Working with Realtors For Lease Options By Wendy Patton Wendy is the April 7th Workshop Speaker at the Trade Winds Resort in Saint Petersburg Beach from 9AM to 5PM. To sign up please go to www.TBREIA.com or call (727) 452 - 9648 it’s only $35 if you pre-register!

There are two issues that involve realtors and investors. Should I become a Realtor? (and) How can I work with Realtors?

Working with Realtors:

Many investors think that real estate agents don’t have the best deals, or they have all been picked over by the time they actually hit the market. I believe that some of the sweetest deals are sitting on the market. We automatically think that Realtors or their clients will snatch up the best deals before they hit the market. It is true that some of the best deals do get snatched up before they hit the market, but ……there are many other deals left behind that no one sees. The reason that no one sees them is because they are looking for ‘traditional’ or what I call ‘retail’ homes, not ‘lease option’ homes. These are two very different markets. The retail market is what 90+% of the people and investors understand. The Lease Option market takes up a portion of the remaining 10% of the market.

I look to work with Realtors that understand the concept of lease options and can help their sellers understand lease options. This understanding can take time. Your job is to assist Realtors to understand lease options. I do this by using several techniques. First, I have a letter that I send to a listing agent explaining the concept, second, I have a presentation that I do for my local real estate offices, and third I network and continually tell Realtors what I do. I hear investors tell me all the time that Realtors just don’t understand or want to understand what they do. I can only say that patience and persistence pays off. Realtors aren’t trained in unique selling techniques, they are trained in the ‘Retail Market’ which is 90+% of what is out there. As investors, it is our job to continue to help those around us understand what we do so they know when to call us.

The type of home I am looking for through a Realtor is one that the seller:
1) Doesn’t need their equity out
2) Doesn’t have any equity in their home

When a Realtor hears a seller say, “If my home doesn’t sell soon I might have to RENT it!”, then the Realtor should think of you. (assuming you have continued to remind them of what you do)

All you need is 2-4 good listing Realtors. They work directly with the sellers and know which sellers are in trouble, which ones can rent, and which homes are vacant. Once a Realtor knows what you do and has a seller that can accept your terms – viola! You are the proud new owner of a lease option.

One of the most important things for anyone is that they get paid for what they do. Realtors are just like everyone else in this regard. When I am taking on an option, I am asking the seller to wait 2-3 years to get cashed out. I don’t want to make the Realtor wait that long. If I do, they won’t even tell the seller about what I can offer. Why should they? It might not do them any good. They are doing all the work now to get the deal done and want to get paid for it. So I give them the listing agent portion of the commission up front. This is my option fee and is applied to the purchase price when I get my mortgage or when I sell the home. The agent is therefore paid on what they do just as if they sold it conventionally to another buyer. When you sell the home you will be asking for 3-5% down from your tenant/buyer, therefore, you are still minimal or zero down/out-of-pocket. If you aren’t a licensed agent/broker and entitled to ½ of the commission, then let the Realtor “Double-Dip”. They can get the listing agent portion down upfront from you and the selling agent portion when the home closes in 2-3 years. They will wait for the second half if the first half is paid up front. The second half would just be a bonus that most agents wouldn’t expect anyway.

Becoming a Realtor:

Investors tend to be adamant one way or the other about being a licensed Realtor. I am on the side of being licensed. Being licensed has been one of the best tools that I have as an investor. Being licensed allows you access to your database of ‘comps’ or comparables. This is the data you need to buy and sell real estate. If you have a great Realtor and you don’t want to be licensed, fine, but I still think it is better to be licensed than not.

Some investors say it gives you more liability to be licensed. I have two answers to that:
1) What are you doing to create liability?
2) Don’t you think a judge is going to know you are an ‘expert’ anyway when they find that you do real estate investments?

Some investors say that sellers won’t sell to you if you are licensed. I find the opposite is true. Most sellers are happy that I am licensed and ‘know what I am doing’.

My recommendation is to GET LICENSED!!!

For more info about Wendy’s upcoming TBREIA Saturday workshop,
please visit www.TBREIA.com or call (727) 452 - 9648

____________________________________________________________________________

Bobbie Floerchinger Senior Loan Officer Pinellas * Hillsborough * Pasco Mortgages for Investors and the homes Investors live in. Phone: (727) 547-8776 Cell: (727) 235-3181 Fax: (727) 768-0773 bobbie@flpropertyloans.com www.FLPropertyLoans.com bfloerchinger@tampabay.rr.com

SMI Financial Services, Corp, or Super Mortgage is located in the Tampa-Clearwater-St.Petersburg area in Florida. We cater to buyers from all over the country moving to Florida or investing in the Florida real estate market, as well as people already living, working and playing in Florida. I have been in the mortgage industry for the past 8 years. My experience and training in all facets of the mortgage industry will provide you with informed, professional advice working to make sure your goals are met in every transaction. As a loan originator at SMI Financial Services Corp, I have access to hundreds of lenders, hundreds of programs, and a solid processing staff. Through my commitment, experience, and expertise I establish a business relationship with my customers that will last a lifetime! Call Bobbie Floerchinger at (727) 235 - 3181 today!

Some listed Benefits of beeing a TBREIA Member: Over 800 Members strong and growing! Benefits Member: Not a Member: You will have access to our Website to post your House(s) for sale! You may post your house(s) for sale w./ limited access Receive Notification on House(s) available You receive NO Notification Distribute your House For Sale-flyer at every monthly meeting You may NOT Distribute any flyers Receive TBREIA's Newsletter You do NOT Receive TBREIA s Newsletter Access the latest Wholesale deals You have NO access to the Latest deals Attend every monthly meeting for free You pay $10.00 Attend the monthly Workshop s for ½ of the regl. Price. N/A Major discount to subscribe to Foreclosure Daily.Call for details. N/A Utilize TBREIA Yahoo Discussion Board – Tremendous low price to join The Landlording 101 Academy (Realtors and Brokers earn College credits by attending any of those courses). N/A Access, utilize the TBREIA Discussion board N/A List your Business for FREE Only members may list! List your Properties & View listings Only members can view! Enjoy the access to our discounted Web-Book store N/A You may display TBREIA’s membership shield, which you can use on your web sites to identify yourselves as a member of Tampa Bay REIA and receive instant recognition. The image is available in all standard graphic formats so web masters can blend it into your web site. This may be used in conjunction with the affiliate program if you link the shield with your affiliate ID. If you are not an affiliate yet, you can fill out an application online at: http://www.tbreia.com/default/affiliates.asp In addition it can be used in all marketing materials such as business cards, flyers, emails, magnetic signs etc.. For more information, please email us at Support@TBREIA.com

By David D. Burton, CPA & Charles D. Shapero, CPA
http://www.hvs-cpas.com
(727) 446 - 0504

For Federal Income Tax purposes, rental real estate is generally considered a passive activity. Under Internal Revenue Code Section 469 (IRC §469), deductions for passive activity losses are generally limited to passive activity income. This means that if passive losses exceed passive income for any given year, those excess passive losses will be suspended (not currently deductible) until you have additional passive income, or you completely dispose of the property.

Fortunately, the Internal Revenue Code contains numerous provisions to deduct passive real estate rental losses against other non-passive income. This article focuses on the two most common for TBREIA members; the Active Participation Rules and Real Estate Professional Status. Both of the above exceptions to the passive activity rules are described in the remainder of this article.

Please be aware that the laws behind deducting real estate losses are more complex than reflected here. Due to the complexity of individual situations, as well as other factors such as basis and at-risk rules, interested parties should consult with a CPA for additional information and guidance.

Active Participation in Real Estate (AKA The $25,000 Deduction)

You are an Active Participant in Real Estate if you own at least 10% of the rental property and are substantially involved in its management. Evidence of substantial involvement include: approving new tenants, deciding on rental terms, approving expenditures, and scheduling repairs.

This is a fairly easy standard to meet for most TBREIA members and will generally allow qualified individuals to claim up to $25,000 in passive rental losses to offset non-passive income. However, if your adjusted gross income (AGI) is above certain levels, this $25,000 allowance is phased-out.

AGI Phase-out

The $25,000 special loss allowance for active participation is reduced by 50% of the amount by which your modified AGI exceeds $100,000. (Modified AGI is AGI without a deduction for overall passive losses, IRA contributions, one-half self-employment tax, tuition and a few other items.) Thus, you completely lose the ability to take this deduction currently if your modified AGI is $150,000 or above. In this situation, the losses would be suspended until you have passive income or you completely dispose of the property.

Example 1 – Ricky and Lucy are married taxpayers who actively participate in several rental activities. Their income consists of $75,000 in wages, $250 in interest and rental losses of $10,000. Even with no passive income, Ricky and Lucy can deduct all of their rental losses on their joint tax return because they actively participate in their rental activities and their modified AGI of $75,250 is below the phase-out range.

		Without Active Participation		With Active Participation
Wages		75,000		75,000
Intrest Income		250		250
Allowable Rental Loss		-		(10,000)
AGI		75,250		65,250

Example 2 – Dan incurred a $35,000 loss on his apartment complex during 2006. Dan is not a real estate professional and has no other passive activities. He actively participates in operating the building.

		Tentative AGI (No Limitation)		AGI after phased-out allowable deduction
Wages		20,000		20,000
Schedule C		100,000		100,000
Rental Loss		(35,000)		(15,000)
IRA deduction		(2,000)		(2,000)
SE tax deduction		(6,789)		(6,789)
		76,211		96,211

Dan’s modified AGI is $120,000 ($76,211+$35,000+$2,000+$6,789). As this is over $100,000, the $25,000 special loss allowance is reduced to $15,000 [$25,000 – {50% x ($120,000 – $100,000)}]. So Dan’s AGI is $96,211.

If Dan was a Real Estate Professional, the answer would be quite different. See example 3 in the next section.

Real Estate Professionals

If you qualify as a “real estate professional,” your rental real estate interests are not automatically treated as passive activities. As a result, if you materially participate in the rental real estate activity, the activity will not be treated as passive, and you will be entitled to deduct losses from that activity against non-passive income. In addition, the amount of losses and credits allowed under the $25,000 active participation rule is determined after any re-characterization of rental real estate activities as non-passive under the rules discussed above. As a result, if you qualify as a real estate professional, you can deduct against non-passive income not only losses and credits from rental real estate that qualifies as non-passive under the above rules, but also up to $25,000 (subject to phaseout) of losses and credits from “active participation” in rental real estate activities that remain passive after application of those rules.

Qualifying as a real estate professional

First, you must materially participate (see below) in a real estate business. The business of renting and leasing realty is a real estate business. Second, more than 50% of the personal services you perform in all businesses during the year must be performed in real estate businesses in which you materially participate. Third, your personal services in material participation real property businesses during the year must amount to more than 750 hours. For these purposes, you can't count any work you perform in your capacity as an investor.

In determining whether you qualify as a real estate professional, each of your rental real estate interests is treated as a separate activity—that is, as a separate business—unless you make an irrevocable election to treat all those interests as a single activity. Because of this rule, if you have multiple rental properties and you don't make the election, you must establish material participation for each property separately, and must satisfy the more-than-50% test and the 750-hours test for each property separately in order to qualify as a real estate professional with respect to that property—and qualifying for one property wouldn't mean you automatically qualify for any other property. Thus, if you don't make the election, qualifying as a real estate professional for all your properties becomes more difficult (and may become impossible) as the number of properties increases. But if you do make the election, you only have to establish material participation, and satisfy the more-than-50% test and the 750-hours test, for the combined properties as a whole. Keep in mind that this election has other tax implications which makes it important to look at the facts and circumstances of each individual situation.

You don't have to work full-time in real estate to qualify as a real estate professional. Even if you have another occupation, you can qualify if you materially participate in a real estate business, and spend more time, and more than 750 hours, on that business. (But remember, in this case, if you have multiple properties, it may be difficult or impossible to qualify unless you make the “single interest” election mentioned above.)
These tests are applied annually. This means that you may qualify as a real estate professional in some years but not in other years. As a result, the same real estate activity may generate passive losses in some years and non-passive losses in other years.

As mentioned above, if you have multiple properties, you may not be able to qualify as a real estate professional unless you elect to treat all your rental real estate interests as a single activity. If you make the election, it applies both for purposes of qualifying you as a real estate professional, and for all other purposes of the passive activity loss rules. And, generally speaking, the election is irrevocable. This means that you can’t make the election in order to qualify as a real estate professional, and then revoke it with respect to a particular property later when, for example, that property produces income, and you’d like to use that income to absorb losses from another non-real-estate-related passive activity. Making the election will also disqualify you from utilizing the $25,000 active participation rule discussed above, because that rule applies only with respect to losses from rental real estate activities that are passive, and the election will, presumably, work to make your rental real estate properties non-passive.

Example 3 – Same facts as example 2 except that Dan is a real estate professional. His 2006 AGI calculation is:

Example 3 – Same facts as example 2 except that Dan is a real estate professional. His 2006 AGI calculation is:

Wages		20,000
Schedule C		100,000
Rental Loss		(35,000)		*allowed in entirety
IRA deduction		(2,000)
SE tax deduction		(6,789)
DAN's AGI		76,211

Because Dan is a real estate professional, there is no limitation on the rental loss deduction and it may be deducted in full. This represents a $20,000 additional deduction over the deduction allowed in example 2.

Material Participation

Material participation in an activity means involvement in the operations of the activity on a regular, continuous, and substantial basis. If a taxpayer passes one of the following seven tests, IRS accepts that as establishing material participation in an activity:

• participating in the activity for more than 500 hours in the tax year (the most frequently utilized test);
  
  
• participating in the activity if the taxpayer's participation is substantially all of the participation in that activity by any individuals (including non-owners);
  
• participating in the activity for more than 100 hours in the tax year, if nobody else (including non-owners) participated more;
  
• participating significantly in the activity, if participation in all “significant participation” activities for the tax year exceeds 500 hours (but this test isn't accepted for showing material participation in rental activities);
  
• having materially participated in the activity during any five of the ten tax years before the year at issue;
  
• with respect to personal service activities, having materially participated in the activity for any three years (not necessarily consecutive) before the year at issue;
  
• showing regular, continuous and substantial participation on the basis of all the relevant facts and circumstances, but only if more than 100 hours of participation during the tax year can be shown (and management services aren't taken into account for purposes of this test unless certain stringent requirements are satisfied).
  
  The extent of an individual's material participation in an activity may be established by any reasonable means. But the most reliable means of showing material participation consists of contemporaneously kept appointment books, calendars, daily time reports, logs, or similar documents that provide a detailed account of what the taxpayer did with respect to an activity, when he or she did it, and how much time it took. Failure to substantiate material participation is one of the most common ways of losing the right to treat rental real estate activities as non-passive.

While treating rental activities as non-passive is advantageous if the activity is generating losses, it may be disadvantageous if the activity is generating income and there are passive losses generated from other sources. In this situation, the rental activity’s income cannot be used to offset the other passive losses. Consequently, losses would be suspended (not currently deductible) until you have passive income, or you completely dispose of the activity.

This article has given an overview of two of the more common ways that real estate losses can be deducted against ordinary income. The passive loss rules, along with the basis rules and at-risk rules not discussed in this article, can be quite complex. As every situation is different, we recommend discussing your options with a CPA to ensure you’re taking advantage of the deductions available to you.

What does this case mean for Real Estate Investors?

The First District Court of Appeal for the State of Florida has issued an opinion that is critical for real estate investors, especially those who use lease-option contracts. On October 25, 2006, in the case of Stolz v. Truitt, 940 So.2d 521, the court held that a tenant’s default in a lease agreement voided the related purchase option agreement. The purpose of this article is to discuss the facts of the case, give a little insight into the Court’s opinion, and give my thoughts on the impact of this case for real estate investors. In the Bay County, Florida case, Stolz tried to refinance her home in early 2003, but was unable to secure financing. Truitt purchased the house for $5,000.00 above the outstanding loan balance, and rented the property back to Stolz pursuant to a written lease. Truitt also gave Stolz a two-year option to repurchase the property. The deal closed at a title company office, and all documents were signed. The lease provided, in part:

ANY default by the Purchaser on that certain lease agreement between the parties regarding the subject property shall automatically void this Option, and the Purchaser shall be responsible for any costs incurred in connection with the default and its effect hereto, including a reasonable attorney’s fee. 940 So.2d 521, 522.

Based on the tenant’s failure, numerous times over the course of the lease agreement, to pay rent on time, Truitt refused to sell Stolz the property, claiming the option to purchase was voided by the default on the lease. Stolz sued Truitt under a theory of specific performance to force Truitt to sell the property to her.
Both the trial court and the appellate court ruled there was no “Inequitable Forfeiture” present in this case. Inequitable Forfeiture occurs when a party loses a right after substantial compliance with the terms of an agreement. The Trial Court ruled (and the Appellate Court agreed) that the parties intended for Stolz to forfeit her right to buy the property if she did not make her lease payments, that it was Stolz’s own neglect that caused the forfeiture, and that Stolz did not do anything to make the forfeiture unfair (such as increasing the property’s value through her own efforts, or making most payments on time, etc.). While this case represents a beneficial result for real estate investors who use lease-options, there is still some ambiguity not addressed by the Appellate Court. For instance, this case occurred in Bay County and was appealed to the First District Court of Appeal. Therefore, the case is not the controlling law in Hillsborough, Pinellas, Polk and Pasco Counties (which are all in the Second District Court of Appeal). The courts in the Second District, if they choose, can be persuaded by this decision, but they are not bound to follow it as precedent. In addition, the facts did not mention whether Stolz was in foreclosure at the time the lease and option agreements were made between the parties. If Stolz was in foreclosure, then the Court could have considered whether Truitt “victimized” her under the new Florida Statute that addresses “victimization” of homeowners in foreclosure (Section 501.2078 – Violations involving individual homeowners during the course of residential foreclosure proceedings.) Also, the Courts did not address whether this lease and option were instruments “in the nature of a mortgage” as defined by Florida Statutes, Section 697.01. Recently, Hillsborough County judges have deemed that lease-option contracts are instruments more like mortgages and, therefore, need to be foreclosed as if they were mortgage contracts. Although there are still some unanswered questions, this case does demonstrate that the First District Court of Appeal and the Bay County Trial Court might be leaning more towards investors, and subject to common sense arguments related to real estate investing. Perhaps more Courts around the State of Florida will follow. Please note that the information contained in these materials is not intended as a substitute for legal advice. If legal advice or other expert assistance is required, please consult with an attorney.

Article provided by:
Shawn M. Yesner Shawn M. Yesner, P.L.	1902 West Main Street Tampa, Florida 33607 (813) 251-2921 (813) 251-2926 (fax)	shawn@yesnerlaw.com www.yesnerlaw.com

The Tampa Bay REIA (TBREIA.com) web site ranks very high on the search engines. To get an idea of the TBREIA web rankings, you can use Alexa.com and type in the search GaREIA.com which is Georgia REIA, the largest real estate investment association in the US with over 3000 members, but their web site is ranked behind TBREIA.com. You can also try CFRI.net (the largest group in Florida) also behind TBREIA on Alexa.com (as of March 7th, 2007). How can you benefit from this?

1. MEMBER WEB SITES. This is a new feature we have added to TBREIA.com. Submit your web site to be listed on TBREIA.com in the member web sites section. This will help drive traffic to your site, but more importantly by having a link from a high rated site like TBREIA.com will help increase your web sites’ rating. We ask that you link back to TBREIA.com. The instructions are posted on TBREIA.com member web sites section.

2. LIST PROPERTIES with a link to your site. You can list your property on TBREIA.com and in the property description place a live hyperlink to your web site (with the http://...)

3. BUSINESS LISTINGS. As a member of TBREIA, you can list your business in the business listings section. The link is not live yet, only listed (it’s a start), but in the new version of the TBREIA web site, we will improve the service and give you a live hyperlink to your site. Also you will be able to add multiple counties as well (currently members can select only 1 county). This version of the business listing service was our first attempt, but now that we see the shortcomings, we know how to improve the service to better meet your needs.

4. EXCHANGE LINKS WITH OTHER MEMBERS. Ask that other members exchange links with your site. In an ideal world if all members exchanged links between ourselves, we would all benefit with a better web site rating.

5. TESTIMONIALS. When you give testimonials (both text and video) make sure you mention your web site to drive traffic to it. You can submit testimonials to support@TBREIA.com or at the General Meeting and Saturday Workshops. We publish the testimonials on the sub-group pages: http://www.tbreia.com/SG/ and in the testimonials section of the web site.

6. TBREIA NEWSLETTER ARTICLES. Write articles for the TBREIA monthly newsletter (http://www.tbreia.com/default/newsletter.asp) The newsletter is by far the most read part of our web site after the home page. You can write an article for the newsletter and submit it for review and once it’s published it stays on the site for years to come. The rule is that is has to be relevant to real estate and you have to be a member. The article must be originally written by you (not copied from the internet) and must have educational value (not an advertisement). At the bottom of the article you can place your picture, contact info, your company logo and link to your site. That link will be live and hyperlinked to your site. You only have to write it once and get benefits for a very long time!

If you have any questions or need help, please email us at support@TBREIA.com

By Wendy Patton

For those of you who are going to attend the Tampa Bay REIA’s Workshop: Real Estate Lease Options Workshop with Wendy Patton in Saint Pete Beach on Saturday April 7th Tampa Bay REIA has 2 surprise / Bonuses (Free) for YOU !!! Price: $35 for members and $70 for non-members $109 combo: Membership + Workshop for 1 person $120 combo: Membership + Workshop for 2 people Every attendee will receive: Bonus 1: Bring a non-member guest for free (limited time offer) Please pre register your fr