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The Buzz

I am thrilled to announce an awesome transition for my business – notice the new logo and new name. I am ecstatic to say that I am opening a real estate brokerage with the partnership of Gary Burmaster. I cannot say enough good things about Gary. He’s an entrepreneur, with savvy business sense; He’s earned a positive reputation, with a strong bent toward investing. Gary has established a thriving property management company and a network of on-going real estate investors. As he began to show me some of his systems and business tactics he said, “I feel like I’m training my competition.” I gave him an indifferent nod. Later he suggested we open our own office and share the benefits and strengths we both bring to the table. Did I mention… We both enjoy the characteristic of being decisive – The rest is history. As a bonus, we have already employed two skilled agents to join our team.

Together we now offer a greater array of real estate services:

1) A team of 4 strong agents with abilities that rival their peers.

2) Residential buying and selling specialists

3) Investment Property Consultation

4) Portfolio Stewardship

5) Expertise in short-sales, REOs, foreclosure properties

6) Property Management at the most competitive rates

7) A hard working support staff that do not let details fall between the cracks (Administration, Escrow Coordination, and 2 full-time property managers)

8) Business affiliates that are dedicated to assist us in offering the best services, the highest value, at the most convenience to our clients

9) Property Rehabilitation

10) Understanding and insight into creative financing and capital leverage

If you are in the area, please drop into our new office space:

650 Howe Ave. #1030

Sacramento CA 95825

[Turn right off Howe onto Sierra; turn right into the second parking lot]

Also see our website at www.BurmasterRES.com check back often, as it is in the process of being renovated and updated. I think you’ll like the changes. Please use my email KeithKlassen@sbcglobal.net, as I am no longer at my former address(es).

Everyone I’ve talked to about it has about a dozen different questions for me revolving around this change. Feel free to call or email me if you want to know any juicy details.

Real Estate Currents:

I am seeing a return to normal in the real estate markets. New home sales rose 4% in April while the sales pace of home re-sales slowed 2%. Inventory rose by 5.8% nationwide. David Lereah of the NAR, who I quote from time to time, says that the housing nationwide peaked last August and believes that this spring marked the bottom.”

It is difficult to predict the future but “Location” still holds the trump card. Lereah also reports that new home sales are slowing in Florida and Arizona and gaining momentum in Texas, the Carolinas, Ohio, Utah and New Mexico.

Housing in some areas is slowing because of rising mortgage rates and falling affordability. Mortgage rates for 30-year fixed rate loans averaged 6.51% in April, up from 6.32% in March and 6.25% in February. Many predict that the Feds will not raise the interest rates again at their June meeting.

Now more than ever, it is best to give me a call if you are thinking about a move. My finger is on the pulse of our market and I am here to serve your needs.

Just Ask
Q: Is there anything I can do to add quick value to my home?

A: If you are looking to quickly increase your home’s value, consider these options:

Add or renovate a bath: Adding a bath is one home addition that will almost always result in increased home value. If you do not have space for a full add-on, consider updating the shower and bath, replacing linoleum with tile, and throwing on a fresh coat of bright paint.

Make more with less: Many homes have space dedicated to playrooms and office space. If you are in the market to sell, quickly convert these areas into a smaller bedroom by adding a partitioned closet (easy and inexpensive). Go the extra step by moving a wall if possible to create a Jack-and-Jill bathroom with a neighboring bedroom.

Add some character to the kitchen: Updating appliances is guaranteed to make your kitchen more appealing but it can be pricey. Small touches such as rustic cabinet handles and a new varnish for the cabinets can also make an impressionable difference.

My Town
June, with the longest days of the year, often connotes time spent outdoors with friends and family over glasses of chilled wine or iced tea. It’s a month when we want our backyards and patios to be inviting and comfortable. On long, hot summer days, however, some of us realize that we need more shade to cool us down and keep down the glare. Here are some online resources I thought you may find useful to find several different options:

www.patioumbrellas.com – This site only sells umbrellas: cheap ones, high end ones, small ones, large ones, commercial ones, tilting ones. You name it, they have it.

www.landscapeforms.com – With butterfly to wavy shaped umbrellas, this company creates customized umbrellas to fit your taste and backyard landscaping.

www.costco.com – Click on Outdoor, then choose Awnings, Shades and Umbrellas to see a great selection of shade creating options from retractable motorized awnings to beautiful canopies. You may feel like you’re at a resort in your own backyard!

I hope these have been helpful. It doesn’t cost a lot of money to create some additional shade in your backyard and make your summer a more enjoyable one.

FYI
Summer is synonymous with lawns. Big, green lawns. Did you know that your lawn needs to be aerated on a regular basis to alleviate compaction? To keep the spring in your lawn’s step, hire a specialist or rent a power-driven core aerifier with hollow tubes at a home renovation store in your area. By aerating your lawn once or twice a year, the soil will have more oxygen and the faster growth. You will notice a lusher lawn in no time.

Last issue I didn’t put any pictures of my kids and one person commented, “Where are the kid’s pictures – that’s the best part!” I just laugh – they are some of the cutest kids in town and I’m a fortunate father to say the least. Best to you and your family.

Personal Update

As you may know, my growing business is built on insight (understanding), integrity (honesty), and experience (in real estate and life). It flourishes by working with quality people as yourself and those you might refer. Let me earn the business of your freinds and family by demonstrating top shelf service. Thank you in advance.

For some entertaining reading on my experiences as a Realtor and investor, opinions, practical advice, and unconventional wisdom in real estate, check out my professional blog at http://reflectionsonrealestate.blogspot.com/

I look forward to hearing what’s new in your life – talk to you soon.

Best,

I work with investors, some seasoned and many who need an education. Those that desire to buy income property but don’t really know what they are getting into, I wade through extensive consultation. I attempt to get at the person’s hopes and goals for owning income property. The general response is usually “I want income!” Or said in another way, they have the hope of the cash flow. They want a property that will pay all their expenses and have money left over for themself (every month). This expectation (at least in CA) is usually unrealistic. I find that this person not aware of all the expenses, like management fees, lease up costs, maintenance, vacancy, etc. The typical hopeful uneducated investor usually at this point is rethinking their hope of owning income property – they get nervous about the cost and responsibity.

At this point I try to take another angle. I suggest that income does not necessarily always come in the form of immediate cash flow. In California, one is more likely to see income growth in the form of appreciation in equity. Even if a person begins with a slightly negative cash flow it may still be a great investment. I love the 401K scenario. If you think about it, this is a negative cash flow investment. You invest a certain amout out of your pay check every month to have a growing retirement fund. Many times an employer will pay a percentage of that invested. Let’s say your employer is

I must preview and show a dozen homes every week. Especially with some of the older homes, there are always some funny and unusual things about the home. Whether its a bad renovation or a funky decorating scheme or an odd fixture of some sort, my attention to detail and quirky sense of humor likes to point out and identify these things. Since I have my camera with me most of the time, I just can’t resist capturing some of these images. I frequently will include some of these in the blog from time to time.

I got a kick out of these people’s attempt to cover their “beater” pick-up in the driveway.

For the locals, here is another article / advertisement from my neighborhood newletter.

You may drive past this local antique shop on a daily basis, but have you stopped to take a look? The Antique Company Inc. is filled with great furniture, especially for the period homes of Curtis Park. Steve Sylvester, owner and resident of Curtis Park, says, “[We] … bring in European antiques by container every two months and specialize in items from between the two world wars. Whether it is Art Deco, English Cottage Style, Jacobean 1920’s or Danish Modern, we have a huge ever changing selection all the time. We are known for our huge range of stained glass windows, 1930’s mirrors and garden ironwork. On the corner of 21st Street and X Street we have a large 6000 sq foot store that leads to a small garden center and another 1000 sq foot store. An eclectic maze!” You will be intrigued from the moment you walk in – Go see for yourself.
The Antique Company Inc. is located at 2100 X St. and is open every day of the year from 10am – 6pm.

Here’s an article I wrote for my neighborhood newsletter, called “Front Porch”

Some of you have asked me about the significance of the newsletter’s name. The name, for me, evokes a feeling and concept that many of our homes already have built into them – the front porch. The front porch can be the equivalent of an outdoor sitting room, a place for discussion and relaxation. As I walk the streets of our neighborhood I see people barbequing, reading, playing with their children, writing and even conducting business on their front porches. I might catch folks just sitting, gazing at the street or in the trees, entertained by a bird or squirrel. The front porch welcomes the passer-by. It invites conversation between neighbors. Between the rise of the front porch in the middle nineteenth century and its decline in the post World War II era, the front porch developed a cultural significance. It represented the cultural ideals of family, community, and nature.
Some of our friends who live in the “burbs” lament, “Our neighbors just open their garage, pull in, and you never see them. Or, “Everyone hides out in their backyard.” And, “We still don’t know many people on our street, after all these years.” What might be missing from these homes is a front porch—or at least a “front porch attitude.” Granted, this home feature can’t guarantee a gregarious disposition in life or an abundance of open, friendly neighbors, But it is a start. Why do you think the street side cafés and coffee shops with outdoor seating are so popular? They have, in a sense, replaced the front porches.
Is your front porch lying dormant? You may not be the one who throws a block party or makes friends with everyone on your street. But how about this for a modest start at getting to know your neighbors? Dust off those beautiful Adirondack chairs (or just a folding chair will do) and become a part of the front porch culture in our neighborhood.
A while back, I received an email from a friend in the community saying, “We came by to visit today, but you were not home. Hope you don’t mind, but we just sat on your front porch for a while and enjoyed the neighborhood. We may be back soon, even if you are not home. Thanks! “
While my day job consists of real estate investing, consultation, and property management, I’m also striving to help draw our neighborhood together. So, whether you have one or not, you can still enjoy the ethos and attitude of the front porch. See you soon … on the front porch.

Here is a summarized list of the Top 10 things learned in a decade of growing a local news business.

(With my interpretations in italics)

1. Start small and grow as conditions warrant.

Lead with revenues and don’t bite off more than you can chew.

1. Mail to every home in the neighborhood

Don’t assume some won’t give you business, be it stereotypes or first impressions.

1. The monthly publication cycle is ideal

I translate this as consistency.

1. Hire the best people you can find and treat them well.

1. Keep news focused on the positive.

This might be viewed in other business situations in the way you motivate those around you OR in relation to your own attitude.

1. Design is important

Your product needs to be both useful and beautiful.

1. Have someone trustworthy manage the money.

This seems like a no-brainer, but I guess many don’t heed this advice?

1. Don’t let the customer mistreat the staff

1. Be open to ideas but follow your own instinct

Have a business plan and model!

1. Be grateful to your customers and employees

You are never too big for britches. Usually there are many in your network that assisted you in success – Take of and reward those in this sphere.

Most don’t realize that there is a difference. The fact is, about half of the people selling real estate in Sacramento do not belong to the Sacramento Association of Realtors (S.A.R.), which distinguishes Realtors (with a capital R) from realtors. The primary thing that sets Realtors apart is the higher standard of ethics to which they are held accountable. Here’s an example: Joe realtor lists your home and a dispute breaks out between you and Joe – let’s just say, he lied about the second higher offer that came in for your home. You might be able to take him to court? With a Realtor there is immediate disciplinary action and direct recourse that you have with the regulatory body call the National Association of Realtors (N.A.R.), who governs the California (C.A.R), who oversees the S.A.R.

Bottom line, do you want representation from someone that does not subscribe to written regulations and an ethical code, with limited recourse if something goes awry?

Have you had a bad realtor or Realtor experience? Help us learn from your experience.

1. Find out how long the business has been operation – ask to see their business license. Older firms are less risky, since most survive on the merit of their work. Two years in business might be a good starting place.

1. Ask for 3-5 references from past jobs. Ask the references if the contractor was on time?; Did they meet deadlines and estimates?; Where the thorough and clean; Did they show up when they said they would?; Did they communicate well and return phone calls?

Bottom line, while you might get a better price from some, the headaches attached are not worth the savings in dollars.

1. Get an written, detailed estimate of the work to be performed. Ask for possible changes that might need to be made in the process and how much it will cost. Never pay for work that has not been done according the original specification that you will sign off on.

1. Make sure that the contractor is bonded (at least $1 million for liabilities) and has proper insurance.

1. Go with your gut – do you feel that you can work with the contractor for the duration of your project? You will end up despising the entire process if you can’t stand communicating with and being around this person. Do they listen to you? Are there other projects more important than yours?

Here is an article that clears up all the fuzziness on taxes once you sell your home…

Home Selling Exclusions: A Great Benefit for Homeowners
by Benny L. Kass
If you have recently sold your house at a significant profit, and if you have not been keeping up with the tax laws, you will be pleasantly surprised. If you are married, if you meet the legal requirements described below, you can exclude up to $500,000 of the profit you have made. If you are not married, or file a separate tax return, the exclusion is reduced down to $250,000 of profit.

For many years, there were two tax concepts which helped save homeowners from paying a lot of capital gains tax: the “roll-over” and the “once in a lifetime.” However, the Taxpayer Relief Act of 1997, signed by President Clinton on August 5, 1997, abolished both of these concepts. The roll-over and the once-in-a-lifetime exemption for homeowners over 55 years of age are real estate and tax history.

Although there are no restrictions on the number of times this exclusion can be used (as compared to the old “once-in-a-lifetime” approach) the law does contain two important conditions:

1. You must have owned and used the home as your principal residence for two out of five years before the house is sold. If you are married, so long as either spouse meets this requirement, the exclusion of gain applies. Marital status is determined on the date the house is sold. In the event of a divorce where one spouse is given ownership pursuant to a divorce decree or separation agreement, the use requirements will include any time that the former spouse actually owned the property before the transfer to the other spouse.
2. The exclusion is generally applicable once every two years. However, if you are unable to meet the two year ownership (and use) requirements because of a change in employment, health reasons or unforeseen circumstances (which have been defined by regulations promulgated by the IRS), then your exclusion is pro-rated. These pro-rations are complex, and have caused considerable confusion among lawyers, taxpayers and even the IRS.

The new regulations were finally implemented by the IRS in 2004. They provide what the IRS calls “safe harbors” — i.e. if you fall into a safe harbor category, you are entitled to take the partial exclusion. If, on the other hand, you are not within the safe harbor, then according to the Regulations, “The taxpayer may be eligible to claim a reduced maximum exclusion if the taxpayer establishes, based on the facts and circumstances, that the taxpayer”s primary reason for the sale … is a change in place of employment, health or unforeseen circumstances.”

In other words, if you are not within a safe harbor, you will have to convince the IRS that you nevertheless qualify for the partial exemption.

Let’s look at these items separately:

1. Change in employment: If you have to travel at least 50 miles farther from the house you sold because of a job transfer, or even to take a new job, and the primary purpose of selling your house was because of employment reasons, you will be eligible for the partial exclusion.

   The 50 mile distance is the IRS “safe harbor,” provided that the change in place of employment occurred during the time that the taxpayer owned and used the home. However, even if you cannot meet the safe harbor, you still may be able to convince the IRS to allow the partial exemption based on “facts and circumstances.” The Regulations include an example of a doctor who sold her condominium and moved only 46 miles away from the previous residence. Because the primary reason for the sale was to allow the doctor quicker access to the hospital for emergency purposes, the IRS would allow the partial exemption based on the facts of this case.

2. Reasons of Health: Once again, we see the concept of “primary purpose.” To qualify for the partial exemption, the primary purpose of selling the house must be based on health.

   The safe harbor here is easy. If the taxpayer’s physician recommends a change of residence for reasons of health, the taxpayer will automatically qualify for the partial exclusion. And health is rather broadly defined to include “the diagnosis, cure, mitigation or treatment of disease, illness or injury.”

   But the IRS issues a precautionary note: A sale “that is merely beneficial to the general health or well-being of an individual is not a sale … by reason of health.”

3. Unforseen circumstances: Obviously, this is the more difficult category on which to enact regulations. Each of us — at one point in time — will face conditions which could not be anticipated or even imagined before it happened, which significantly impact on our lives — and on our financial situation.

   Nevertheless, it would be manifestly unfair to be faced with a crisis — have to sell your house before the two years are up — and have to pay full tax on the profit you have made. Accordingly, Congress authorized the IRS to issue regulations governing this area.

   According to the new Regulations, a sale “is by reason of unforeseen circumstances if the primary reason for the sale … is the occurrence of an event that the taxpayer could not reasonably have anticipated before purchasing and occupying the residence.”

The IRS then lists several safe harbors:

• involuntary conversion of the residence — for example, it was condemned by a governmental agency;
• natural or man-made disasters or acts or war or terrorism resulting in a casualty to the residence. Clearly, the victims of Hurricane Katrina who lost their house would fall squarely in this category;
• death of one of the owners of the property;
• the cessation of employment as a result of which the taxpayer is eligible for unemployment compensation;
• a change in employment or self-employment status that results in the taxpayer”s inability to pay housing costs and reasonable basic living expenses;
• divorce or legal separation under a Court decree, or
• multiple births resulting from the same pregnancy.

These are safe harbors. If you fall within one of these areas — and have owned and used your house during the time since it was purchased — you will be entitled to take the partial exclusion of gain.

But, once again, even if you cannot claim a safe harbor, you still may be able to convince the IRS that there are facts and circumstances which forced you to sell your house before the two years were up. The burden will be on you, and as we all know, dealing with the IRS is not easy.

If you are eligible for the partial exclusion — either because you meet the safe harbor tests or the facts and circumstances test — this exclusion is equal to the number of days of use times the quotient of $500,000 divided by 730 days. Note that 730 days is 2 full years. If you are single — or do not file a joint tax return — change the $500,000 to $250,000.

The law applies to all principal residences: single family homes, cooperative apartments, and condominium units. If your boat or your mobile home is your principal residence, the exclusion can also be taken. In order to qualify as such, three things are required: sleeping quarters, a toilet, and cooking facilities.

While the new $250/500,000 exclusions sound too good to be true, there is one important fact to remember when calculating the profit you have made, and the tax you may have to pay. Real estate in the Washington metropolitan area has appreciated dramatically over the past half century. Many homeowners realized the “great American dream” over the years, and continued to sell and “buy up.” The profit that was made on each sale was deferred under the old roll-over concept. Now, when you sell your last house, and you are married, you can exclude up to $500,000 of profit, but what exactly is your “profit”?

Let us take this example. In 1968, you purchased your first house for $40,000. In 1975, you sold it for $150,000, and purchased a new house for $210,000. For this example, we will ignore such items as home improvements and real estate commissions, although these are expenses which can — and should — be taken into consideration in determining your actual profit. Because you deferred $110,000 of profit ($150,000 – $40,000), the basis in your new home is now $100,000. You determine your basis by subtracting the profit from the purchase price (i.e. $210,000 – 110,000).

In 1989, at the peak of the then real-estate market, you sold your home for $400,000 and purchased a new house for $500,000. Because the roll-over was still the law, you had deferred profit of $300,000 ($400,000 – 100,000). The tax basis of your new $500,000 home is only $200,000. Keep in mind that under the old “roll over” rules, every new home you purchased had to take into account the deferred gain which you had made on the sale of your previous home.

Here is where the tax bite may occur. If, for example, you plan to sell your house in the near future, you must calculate and be aware of your basis. If you are married and file a joint tax return (and have lived in the house for at least two out of the past five years), you will not have to pay any capital gains tax unless you sell your house for more than $700,000. But, if your spouse has died, and you can no longer file a joint tax return, you can only shelter up to $250,000 of profit. You or your accountant should make sure that you include the “stepped up” basis of the house in your calculations. This means that half of the value of the house on the date your spouse dies is added to your basis.

This is obviously complicated, and you have to have professional assistance before you sell your house.

It is absolutely critical that you keep all of your records and all of your settlement sheets. Such expenses as home improvements, real estate commissions, fix-up costs, legal and title costs, will reduce your profit — and thus reduce your tax. If you are ever audited by the IRS, you will be required to produce proof of these expenses.