000, land=$20,000, closing cost=$5,000) or $29,090.  If the investor defers the tax on his profit of $100,000 and defers the depreciation recapture, he would be left with $100,000 to invest.  (there is no state capital gains!)

    Basically, you’ll save 15%+depreciation recapture (plus your states capital gain tax) of the profit by utilizing the 1031 Exchange.  A great tax reducing strategy is to sell your investment properties in high tax states, buy replacement properties in a low/no tax state and then sell when your personal federal tax bracket is reduced or eliminated due to investment write-offs.  Utilizing these tools, you can significantly reduce or eliminate your tax burden.

    Buying a home has its rewards and drawbacks.  One of the biggest drawbacks to home ownership is the regular home maintenance needed to keep a home operating at peak efficiency.

    Properly maintaining a home increases the homes value as well as minimized operating costs.  Deferring maintenance is not a good practice and may also be dangerous or life threatening.

    A good rule of thumb is to allocate about 1% of the purchase price for yearly home maintenance.  For example, if you buy a house for $200,000 a homeowner should budget about $2,000 per year for maintenance.

    Below is a list of major systems and the average yearly cost to replace them when they become obsolete.

    Item           Cost        Lifetime    Avg $/year
    Roof           $6,000      20 years    $300
    HVAC/Furnace   $3,000      20 years    $150
    Windows        $6,000      15 years    $400
    Paint          $2,500      10 years    $250
    Remodel        $5,000      10 years    $500
    Carpet         $2,000      10 years    $200
    Electric       $4,000      20 years    $200
    Plumbing       $5,000      30 years    $167
    Water Heater   $1,000      10 years    $100
    Average Cost per Year to Budget:     $2,267 

    For older homes (older than 30 years), buyers may have to deal with old plumbing systems (galvanized pipes, lead pipes, clay pipes, etc.) old electric systems (knob and tube wiring, insufficient service entrance, aluminum wiring, non-grounded circuits, etc.) lead paint, asbestos or unsafe heating systems (leaking or cracked heat exchangers, open fires, underground oil tanks, leaking duct work, etc.).  Besides being older and difficult to maintain, the systems may be inefficient and actually costing more to operate than newer systems.  Proper budgeting will help the homeowner upgrade systems to modern energy efficient systems.

    Older homes are usually desireable for their charm and character.  Buyer should be aware of the systems and the costs to bring an older home up to modern energy efficient standards while maintaining the charm and character – thereby enjoying the best of both worlds!

    There are many properties available at a significant discount.  For the typical buyer that can tackle cosmetic repairs (paint, carpet, windows, doors, drywall and light remodeling) staying away from properties with structural defects/deficiencies is important.

    To help identify structural defects, buyers should have an agent that is familiar with the major systems of a property so that buyer’s don’t waste valuable time and/or money on inspecting a severely defective property.

    When considering a property, I educate my buyers on many of the major systems of a home including:

    • Foundation (footings, foundation walls, etc.)
    • Electrical System (120 Volt, 240 Volt, Service Level)
    • Heating & Cooling Systems (Gas, Electric, Hot Water, Steam, Evaporative Cooling, A/C, etc.)
    • Plumbing System (cast iron, ABS, PVC, PBE, etc.)
    • Roof (shingle, shake, flat, membrane, etc.)
    • Drainage
    • Walls, Floors, Doors/Windows

    Walking through many properties, I educate my buyer’s so that they can quickly identify cosmetic repairs and improvements that are cost effective and help increase property values.  When we find a property that fits their needs, we then begin the home buying process which includes a thorough inspection with a competent property inspector.

    This week, Congress and the President passed the 2009 Stimulus Plan. If you are a first time buyer, there is an $8,000 tax credit available.

    To qualify, you must:

    • Not owned a principle residence in past 3 years
    • Buy a home (house, condo, duplex, triplex or 4-plex apartment) from Jan 1, 2009 through Dec 1, 2009
    • Satisfy the income limits (make no more than $75,000 for single, $150,000 for couples, adjusted gross income)
    • The amount of the tax credit is 10% of the sales price up to $8,000 (up to $4,000 for single persons)
    • Keep the property as your primary residence for the next 3 years

    This means that you will get up to $8,000 back from the federal government. The credit is basically FREE MONEY!!! To claim your tax credit, you can (per the IRS website):

    • File an extension Taxpayers who haven’t yet filed their 2008 returns but are buying a home before Oct 15, 2009, can request a six-month extension to October 15. This step would be faster than waiting until next year to claim it on the 2009 tax return. With an extension, taxpayers could file electronically, receiving their refund in as few as 10 days with direct deposit.
    • File Now, Amend Later Taxpayers due a sizable refund for their 2008 tax return but who also are considering buying a house in the next few months can file their return now and claim the credit later. Taxpayers would file their 2008 tax forms as usual, then follow up with an amended return later this year to claim the homebuyer credit (using tax form 1040x).
    • Amend the 2008 Tax Return Taxpayers buying a home in the near future who have already filed their 2008 tax return can consider filing an amended tax return. The amended tax return will allow them to claim the homebuyer credit on the 2008 return without waiting until next year to claim it on the 2009 return.

    With the tax credit, you could really buy a house with little to nothing down, and get $8,000 to make your mortgage payments for most of the next year!  Here’s an example:

    You want to own a house.  You call me and here is what we do:

    Get qualified for a loan (there are many programs available through local, state and federal government that encourages home ownership).  If you qualify, I’ll help find you a loan that requires little to no money down (VA is really no money down-get your VA Certificate, FHA 203K is a few hundred down, FHA is $1,000 down when coupled with CHFA, etc.).

    After you have a loan program, we find a house, duplex, condo, apartment that fits your budget.  I’ll write the offer so that the seller pays YOUR CLOSING COSTS (appraisal, taxes, insurance, loan fees, etc.) so that your out of pocket costs are minimized.

    Using my knowldege, skill and experience, I’ll help and guide you through the entire process.  Upon closing, I’ll help you with the necessary IRS tax forms so that you can quickly claim your tax credit and get your money!  If your loan payment is about $8oo per month, with the tax credit, you could easily pay 10 months of your loan.

    Many local municipalities (ie Takoma Park, College Park, Maryland, New York City, San Francisco, Fort Collins, CO, etc.) put laws, policies or restrictions on property owners (investors are homeowners/property owners too) that require (under penalty of law) owners to restrict the use of their property-usually in the name of “community building” or “for the betterment of the community” or some such nonsense (Did we mention the Taking Clause of the U.S. Constitution?)  Some other “policies” include Affordable Housing and Rent Control.

    Many of the restrictions ultimately hurt the community in the long run.  For example, rent control restrictions in NYC artificially keep the rents low for a certain group (or area), while causing overpriced rents for others.  Buildings never get the upgrades that market forces would demand thereby NOT employing more people (carpenters, plumbers, electricians) and ultimately putting more money in everyone’s hands (owners, contractors and YES-GOVERNMENT!)  Tenants end up living in “barely-standard” housing because the owner has no incentive to update or improve the property.

    Another example is occupancy limits (Fort Collins, CO) where “no more than three (3) unrelated persons may occupy a single residence”.  If property owners CAN NOT rent a 4 (four) bedroom house to more than 3 (three) unrelated people, the maximum rent to be expected is the same amount a 3 bedroom house would fetch (about $400 per room in Fort Collins, CO).

    What this means is that if you (a homeowner wanting to sell & move-up/out) have a four-bedroom house For-Sale and an investor wants to buy it, the most the investor would want to pay is somewhere about $200,000!  At today’s low interest rates and expected rents of $1,200/month (add $150/month for taxes/insurance) to avoid negative cash flow, the numbers come out to be about $200,000 (30 year note at 5% + $150/mo = $200,000…assuming 100% financing…HA!)  If the property is likely to appreciate above the cost of money (in this case 5%), the investor may be willing to pay above this price.  This is one of the reason many properties are not selling in today’s market where investors are willing to purchase, but sellers are unrealistic about price.

    If property owners or investors have properties that are out of compliance with health and safety, they should be brought into compliance.  But passing laws that distort supply and demand or try to “level-the-playing-field”, ultimately cause more harm than good.

    As you can see, many do-good-politicians don’t understand basic economics.  By putting bad laws into place, they really hurt everyone including those they intended to protect.

    There are many methods and tools  to help analyze a particular property to determine if it is a good/bad property to pursue.  A good spreadsheet (CRS 204 or the CCIM 101 by Todd Thorpe) is critical.  I use the CRS 204 spreadsheet to do a quick analysis (it assumes you only pay interest on the mortgage loan) and if it gives me a positive return, I turn to the CCIM spreadsheet for a detailed analysis.  The CCIM spreadsheet will give you a very detailed analysis including internal rate of return (how your invested money is performing), depreciation, tax liability and other advanced information for the “sophisticated” investor.

    Using both tools helps to convince yourself and your team (banker/lender, insurance agent, investors, syndication group, etc.) that the investment is worth the risk.

    For more information on these tools, contact your CRS Agent or CCIM Realtor.  I am a CRS and a CCIM Candidate (production requirement pending) and can help you with your real estate needs in Colorado a well as other locations.

    Question: How does real estate ownership reduce my income taxes or my income tax burden?

    Answer: Uncle Sam (ie the US Treasury) allows you to deduct from your income, certain expenses.  The following real estate investment expenses are deductible on your Schedule C or Schedule E Forms:

    1. Mortgage Interest (the amount of interest you paid to an investor, bank or mortgage company on the loan secured by real estate)
    2. Depreciation (the amount that the building "deteriorates" or wears-out each year; spread over 27.5 years for residential or 39 years for commercial, don’t count the value of the land, common areas, etc.)
    3. Management fees (property manager, leasing fees)
    4. Improvements (not repairs… replacement windows, replacement furnace, landscaping, new roof, etc.) can increase the "basis" or depreciable amount each year over the life of the replacement.
    5. Repairs (ie glass replacement, furnace repair, roof repairs, etc.)
    6. Travel to visit the property for inspections, oversee repairs, check-in/out tenants, etc.
    7. Expenses (phone call, advertising, condo fees, utilities, landscaping, investment real estate magazines-Fortune, Money, etc… This category is HUGE and nearly unlimited in what can be considered an expense.)
    8. Home office expenses (portion of your personal residence that you use EXCLUSIVELY to manage the investments, otherwise a portion of expenses may be permitted.)
    9. Lender fees, closing costs, loan points, inspections, etc.

    As you can see, the total yearly costs to "maintain" your investment real estate can result in a substantial "PAPER LOSS" that can be used to offset other income (your spouses job….)

    For example, suppose your spouse makes $50,000 from a job at the local high-technology company.  The tax on your spouse’s salary is 30% (or $15,000). And your salary of $60,000 was taxed at 30%  (or $18,000).  Your total tax bill without "deductions" is $33,000 out of total income of $110,000.

    Now assume your investment real estate was rented out and "breaking even" or even a small negative of $300 per month, the loss would amount to $3,600 per year.  Also assume you have a $250,000 rental property that has a depreciation value of $200,000 ($250,000 – $50,000 for the value of the land = $200,000).  The yearly depreciation is $200,000 / 27.5 = $7,272.  With depreciation, mortgage interest and other expenses, you could easily have a paper loss of $16,000 (or more if you are really active in the property management and oversight).

    The paper loss will lower your actual taxable amount ($110,000 – $16,000 = $94,000).  The 30% tax on $94,000 = $28,200.   The difference between your OLD and NEW tax is:  $33,000 – $28,200 = $4,800 and the amount you "saved" by holding investment real estate.

    Imagine having multiple properties that gives you a "paper loss" equal to your regular job salary….. You offset your income with losses and you reduce your tax to $0.00……imagine that!

    The CCIM (Certified Commercial Investment Member Course 101, 102, 103, 104) and the CRS (Certified Residential Specialist) courses are great for learning about investment real estate.  My favorite is the CRS 204 Class-Creating Wealth through Residential Real Estate Investments.  The class is best summarized with the I.D.E.A.L. acronym.  Each letter represents HOW a particular investment real estate property will contribute to your wealth building.

    • I=Income generated by the rental property (ie Rents, laundry/vending machines, parking lot fees, etc.)
    • D=Depreciation (see above)
    • E=Equity build up as the mortgage is paid down
    • A=Appreciation as the property goes up in value over the holding period (some periods of negative appreciation can occur…these are the best times to buy!)
    • L=Leverage (you borrow 70% to 100% of the purchase price, but only invest 0% to 30% of your own money)

    With the new year brings new opportunities.  After a month and a half with little-to-no activity, the floodgates appear to be open.  Showings are up, buyers are inquiring about homes and people are out looking.

    Maybe it is the LOW interest rates (4.375% for 30 year fixed….WOW!), the large inventory, or the need to find a deal…but buyers are out and about looking for homes.  A few of my properties have had multiple inquiries and showings.  An offer should be presented soon.

    House values have dropped about 10% to 20% from a year ago….With low interest rates, large selection and lowered proces, NOW is a great time to buy.

    For first time buyers, available incentives can get you into a home for little (less than $5,000) to NO MONEY DOWN! (FHA coupled with federal/state/county/city programs) can get you into a home with as little as $500 (that’s FIVE HUNDRED DOLLARS!)

    New Homes are a steal too.  Some builders are begging for buyers and willing to throw in $10,000 to $50,000 in upgrades just to get the home sold.  If you’re looking for a new home, the bargains are out there-just ask!