Income Property – Definition of Income Property – Property bought or developed to earn income through renting, leasing or price appreciation…

I thought this would be a great way to start my Blog. In my opinion there has never been such a great time to buy income property. During the 2005-2006 we saw those peek prices out in the market. I sat back and did the numbers and couldn’t believe people were still buying and banks were actually providing the loans on these properties .Unless you were putting down some serious money there would be no-way a lot of these properties were generating enough income at all to sustain it-self alive. To say the least it was costing investor’s money out of their own pockets each month just to stay afloat. I will list two examples below without identifying the property. Don’t want to ruffles anyone’s feathers. One is the overpriced market back in the 2005 thought 2007, and the other is the current market as we stand right now. We have never had such great interest rates to take advantage of and with these low prices on these properties cause them to cash flow quite nicely. The example below is for a four-plex but many of the same principles still apply to buying a home for income property purposes. Use this example for reference but I encourage you to do your own spreadsheet. Contact out team to help you on your next purchase or sale of property whether it’s residential or income property our team can help you.

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Before__________________________________________________Now__________________

Example 2005- 2006______________________________________________Example 2010

Mesa 4-Plex____________________________________________________Mesa 4-Plex

350,000.00 contract price _________________________________100,000.00 contract price

35,000.00 10% Down______________________________________10,000.00 10% Down

315,000.00 mortgage ( Deed of Trust)_________________________90,000.00 Mortgage(Deed of Trust)

2,612.94 PITI Monthly_____________________________________2,612.94 PITI Monthly

250.00 Water- Sewer-Trash_________________________________250.00 Water- Sewer-Trash

200.00 Maintenance______________________________________200.00 Maintenance

42.00 City Tax____________________________________________42.00 City tax

$ 3,104.94 Total Expenses_________________________________$ 1,309.98.94 Total Expenses

$ 2,400.00 Rents Collected._______________________________$ 2,400.00 Rents Collected.

-704.94 negative cash Flow_____________________$1,090.02 positive monthly cash Flow

I used the information below to gather my numbers.

1. City tax for Income properties 1.75 % of rents collected. This amount is based on 2400 monthly
2. Maintenance includes landscaping and minor repairs only.
3. PMI (principal, interest 6.8%, Property Taxes 1.25%, Insurance 1,200 year, PMI .5%)
4. Rents Collected rents 4 units 2b-2b. 4units X 600 monthly= 2,400.00 (100% Rented)

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AS many families find themselves in a dire situation facing either a short sale or a foreclosure they still need a place to call home. This is helping our multi rental properties as well as our residential rental homes remain in demand.

City Tax Rate for Income property

Many people are unaware of city impose property tax for income property. These can be paid monthly to your city and a license is generally needed for every property. Every city has their own rules so please contact the city you’re your income property resides in for those regulations.

• Mesa 1.75% You have 2 or more residential units available for rent in the State. (Prior to October 1, 2008,the tax code specified 3 or more residential units in the State.) http://www.mesaaz.gov/salestax/pdf/real_property_rental.pdf

• Chandler 1.5% http://www.chandleraz.gov/Content/Sample_Tax_Return_Instructions.pdf

• Tempe 2.0% he Tempe Tax Factor Rate for Residential Rental Landlords is 1.9608%. (Tempe Tax Only – Residential Rental is not subject to state or county tax.) The tax factor rate should only be used when tax has not been separately charged and collected. http://www.tempe.gov/salestax/resrent.htm

Example:

Gross Rent $500.00

Tempe Factor Rate 1.9608%

Tax Deduction (Code F) $ 9.80

Gross Rent $500.00

less: Factored Tax 9.80

Taxable Rent 490.20

Tempe Tax Rate 2.0%

Tempe Tax Due $ 9.80nd collected.

• Gilbert 1.5%: Exemption: If you have only one or tworesidential rentals within the State and nocommercial rentals, you are exempt from Gilbert residential rental tax. However, if your rental property is rented through a broker or property manager, then all property is taxable, even if you have one or two rental properties in the State ofArizona.http://www.gilbertaz.gov/eservices/finance/pdf/CommResidRentalTax0610.pdf

• Phoenix 2.0% :A person who has three or more residential units rented or available for rent in the State of Arizona must pay tax to the City of Phoenix on the units located within the City. A property manager or broker who manages residential rental units must pay tax to the City of Phoenix on the units located within the City of Phoenix even if an individual owner would not be taxable. In this case, the property manageror broker may obtain the license and report the tax on the residential rental income for a property owner. Examples of residential rentals include: houses, apartments, manufactured homes, mobile home, (trailer) spaces. http://phoenix.gov/plt/resrent.pdf

• Scottsdale 1.65% A person who has three or more residential units rented or available for rent in the State of Arizona must pay tax to the City of Scottsdale on the units located within the City of Scottsdale. http://www.scottsdaleaz.gov/Assets/Public+Website/taxes/RentalPersProperty.pdf

Quick Refererence: Investments Abreviaitons

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AFD – Agreement For Deed

AITD – All Inclusive Trust Deed

APR – Annual Percentage Rate

ARM – Adjustable Rate Mortgage

ARV – After-Repaired Value

BOM – Back On Market

BOR – Board of Realtors

BPO – Broker’s Price Opinion

CAD – County Appraisal District

CAP – Capitalization

CCIM – Certified Commercial Investment Member

CCR – Conditions, Covenants, and Restrictions

CFD – Contract for Deed

CLTV – Combined Loan To Value

CMA – Comparative Market Analysis

COCR – Cash on Cash Return

COF – Cost of Funds

COO – Certificate of Occupancy

CRB – Certified Residential Broker

CRE – Creative Real Estate

CRS – Certified Residential Specialist

DBA – Doing Business As

DCR – Debt Coverage Ratio

DOS – Due On Sale Clause

DOT – Deed of Trust

DSCR – Debt Service Coverage Ratio

FCRA – Fair Credit Reporting Act

FFE – Furniture, Fixture, and Equipment

FHA – Federal Housing Administration

FHLMC – Federal Home Loan Mortgage Corporation, Freddie Mac

FMR – Fair Market Rent

FMV – Fair Market Value

FNMA – Federal National Mortage Association, Fannie Mae

FRBO – For Rent by Owner

FSBO – For Sale by Owner

GMAC – General Motors Acceptance Corporation

GRM – Gross Rent Multiplier

HELOC – Home Equity Line of Credit

HML – Hard Money Lender

HOA – Homeowners Association

HUD – Housing and Urban Development

HVAC – Heating, Ventilation and Air Conditioning

IRA – Individual Retirement Account

IRC – Internal Revenue Code

IRR – Internal Rate of Return

IRS – Internal Revenue Service

L/O – Lease Option

L/P – Lease Purchase

L/S – Landlord Seller

LIBOR – London Interbank Offering Rate

LLC – Limited Liability Company

LOC – Line of Credit

LOI – Letter of Intent

LP – Limited Partnership

LPOA – Limited Power of Attorney

LTV – Loan to Value

MAI – Member Appraisal Institute

MAO – Maximum Allowable Offer

MIP – Mortgage Insurance Premium

MLS – Multiple Listing Service

MUD – Municipal Utility District

NAR – National Association of Realtors

NIV – No Income Verification

NNN – Triple Net Lease

NOD – Notice of Default

NOI – Net Operating Income

NOO – Non-Owner Occupant

O/F – Owner Finance

OO – Owner Occupant

P&S – Purchase and Sale

PITI – Principal Interest Taxes Insurance

PMI – Private Mortgage Insurance

POA – Power of Attorney

PUD – Planned Unit Development

REI – Real Estate Investing / Real Estate Investor

REIA – Real Estate Investors Association

REIT – Real Estate Investment Trust

REO – Real Estate Owned

ROI – Return On Investment

RTO – Rent to Own

SFH – Single Family House

SFR – Single Family Residence

Sub2 – Buying property subject to existing financing

T/B – Tenant Buyer

TIL – Truth In Lending

TREC – Texas Real Estate Commission

UBIT – Unrelated Business Income Tax

UCC – Uniform Commercial Code

VA – Department of Veterans Affairs / Veterans Administration

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