Archive for September, 2011

THE TENANT TRAP
September 19, 2011

Landlords love a good tenant.  You know the tenant that pays his rent on time and rarely complains.  In fact, maybe the tenant even takes care of minor repairs without involving the landlord.  An owner doesn’t want to lose a tenant like that so he may offer rewards to stay.  The most common incentive is not raising the rent.  Though this is a good thing for a renter, it could create a financial trap for him in the future.

In the Conejo Valley, the median rent for single family home with three bedrooms and two bathrooms was $2,200 in 2005.  Currently, it is now $2,500.  This is a two to three percent annual rent increase for the area.

If a tenant leased his home in 2005 and had no rent increases during the last several years, his budget may be squeezed if the landlord did decide to bring the rent to market value or to sell the house requiring the tenant to find another place to live.  For a home based on the median values, the tenant would now be required to pay an additional $300 a month ($3,600 a year) for a similar property.  For a tenant that has rented his current residence for ten or fifteen years with minimal or no increases, the bite can be financially devastating.

We believe tenants need to stay abreast of the rental market even though they are comfortable in their current homes.  We recommend to our rental clients that, if their rent is not increased each year, each month they put aside an amount equal to what a rent increase could have been.  This way, once the tenant is facing a higher cost, he has already budgeted for it.  He will even have accumulated some savings to help with the additional costs of a move if necessary.

If a tenant does have their eye on buying someday, this Rent vs. Buy website can be helpful in deciding if it is time to go from being a Tenant to a Homeowner.

Rich and Jan McMillen
http://www.TOHomes.com

USERS, MAINTAINERS, IMPROVERS – OH, MY!
September 5, 2011

After viewing thousands of homes over the years, we have noticed that there are three basic types of homeowners: Users, Maintainers, and Improvers.  You know them; you see them; they live in your neighborhood.  Some times they live in the same house together.

The User tends to defer maintenance as long as possible.  Problems are addressed only when they reach the threshold of being difficult to live with.  Even then, a bare minimum or a patch repair will be done.  Holes in walls and leaky faucets are likely to go unnoticed.

However, when a door knob on the double front-entry doors is no longer functional, the User will replace it, but it may not match the rest of the hardware. There may be evidence for months that the water heater is not working properly, but until there is no hot water in the morning shower, it is of minimal concern to the User.  Once the problem needs to be addressed, a permit will probably not be pulled, and the installation may not be to current code.

Over time, a User’s home becomes the “fixer”.

A Maintainer repairs problems immediately.  If a light burns out; he will immediately put in a new bulb.  If a door knob is loose, he will tighten it.  If it needs to be replaced, he will make sure that all the hardware matches.  If a tile gets cracked, and a replacement would be too noticeable, he would redo the whole counter or floor.  Maintainers often strive for energy efficiency so they may do a straight swap of single-pane windows with newer dual-pane ones.

If the original cabinets are starting to show too much wear, these may get a new face or even replaced.  However, the results are rarely above current builders’ standards.

Though a Maintainer’s home shows “pride of ownership”, he is often disappointed when buyers don’t show the same enthusiasm for his choices and don’t make the same offers they do on an Improver’s home.

The Improver is every REALTOR’s® dream.  Compared to new construction, hers is the home with the builder’s upgrades.  An Improver told us once that the interior and exterior of a home should be changed at least every twenty years to keep it at current standards and styles.  She does a project every year.  Sometimes it is just one room, such as the kitchen or the family room, and sometimes it a more encompassing endeavor.

One such project entailed having the acoustic ceilings removed.  She did it for the more contemporary look; but she had to pay more since they tested positive for higher levels of asbestos.  Despite the extra cost, she said it was worth it.  Often Improvers know that they will not get dollar for dollar out of all their improvements, but they do it for the pleasure equity.

An Improver goes the extra emotional step when tackling a project.  Instead of just replacing new windows for old, the living room may get a bay window or a picture window while the kitchen will be brightened by a garden window.  French doors replace original sliding doors.  Their curb appeal is given an extra boost when the cracked driveway is replaced with stamped concrete or pavers.  They are not content to just paint a room; they add crown molding.

An Improver’s home is usually the one with the “WOW” factor.

Rich and Jan McMillen
 
www.TOHomes.com

SO YOU THINK YOUR HOME IS IN A TRUST
September 1, 2011

 Many homeowners have their homes in their trust for tax and legal purposes or to avoid probate.  However, when refinancing a home, a lender will usually require the property to be taken out of the trust and put back into the owner’s name so the owner will be responsible for the loan, not the trust.

 This is well and good, but homeowners often forget to put the property back into the trust once the refinance is complete.  This can cause huge legal and tax consequences!

 Recently we sold a home that had been in a trust until the owner decided to take advantage of low-interest rates and refinance.  At that time, she signed in front of a notary a quit claim deed taking the property out of the trust and another one putting it back in.  The former was recorded with the trust deed and the latter was put aside until that transaction was finished.  Unfortunately, it was filed away with all her other paperwork.

 Sadly, a few months later, she died.  The heirs were also the subsequent co-trustees of the trust which they believed was properly in place.  They put the home on the market and very quickly a buyer was found and escrow was opened.  Everything was going smoothly, getting past the buyers’ physical inspection of the home and their loan process.  Then the call came from the title insurance company – no deed was ever recorded with the county putting the property back in the trust!

 Before considering the alternative, probate, the heirs decided to search their mother’s paperwork hoping that there was a non-recorded deed somewhere.  With the help of friends, they went through boxes upon boxes taken from their mother’s home.  Finally they located the paperwork refinancing the home, and in that stack, they found an unrecorded notarized deed! Subsequently, it was recorded to officially put the house back into the trust.  There was an extra step or two required by the title insurance company, but the transaction closed soon after.  The sellers were happy and the new owners thrilled.

 We recommend that homeowners seek legal and tax advice from an attorney and/or an accountant regarding the method of taking title to real estate.  If you do put your home in a trust and then refinance, make sure that the deed putting your home back into the trust is then recorded.

 

Rich &Jan McMillen

 

www.TOHomes.com