Uncategorized Archive

Property Investment Doesn’t Have To Be Hard: Read These Six Tips

1. Get the Right GuidanceGood planning is essential to your financial success. Seeking advice from qualified and established experts in the field means that you have access to their valuable experience and knowledge about what works and what doesn’t. Assembling a good team of property investment professionals ensures that you have the support you need through every step of the process. The first member of your support team should be a Qualified Property Investment Advisor (QPIA). They’ll know the right formula to follow to ensure your success and will help you apply that formula to your unique set of circumstances. Next, you’ll need an experienced mortgage broker, licensed buyer’s agent and a solicitor/conveyancer. You will also need an independent pest and building inspector and a reliable property manager but if you’ve found a good buyer’s agent that focus on building a relationship rather than a transaction, they will be able to provide you with some recommendations for a reliable property manager. And finally, to complete your ‘A-Team’, you will need a good accountant.When searching for a team of people that you can trust, always assume yourself in a General Manager position. After all, if you want to build a passive income for life, this is a serious business. Look to see that they have a track record of performance and success and ask for testimonials where necessary. Most property professionals also offer a free consultation so make full use of the time and prepare your own list of questions. During the consultation, listen and observe if the advisor is trying to push you to buy a certain type of property or they are keen to understand your situation first before advising you on anything? One of our pet hates are advisor’s that try to recommend a one-size-fits-all solution when the fact is, every household is different and unique. Each household should have a property investment strategy that is custom built and tailored to their specific needs. You’ll want to make sure that your concerns are addressed and that you feel a sense of rapport. Always remember that your team is working for you and you want to make sure you feel confident and comfortable with them from the beginning.2. Increase Your Borrowing PowerTaking all possible steps to improve your credit and increase the amount of money you can borrow will benefit you greatly. Although some might say you don’t need much to start investing in property, a bit more capital never hurts. You can start by consolidating your existing credit debt and decreasing the number of credit lines you have open. As always, saving as much as possible through effective budgeting is an essential part of this process. If you’ve reached the point where you own more than one property, your borrowing power is enhanced by the rental income. Plus, the more good quality assets you have, the more attractive you are to lenders. Don’t worry, however, if you don’t own multiple properties. Even if you don’t own a single property yet, focus on making your first purchase and then go from there. You might be surprised at how quickly the momentum can build.3. Set Specific GoalsPutting together a plan to create your ideal property portfolio is a fundamental step. You’ll be much more likely to achieve your goals once they’ve been clearly laid out. This is where you’ll want to have a discussion with a property investment advisor to assess your current finances and examine where you want to go. What kind of specific goals do you want to achieve, and when do you want to achieve them? You’ll be looking at projections for your future financial needs and using that information to help make decisions right now. It can be beneficial to put your goals into a timeline so that you can plan more effectively. This will also help you gauge your success over time and make changes as necessary. Life is always full of expectancy, so embrace it!A good QPIA will be able to crunch the numbers for you, analyses and determine the best investment strategy for your circumstances and explain everything in a way that you can understand using graphs and charts. This is really helpful because you’ll be able to see all the aspects of your portfolio in one place and pinpoint specific times in the future where you would be expecting a negative cash flow and even times when you can quit your day job to reap the benefits of your investments. You might be surprised at how simple this information can be when you’ve had a professional effectively break it down and present it to you.4. Do Your ResearchKnowledge is empowering. In addition to having solid help from experienced property investment professionals, keeping up to date on market trends is important to make sure that you’re able to make informed decisions when the time is right. Read as much as you can about choosing the right property, the loan process, and real estate in your target area so that you will be an educated and savvy buyer. Although you’ll have the advantage of professional help, the more knowledge you have on your own, the better prepared you’ll be to navigate your investments over the long haul. At the very least, when the advisor is explaining things such as capital growth, rental yield returns, Lenders Mortgage Insurance, Loan to Value ratios, positively geared property, negatively geared property and so on, you would have an idea on what’s at stake and able to validate his advice. Even having a basic understanding on tax law will be beneficial. Although tax information can be difficult to understand, a little basic knowledge goes a long way when it comes to staying informed. It’ll also help when you are making decisions to renovate or upgrade your investment property.5. Have Prospective Properties Well InspectedIt goes without saying that any type of asset you purchase should be well built so that it stands the test of time. When it comes to property investment in particular, that becomes even more important. Purchasing property requires significant sums of money, so you want to make sure that your purchase will be as profitable as possible. A good property inspection can reveal safety issues that may make the property unsafe to rent without considerable investment upfront. For all you know, the property might need a complete re-stumping that was not obvious and wasn’t mentioned by the selling agent. These kind of hidden issues can cause significant financial damage to your portfolio. A good and independent pest and building inspector can also help you anticipate future maintenance costs so that you can factor that into your profit projection.Apart from the actual property, the legislative part of it needs to be thoroughly reviewed as well, preferably by an experienced solicitor or conveyancer. The Contract of Sale is generally created to favor the seller and what many investors fail to realize is that key areas in the contract are actually negotiable. Inexperienced investors often make the mistake of skipping this step only to find out later on that the contract is disadvantageous for them. There are times when important details are hidden between all the law jargon such as ownership titles and building permits. With professional help, you may also learn about legal issues that you wouldn’t have known about otherwise.Finding an inspector and solicitor that you trust is of the utmost importance. Albeit, this means another couple of hundred dollars to spend but wouldn’t it be wiser to spend it now rather than losing potentially thousands in the future? You don’t want what should have been an asset to turn into a liability because something was missed during the process.6. Take Action!Time is of the essence more than ever when it comes to buying real estate. Procrastination is probably your worst nightmare so, making a list ensures you can organize your “plan of attack” and is useful for deciding what to do next. Even if you only accomplish one item per day, you’ll be that much closer to realizing your ultimate goal of wealth and financial freedom. It can feel overwhelming when you initially think about everything that’s involved with property investment. If you can break it down into manageable action steps, you’ll feel much more confident as you begin the process. A good first step is to schedule a consultation with an investment professional. You’ll feel assured and confident about moving forward when you have solid help on board at the start.With the right guidance and information, you can make real estate investment a profitable part of your life and retirement plan. It’s definitely one of the best ways to “work smarter, not harder.” Keeping these tips in mind will help you navigate the world of investment and create assets that generate income for you even when you’re not working. Once you’ve gotten started with property investment, you’ll quickly build momentum that will carry you down the road to the financial freedom and independence that you’ve worked so hard to achieve.

Local Property Taxes In New Jersey – A Primer

LESSON ONEFirst Remember that:THE LOCAL PROPERTY TAX in New Jersey is in fact a LOCAL TAX.This means that the tax is assessed and collected at the local municipal level for the support of:LOCAL SCHOOLS
MUNICIPAL GOVERNMENT
COUNTY GOVERNMENTTHE STATE RECEIVES NO PORTION OF THESE PROPERTY TAXES.As a matter of fact the State pays out 48¢ of every State revenue dollar collected to counties, municipalities and schools in some form of State Aid. In 1961, some 44 years ago, the State paid out 43 cents of every State revenue dollar collected.In FY 2005 the State budgeted approximately $12,465.6 million in State funding for property tax relief programs for the following purposes:($Millions)
Schools Aid $8,657.3
Municipal Aid 1,757.0
Other Local Aid 716.0
Direct Taxpayer Relief 1,335.3TOTAL $12,465.6LESSON TWONext we must understand that:THE LOCAL PROPERTY TAX in New Jersey is a RESIDUAL TAX.A Residual Tax is one which is levied to raise the amount of money required over and above the total revenues available from other sources.For example, in Jerry’s Small Town, total budget requirements are:For Local Schools $ 149,000
For Municipal Services 175,000
For County Services 75,000
Other Items 1,000TOTAL BUDGET REQUIREMENTS $400,000Available Revenues to offset these requirements:State School Aid $ 75,000
Other Revenues 25,000
(Parking Meters, Licenses,
Court Fines, Etc.)TOTAL AVAILABLE REVENUES $100,000AMOUNT TO BE RAISED BY LOCAL PROPERTY TAXATION $300,000This $300,000 is the RESIDUAL amount to be raised by Taxation after giving effect to all other sources of revenue.LESSON THREENow we must also understand that:THE LOCAL PROPERTY TAX in New Jersey is an AD VALOREM TAX.Don’t let that fancy name frighten you.An AD VALOREM tax simply means that each taxpayer shares in the total tax burden of his town in the direct proportion as the value of his property bears to the total value of all the property in his town.AD VALOREM means each taxpayer pays according to the value of the property he owns. The amount of property he owns is used as a yardstick in determining his ability to pay.For Example:Jerry owns a house and lot having a market value of $ 300,000The total market value of all property in Jerry’s towns is $60,000,000ACCORDINGLY:Jerry’s share of the total Local Property Tax base is $300,000 / $60,000,000$300,000 equals ½ of 1% of the total property tax base of $60,000,000.Reducing this to a decimal, Jerry’s share of the total Local Property Taxes in his community is ½ of 1%, or .005.This percentage is usually shown as a Tax Rate charged for each $100 of Assessed Valuation. (See Lesson Four)AD VALOREM means nothing more than PROPORTIONATE OR FAIR SHARE.REVIEWSo far we have learned that the Local Property Tax is a -LOCAL Tax
RESIDUAL Tax
AD VALOREM TaxLOCAL TAX levied at the local municipal level for the support of local schools, municipal and county governments.RESIDUAL TAX levied to make up the difference between available miscellaneous revenues and budget requirements.AD VALOREM TAX, which means that each taxpayer pays his proportionate share based on the value of the property he owns.LESSON FOURNow, we must learn the answer to the question:WHAT IS THE MEANING OF TAX RATE?TAX RATE is the number of dollars per $100 of Assessed Valuations which must be applied to the assessed valuation of all property in a taxing district in order to produce the amount of money required to support school, county and municipal budgets.TAX RATE is another method used to arrive at the amount of each taxpayer’s proportionate share of local taxes.The TAX RATE is determined by a simple arithmetic calculation similar to the method illustrated in Lesson Three.Total Amount to be Raised by Taxation – $300,000
Total Value of all property in Town – $60,000,000$300,000/ $60,000,000 = .05The Tax Rate is then 5¢ per $1 of Assessed Valuationor$5.00 per $100 of Assessed ValuationsEXAMPLE:Jerry’s house and lot have an Assessed Valuation of —————— $300,000Tax Rate per $100 of Assessed Valuation ————————- X $5.00Jerry’s Tax Bill is ————————— $ 1,500.00LESSON FIVEWhat is the meaning of -TRUE VALUEASSESSMENT RATIOASSESSED VALUATIONTRUE VALUE means market value – the amount a parcel of real property would sell for at a fair and bona fide sale.ASSESSMENT RATIO is that percent of True Value used by the assessor in making up his assessment rolls as prescribed by his/her County Board of Taxation).In New Jersey assessors use the statutory 100% ratio or Full True market value in making up their assessment rolls; assessors in others states use assessment ratios or percentages less than 100%.ASSESSED VALUATION or ASSESSMENT is the value placed on each parcel of property by the assessor as indicated above; it is determined by the use of True Value or some percentage thereof.REVIEWIn Lessons One and Two we learned that:Total Budgets less available revenues result in the Residual Amount to be raised by taxation which is the total tax bill.It follows then that the amount to be raised by taxation is a primary factor in determining the amount of each individual property owner’s tax bill.In Lesson Three we learned that:Local Property Taxes are apportioned among property owners according to the value of each individual taxpayer’s property in proportion to the value of the property of all taxpayers.We learned that this method of taxation is called AD VALOREM taxation.In Lesson Four we learned that:Tax Rate is the dollar amount per $100 of assessed valuation which must be raised to support local budgets.In Lesson Five we learned that:Assessed Valuation is the true value or percentage of true value placed on each parcel of property by the assessor. This is the basic factor which implements the AD VALOREM principle of taxation.LESSON SIXWhat are the relationships among:Total Amount to be Raised by TaxationTax RateAmount of the Individual Taxpayer’s BillThe relationship among these factors can best be illustrated by the following example. This example incorporates some of the lessons we have already learned.In Jerry’s Hometown:The Total Amount to be Raised by Taxation is $300,000The True Value of All Real Property is $60,000,000The Assessor Uses an Assessment Ratio of X 100%Thus the Total Assessed Valuation Taxable is $60,000,000The Tax Rate then is ($300,000)/ – $5 per $100 of Assessed Valuation
$60,000,000)Accordingly, if Jerry’s House and Lot have a market value of $300,000And the assessor uniformly applies an Assessment Ratio of 100% 100% (Note: All New Jersey County Boards Of Taxation Require 100% Ratio)Jerry’s house will be Assessed at: $300,000By applying the Tax Rate in Jerry’s Town X $5.00JERRY’S TAX BILL WILL BE $ 1,500LESSON SIX (Continued)NOW, assuming 10 years have passed and property values have doubled in value due to property inflation, And, assuming that the Budgets remained the same:And, the Total Amount to be Raised by Taxation is still. $300,000And, with the Assessor assessing at 100% of true value. (NOTE: Reducing the ratio to 50% as happens in states, other than New Jersey, would mathematically just result in a doubling of the tax rate.)And, property inflation has increased the town’s total Assessed Valuation Taxable, so after a revaluation with a 100% ratio the town’s total assessed valuation taxable is now. $120,000,000The Tax Rate is then ($300,000) / – $2.50 per $100 of Assessed Valuation (120,000,000)After the Revaluation the total tax base in the town doubled in value.Since all assessments are at True Value,Jerry’s House after the revaluation will now be assessed at $ 600,000By applying the Tax RATE of $2.50 per $100 of value X $2.50JERRY’S TAX BILL WILL STILL BE $ 1,500Thus, we learn that if the Amount to be Raised by Taxation remains the same:Tax Rates are high when Assessment Ratios are low in some states other than New Jersey. Conversely, Tax Rates are low when Assessment Ratios are high in some states other than New Jersey.The amount of a property owner’s Tax Bill is not affected by Assessment Ratios or by Tax Rates.The amount of an individual’s tax bill is determined by The Amount to be Raised by Taxation, and by the proportionate value of his property as it bears to the total value of all property in his municipality.LESSON SEVENWhat is meant by EQUALIZATION?The term EQUALIZATION as commonly used has a twofold meaning:INTER-DISTRICT EQUALIZATION, i.e., Equalization among taxing districts, has as its purpose the determination of the true wealth of every municipality to the end that each receives a fair amount of State School Aid and pays an equitable share of the costs of county government.Inter-district equalization is substantially an accomplished fact in New Jersey.The State School Aid Equalization Table, which is based on a continuing statewide sales-assessment ratio study, provides for the equitable apportionment of the costs of county government among the taxing districts within the several counties.This Table is also used as the basis of apportioning certain costs of Joint, Consolidated and Regional School Districts.INTRA-DISTRICT EQUALIZATION, i.e., Equalization within a municipality, means equitable tax treatment among property owners of the same class of property and equitable tax treatment among property owners of different classes of property.This simply means that homeowners having homes of similar value are assessed alike – that is, Jerry’s home and your home, having an equal value, are assessed at the same value. Similarly, Jerry’s place of business, having the same value as other places of business, is assessed at the same value.This is known as Intra-Municipal Equalization, and is the very core of the principle of Ad Valorem Taxation.Intra-Municipal Equalization is generally attained by carrying out an overall professional Revaluation Program where all properties are re-evaluated as to their market value or 100% value.LESSON EIGHTWhat is meant by REVALUATION?The REVALUATION of a taxing district is accomplished by having an appraisal made of every piece of real property within the taxing district by a competent professional revaluation firm.CARRYING OUT A HIGH QUALITY REVALUATION PROGRAM involves the application of uniform standards and procedures in arriving at equitable appraised values for all parcels of property in the taxing district.THE PURPOSE OF A REVALUATION PROGRAM is to secure the basis for attaining uniform and equitable assessments on all properties within the same classification and as among the several classifications of property in order to assure an equitable apportionment of the increasingly heavy local property tax burden among all the taxpayers within a taxing district.PROFESSIONAL REVALUATION PROGRAMS are carried out in about 50 municipalities a year.THE GOVERNING BODIES of those municipalities that have regularly revalued have faced up to their obligation to treat all property taxpayers uniformly and equitably.

Yours, Mine and Ours: How Spouses Share and Transfer Property

For most married couples, the cornerstone of estate planning is the transfer of their biggest asset: their home. So it’s important that couples be aware of the many roads this process can take.Married couples who own real property together have many options when deciding how to share the asset. Traditional approaches include joint tenancy, tenancy in common, tenancy by the entirety and community property. All have advantages and disadvantages.Joint tenancy is a form of concurrent ownership where each owner has an equal interest in the property. It is available to unmarried couples as well, though I will focus on married couples in this article.Arguably, the most useful feature of a joint tenancy arrangement is the “right of survivorship.” When the first spouse dies, his or her stake in the property passes directly to the surviving spouse, without the need for probate administration. During probate, a court determines the validity of the decedent’s estate documents and helps to settle any claims against the estate before the property is distributed to the heirs. Avoiding this process can save the beneficiary of an estate substantial costs and time. By foregoing probate, the surviving spouse also gains additional privacy, since the probate process is a matter of public record.Tenancy in common usually does not have the right of survivorship. However, it allows other customizations, and offers greater flexibility. As in joint tenancy, tenants in common do not have to be married; unlike in joint tenancy, tenants in common may hold unequal interests in the property. Tenancy in common is not dissolved when one of the tenants dies, either. If John and Jane are tenants in common, each with a 50 percent interest in their property, John can bequeath his 50 percent to their son John Jr., and Jane’s interest will remain unaffected.Tenancy by the entirety is available only to married couples, though Hawaii and Vermont offer options for domestic partners and those in civil unions, respectively. For legal purposes, it is as if the property is owned by a single entity (the couple) instead of two parties. Neither party can dissolve the tenancy without the other’s consent, except in cases of divorce or annulment. Like joint tenancy, tenancy by the entirety offers a right of survivorship, allowing the surviving spouse to avoid probate. It can also shield the property from creditors of one spouse only, though not from creditors to whom the couple is jointly in debt. Not all U.S. jurisdictions recognize tenancy by the entirety.Community property laws exist in only nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. In Alaska, couples may enter into community property arrangements, but must do so by signing agreements or forming a trust. The validity of such arrangements is still untried on a federal level, though, and it is not clear whether the Internal Revenue Service will honor them for federal tax purposes.Although the specifics of community property laws vary from state to state, the basic idea is the same. Like tenancy by the entirety, community property is an option only for married couples. Generally, any property acquired by either spouse during the marriage becomes community property, unless it is a gift or an inheritance. Property owned prior to the marriage is also excluded. Spouses may enter into agreements, such as prenuptial or postnuptial arrangements, that preclude otherwise eligible property from being subject to community property laws, or which convert separate property to community property.Community property has no right of survivorship. Each owner can dispose of his or her interest individually. As a result, without additional estate planning, most transfers will be subject to probate, even if one spouse simply leaves the entirety of their interest to the other. Creditors can also generally reach the deceased spouse’s interest through normal estate administration rules. Community property offers the advantage of allowing a full step-up in basis upon the death of either spouse, which typically allows the survivor to pay taxes on a smaller capital gain should the property be sold.This is illustrated in the example below, contrasting joint tenancy with community property:John and Jane purchased a home for $1 million, and it is now worth $2.5 million. Jane has died and John inherited the home. If they owned the property as joint tenants with right of survivorship, John’s basis in the property is $1.75 million. This is because only Jane’s half of the interest is stepped up to the current market value ($1.25 million). The cost basis of John’s half of the interest continues to be based on the $1 million purchase price ($500,000). In contrast, both John’s and Jane’s interests would be stepped up to the current market value of the home if they had owned it as community property, and John would inherit the home with a cost basis of $2.5 million. This could mean a significant reduction in taxable capital gains if John were to sell the property after Jane’s death, even allowing for a potential reduction due to the home-sale exclusion rule. This would also be the case for other property, such as investment assets, owned by the couple.All of these arrangements offer benefits and drawbacks, which may weigh differently depending on a couple’s situation. Joint tenancy and tenancy by the entirety allow the surviving spouse to avoid probate, but do not offer community property’s generous terms for a full step-up in basis in the property. Community property risks giving creditors access to the decedent’s portion of the property, but also allows more flexibility in the way that property is distributed. Tenancy in common offers the option of unequal interests in the property, but does not have a right of survivorship.In certain states, couples have yet another option that is relatively new: community property with right of survivorship. In several states, the law has been on the books for less than 15 years. California – the state that has arguably received the most attention on the topic – first implemented these ownership rights in 2001. Of the nine community property states, Arizona, California, Idaho, Nevada, Texas and Wisconsin currently offer the right of survivorship option. Laws also vary by state regarding which property is eligible to be titled as community property with right of survivorship. For example, only real property may be titled this way in Idaho.The states that offer community property with right of survivorship seek to make it easier for couples that have relatively simple estates to transfer property to a surviving spouse. Before the advent of community property with right of survivorship, married couples had to draft special agreements or use trusts to convert joint property into community property. Community property with right of survivorship allows married couples to take advantage of the full step-up in basis while avoiding probate administration, all without the need for more complex estate planning.Like any estate planning method, community property with right of survivorship is not a cure-all. For example, should bankruptcy be a concern, joint tenancy or (in some cases) tenancy by the entirety would leave the non-debtor’s property out of the bankruptcy proceedings, while property held as community property, with or without the right of survivorship, would move entirely to the bankruptcy trustee’s control until proceedings were complete. Couples should carefully examine their situations before deciding which arrangement is likely to carry the most benefits.Though this option is not prevalent nationwide, financial advisors should be aware of both its benefits and its potential drawbacks. Even if a couple does not currently live in a community property state, they may have once lived in such a state, or they may move to one in the future. If a client lived and purchased real estate in a state that offered community property with right of survivorship, the property may continue to be characterized that way, even if the owners have since moved elsewhere.Most couples and, too often, the advisors with whom they work tend to overlook important consequences and planning opportunities when deciding how to take or maintain title to property. It is a big decision. Approach it carefully, and consider seeking qualified professional advice to guide you.