Schedule E: Repairs vs. Supplies

The difference between Supply and Maintenance Expenses for rental properties

Repairs – include all repairs made to the property that were not considered capital improvements. Expenses here will be small repairs and not the replacement of floors, roofing, etc. You may also include De Minimis Safe Harbor expenses here if they are less than $2,500 and you make the annual election.

Supplies – include the cost of incidental materials and supplies such as paper for printing, small tools, and other small miscellaneous materials that don’t fit into another category.


Questions:

Are expenses such as painting supplies, blinds, lights and cabinetry hardware considered supply expenses or maintenance expenses for rental properties

Recommended Answer

29 people found this helpful

The items you listed would be considered Maintenance Expenses.  Supplies would be more like cleaning products or rakes.  Supplies would be something that you use but don't leave at the house.

More answers:

Supplies are usually consumable items. Light bulbs you purchased for the rental unit and any cleaning supplies you purchased specifically to clean the rental unit are examples of a Schedule E "Suppllies" expense. In practice, the IRS does not really care whether you claim these things as supplies on your Schedule E or just lump them into your maintenance/cleaning expense on Schedule E.

https://www.therealestatecpa.com/2016/05/22/ultimate-guide-irs-schedule-e/

The Ultimate Guide to IRS Schedule E for Real Estate Investors

Post by Brandon Hall, on
May 22, 2016 8:45 am

Whether you do it yourself or hire a CPA, real estate investors need to understand how to report rental property on IRS Schedule E. Our guide will help.


Whether you’re a brand new investor trying to do it yourself or you have a million dollar portfolio and have a team of professionals, it’s always a good idea to have foundational knowledge of each aspect of your business. I developed this comprehensive guide to allow real estate investors on every level better understand IRS Schedule E.  
While real estate tax can be complex, this guide is written for investors of all skill levels. I could have made it cumbersome and technical, but then my audience would be other CPAs which isn’t the intent of this article, much less The Real Estate CPA™ as a whole.
Let’s begin by highlighting all the great knowledge you’ll walk away with after you get through this article:

• What IRS Schedule E is and how it interacts with your tax return
• Why we report rental property on IRS Schedule E
• Calculating the basis and depreciation of your rental property
• A walk through of IRS Schedule E
• How to report auto expenses

To get the most out of this post, it will be helpful to download a copy of the IRS Schedule E and its instructions here. Hopefully the combination of IRS Schedule E, its instructions, and this awesome post will make it clear as day; that is, if you think taxes can ever really be “clear.”

What IRS Schedule E is Used For

IRS Schedule E is the form where you will report “supplemental income and loss” related to rental real estate, royalties, estates, trusts, partnerships, and S-Corporations. Emphasis on the fact that we are reporting “supplemental income and loss” and not “earned income.”
Think of earned income as business income. Earned income is generated from an active trade or business. You pay self-employment tax on earned income. Real estate, royalties, partnerships, and S-Corporations can all generate earned income.
For example, you may run a real estate business where you are flipping or developing properties where you’d be required to report your income on IRS Schedule C; the schedule in which you report earned income.
Or you may be an owner in a partnership or S-Corporation and have a combination of earned income and supplemental income. In this case, one business can be reported on both IRS Schedule C and E.
IRS Schedule E is used for supplemental income which is generally considered passive income. As an investor, this is important because rental real estate generates passive income and, as such, we will report the income and loss from rental real estate on Schedule E.

How IRS Schedule E Interacts With the Rest of your Return

When you report income or loss on Schedule E, that income or loss is “re-routed” to different areas within your tax return. Your total taxable income or loss is reported on line 26 of Schedule E.
The first and most important place you will see the end result of IRS Schedule E appear is line 17 of your IRS Form 1040. Here you should see the full amount of net income or loss from your rental properties.
If your activities on IRS Schedule E created a loss and your loss is not showing up on line 17 of IRS Form 1040, you may be limited by the Passive Activity Loss limitations. While the Passive Activity Loss limitations demand an entirely separate post on their own, here’s a high level overview:

• If your adjusted gross income (line 37 of IRS Form 1040) is less than $100,000, you are able to take the loss reported on line 26 of Schedule E up to a maximum amount of $25,000 annually.
• If your adjusted gross income is between $100,000 and $150,000, the maximum $25,000 is slowly phased out.
• If your adjusted gross income is over $150,000, you cannot claim the passive loss reported on Schedule E unless you qualify as a real estate professional.

The last point is very important to understand. If your adjusted gross income is above $150,000, you cannot claim your passive losses against your other income unless you are a real estate professional.
Many investors get worried when they hear this. They’ve been told real estate is a beautiful way to shelter income from taxes but now they are being barred from taking the well deserved losses.
What happens to the losses if you cannot claim them? They are called “unallowed losses” and are reported on IRS Form 8582. This form serves as a catchall that will keep track of all the losses you have not been able to claim over the years.
You do not “lose” these losses; they are simply carried forward until they can offset net rental income. These losses can also be used to offset the gain if you were to sell a rental property, regardless of whether or not the rental property you are selling generated the specific loss.
If the losses get carried forward and you can’t use them, doesn’t that defeat the purpose of sheltering income from taxes?
This is where I have to tell you that you’ve been gurued. Real estate is indeed an excellent way to legally avoid taxation, but for high income earners, you will only be avoiding tax on the rental income, not your regular income from your job.
Again, some amount of income or loss from your rentals should appear on line 17 of your IRS Form 1040. If your adjusted gross income is over $150,000, then you should look for IRS Form 8582 and see if the rental loss has been carried over to it.

Determining Property Basis and Depreciation

One of the most important parts about preparing IRS Schedule E is making sure that we are accurately calculating the rental property cost basis.
The most common advice is that the rental property basis is the purchase price plus improvements. So if you buy a property for $100,000 and add $10,000 in improvements, the property basis is $110,000.
This advice, while correct, can be misleading. If you are unaware that you must allocate a portion of the purchase price to land, you will calculate the wrong depreciable basis and therefore deduct an incorrect amount of depreciation.
It’s important to understand how to determine the value of the land of a purchased property. In most cases, the easiest way to get this value is to pull the property’s tax card from the county assessor’s office. Doing so will provide us with a “land ratio” which we will then apply to the purchase price.
For instance, if the property tax card says that the land is worth $10,000 and the improvements are worth $40,000, then our land ratio is 20% [$10,000/($10,000 + $40,000)]. We would then apply this ratio to the purchase price of the property to determine how much value we allocate to land and how much we allocate to improvements.
Why is this important? Because we can only depreciate the value of improvements since land is non-depreciable. Land is ever lasting and does not deteriorate.

A too common mistake I see is depreciating the entire purchase price of the property. This is not correct accounting and will need to be corrected via alternative methods. Don’t make this mistake!
Okay, now that we know we can’t depreciate the land value of the building, let’s figure out how to calculate the property basis.
The first thing that I do when preparing IRS Schedule E is a closing cost analysis. I have developed a calculator that helps me quickly calculate a property’s basis.
Resource: Property Basis and Depreciation Calculator
The Closing Cost and Depreciation Calculator is an excellent tool to use when calculating a rental property’s basis because it analyzes all sorts of closing costs such as title transfer fees, bank fees, loan origination fees, escrow, and seller credits. It then places them into the appropriate buckets which we’ll discuss below, and calculates depreciation and amortization for the first year and on an annual basis.
I recommend using some sort of tool, calculator, or guide to help you with the analysis of your closing costs and depreciation because you are going to be lumping costs into three distinct categories:

1. Property basis
2. Loan cost basis
3. Currently deductible expenses

The first category, the property basis, consists of the agreed upon purchase price, plus closing costs like title insurance, transfer taxes, inspections, appraisals (if paid outside of closing), travel costs, attorney fees, and notary or bank fees.
From the property basis, we’ll subtract out our land value to determine the total value in which we will begin depreciating. This is called the depreciable basis.
Purchase Price + Closing Costs – Land Value = Depreciable Basis
Depreciation will usually be over a period of 27.5 years. If you are investing in commercial property, you’re looking at a 39 year period.
Related: How to Calculate Rental Property Depreciation Expense
There are several depreciation methods and conventions. We will be using the Modified Accelerated Cost Recovery System (MACRS) for our depreciation purposes.
While it sounds like a mouthful, all you need to know is that when you first place a property into service (i.e. advertise it for rent), you will be granted a half month of depreciation. Then, during the first year, you’ll calculate depreciation on a monthly basis.
So if I buy a property and advertise it for rent on September 29, for the first year I’ll have 3.5 months of depreciation (1/2 September + October + November + December). If my annual depreciation is $1,200, I first divide that value by 12 to get it on a monthly basis, then multiply it by 3.5 to figure my first year of depreciation. In our example, it will be $350.
The second category is the loan cost basis which is the sum of all costs associated with the loan. These can be the origination fee, credit report, bank fees, and appraisal fees if one was required by the lender.
Once we calculate the loan cost basis, we will need to determine our annual amortization. Amortization essentially means the same thing as depreciation, it’s just the depreciation method for “intangible” costs.
You will amortize your loan costs over the life of the loan. So if you have a 15 year loan, your amortization period is 15 years. If you have a 30 year loan, your amortization period is 30 years.
Let’s assume our loan cost basis is calculated to be $3,000 and we have a 30 year loan. Each year, you will write-off amortization expense of $100 ($3,000/30 years).
The first year of amortization is calculated much like depreciation in that you will be granted a half month for the month you place the property into service and then amortize on a monthly basis until the end of the year.
The third category is currently deductible expenses which consist of hazard insurance, property taxes (not transfer taxes), and other miscellaneous expenses. These expenses do not need to be amortized or depreciated (whew!) but are simply deducted in full the first year.

Reporting Rental Property on IRS Schedule E

Finally, what you’ve all been waiting for! Before we begin, click this link to open a copy of IRS Schedule E so that you can follow along.
For the do it yourself investors, this section will be your tax preparation bible. For all of my clients and everyone who already has a CPA, use this section to cross check the CPA’s work.
The first section is seemingly the easiest but trips plenty of folks up. First, we have to determine whether or not we made any payments that required a 1099. As a general rule, you must issue a 1099 to contractors whom you’ve paid over $600 for work during the year. But luckily for most of my readers, landlords are excluded from this rule.
So if you are a landlord, the common practice is to tick the “no” box when asked if you made payments that require a 1099.
Next we’ll enter the property address and the type of property (single family, multifamily, etc). Hopefully this doesn’t require much more explanation.
Now we need to determine fair rental days, personal use days, and whether or not we are operating a qualified joint venture.
For fair rental days, put the number of days the property was actually rented and producing income. This is especially important if you have rented the property for 14 days or less as then your rental income won’t need to be reported.
Personal use days must also be inputted and can sometimes be confusing. You will only input personal use days if you have used the entire building for personal purposes, or anyone in your family has used the entire building for personal purposes.
So, if you are house hacking (living in one unit and renting out the others), you will not report any personal use days. Instead, you will just split common expenses (mortgage, insurance, property taxes) between IRS Schedule A and E.

A qualified joint venture most often occurs when two spouses own a property 50/50 and do not live in a community property state (Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin).

If the spouses of a jointly owned rental live in a community property state, there is no need to worry about, or elect, the qualified joint venture status.
When rental property is jointly owned by spouses who are not located in a community property state, we have a problem. The spouses must either report their income and losses on a partnership tax return (complicated!) or elect the qualified joint venture status.
Per the IRS Schedule E instructions: “If you and your spouse each materially participate as the only members of a jointly owned and operated rental real estate business and you file a joint return for the tax year, you can elect to be treated as a qualified joint venture instead of a partnership.”
When you and your spouse jointly own an entity that owns your rental property, it can get complicated fast. That discussion is beyond the scope of this post, but you will need to speak with a CPA to sort everything out.
On to the good stuff.
Next we are going to report the rental income received. This is going to be all gross income received from your tenants throughout the year. Gross rental income should include: rental income, refunds received for utilities, and pro-rated rents when you purchased the property.
Expenses are where the tax avoidance (legally) comes into play. I wrote a quick blurb on what to report per expense item:
Advertising – include all general marketing and advertising costs. These can include the cost to place rent signs in the front yard, to advertise on certain websites or publications, to buy business cards, and to send mailers.
Auto and Travel – include all ordinary and necessary auto (to be discussed later) and travel costs required to maintain your rentals. This should not include auto and travel costs incurred to purchase your first rental or to expand your rental business into a new geographic location. Also include 50% travel meals.
Cleaning and Maintenance – include all cleaning expenses to prepare a unit for a tenant or once a tenant moves out. Include maid expenses here as applicable. You should also include maintenance expenses such as painting, mowing, and small upkeep costs of the building, appliances, and equipment.
Commissions – include realtor or property management commissions paid to find a tenant for your unit.
Insurance – include homeowners, hazard, and flood insurance here. Do not pro-rate your annual insurance. You will only report the amount of insurance that you actually pay to your insurance company, not the amount that you pay into escrow.
**A note about escrow – it’s very common to pay insurance and property taxes into escrow on a monthly basis. This protects the lender from your failure to pay these expenses. It’s important to understand that when you pay these expenses into the lender’s escrow account, this is not a deductible expense for you. It is only deductible once the lender actually pays those expenses to the county/city or the insurance agent. That’s when you can deduct the expenses. Why? Paying into escrow is essentially moving money from pocket A to pocket B. It’s still your money and technically an asset on your balance sheet.
Legal and Professional Fees – include expenses related to attorney fees, accounting, and costs of business/financial planning related to your rentals.
Management Fees – include the cost to hire an agent or property manager to manage your rental. This may also include special service calls that the property manager incurs to check on the rental.
Mortgage Interest Paid to Banks – include the amount of interest reported to you by the bank on Form 1098. This amount will be the entire interest the bank has received from you during the year, including the interest you paid during closing.
Other Interest – include the amount of interest paid to third parties, whether they are private investors, private businesses, crowdfunding platforms, or relatives. Also make sure that you have sent these people or parties a Form 1099 showing the interest you have paid them. Without a Form 1099 in this case, you may not be able to substantiate the deduction.
Repairs – include all repairs made to the property that were not considered capital improvements. Expenses here will be small repairs and not the replacement of floors, roofing, etc. You may also include De Minimis Safe Harbor expenses here if they are less than $2,500 and you make the annual election.
Supplies – include the cost of incidental materials and supplies such as paper for printing, small tools, and other small miscellaneous materials that don’t fit into another category.
Taxes – include all tax expenses incurred as a result of owning and operating the rental property. This can include property taxes, school district taxes, and special easements or land taxes. Do not include income taxes.
Utilities – include utility expenses that you have personally incurred, even if the tenant has reimbursed you for them. Do not include utility expenses that the tenant has paid for without you ever having to pay for it. The reason we include utility expenses here even if the tenant has reimbursed you for them is because we are reporting the reimbursement as income at the top of IRS Schedule E and we want to offset that income with the expense you incurred.
Depreciation Expense – include the depreciation expenses that we calculated above with our handy Closing Cost and Depreciation Calculator. Depreciation is an imperative part of IRS Schedule E; don’t mess it up!
Other (list) – include all other expenses incurred while operating the rental but that did not directly fit into any of the categories above. Examples of these expenses may include bank fees, education, HOA fees, subscriptions, cost of books, De Minimis Safe Harbor (if not reported in repairs), meals and entertainment, and gifts to clients or tenants. You will itemize each of your “other” expenses on a separate page.
Once we have all of the expenses inputted into our IRS Schedule E, we add them up and subtract them from our gross rental income. The income or loss for each property will be reported on line 21; if line 21 is a loss, line 22 will show you how much of the loss you can actually deduct.
Line 24 will show you the total net income each property has produced if each property showed net income. If the property instead showed a loss, and you are able to take that loss, you will see the amount on line 25.
Remember, your losses may be limited due to the Passive Activity Loss rules. All of that information will be reported on Form 8582 so definitely review that form if you are showing rental losses.
Line 26 of IRS Schedule E will show the total income or loss that will be reported on line 17 of our Form 1040. But before we calculate line 26, we need to look at Part 2 of IRS Schedule E to report any partnership or S-Corporation income and losses.
Partnerships and S-Corporations will provide you with an IRS Schedule K-1 at the end of the year. That information will be reported on Part 2 of IRS Schedule E.
Basically, we are reporting the name of the partnership, whether it’s a partnership or an S-Corporation, whether it’s foreign owned, and what the employer identification number (EIN) is.
We will then want to report the passive income and non-passive income received from the partnership or S-Corporation. This information will come directly from IRS Schedule K-1 that the partnership or S-Corporation provides you.
Entities must go through the same type of reporting we are doing here with IRS Schedule E. While they use different forms, they are reporting the same information and then providing that information on a summarized form – IRS Schedule K-1.
If you have not received IRS Schedule K-1 but you have an ownership stake in a partnership or an S-Corporation, you have a couple of options. The easiest thing to do is file an extension and wait to file your returns until you actually receive the IRS Schedule K-1. The other option is to go ahead and file your returns, and then file an amended return once you receive IRS Schedule K-1.
Okay, that wraps up IRS Schedule E for the most part. Whatever appears on line 26 will also appear on line 17 of your Form 1040. Make sure that flow is happening correctly to avoid issues.

Reporting Car Expenses and What You Need to Know

You’ll use IRS Form 4562 (link here) to report your car expenses and claim those beautiful IRS deductions.
First thing first, if it isn’t documented, you can’t take the deduction. Document everything!
Related: The Real Estate CPA Podcast, Episode #1 – Documentation: The Key to Tax Savings
Next, the question is what should we be documenting? That’s a great question and it depends on your overall strategy.
Many tax advisors recommend using the “actual expense” method in which you record all of your car expenses incurred throughout the year and deduct the portion allocable to the business use. However, it’s important to have a good idea of payoff vs. effort.
Recording and documenting actual car expenses can take a considerable amount of effort. Sometimes, the additional deduction the actual expense method will grant you over the “standard mileage” method simply isn’t worth your time.
I know, you’re probably shocked that a CPA is recommending leaving money on the table. I’m just trying to be realistic.
CPAs want to save you every penny possible without regard to the time it takes you to put all of this information together. They do this because they can show you how much more you saved by working with them and then they can charge you a higher rate.
But if it takes you an additional 10 hours throughout the year to document an additional $500 in deductible business expenses, your tax savings will be your marginal rate multiplied by that $500. So if you’re in the 25% bracket, you’re additional 10 hours of work has saved you $125.
Congratulations, you’ve paid yourself an hourly wage of $12.50.
Now, a $12.50 hourly wage is better than many people, but you are a real estate investor. You have a business to run. Your hourly wage should be over $100.

Related: Tax Write Offs for Car Business Expenses
So what’s my point?
Spend some time estimating your annual deduction using both the standard mileage rate and the actual expense method. Determine, up front, which method will likely yield higher results.
The standard mileage method is great because is very easy to track and takes no time at all thanks to great smart phone apps like MileIQ.
At the end of the year, you’ll compile all of your car expense documentation and report it on page 2, Part V of IRS Form 4562. The total expense will then flow to IRS Schedule E as an Auto Expense.

Putting it All Together

If you stuck with me through that entire article, give yourself a huge pat on the back. You now have the fundamental knowledge required to look at an IRS Schedule E and understand what is going on.
We talked about what IRS Schedule E is and how it interacts with the rest of your return. On a high level, we went over what costs go into your rental property cost basis and what you need to do to calculate depreciation (see our Cost Basis and Depreciation Calculator here).
We walked through IRS Schedule E and each expense line item and even talked about car expenses.
If you’re hungry for more or looking for a deeper dive, check out the articles referenced throughout this post. If you want to know more about something, contact us at contact @ therealestatecpa.com and throw in a suggestion for a topic. I’d love to hear from you!

1031 exchange

1031 exchange, otherwise known as a tax deferred exchange is a simple strategy and method for selling one property, that's qualified, and then proceeding with an acquisition of another property (also qualified) within a specific time frame. The logistics and process of selling a property and then buying another property are practically identical to any standardized sale and buying situation, a "1031 exchange" is unique because the entire transaction is treated as an exchange and not just as a simple sale. It is this difference between "exchanging" and not simply buying and selling which, in the end, allows the taxpayer(s) to qualify for a deferred gain treatment. So to say it in simple terms, sales are taxable with the IRS and 1031 exchanges are not. US CODE: Title 26, §1031. Exchange of Property Held for Productive Use or Investment

Due to the fact that exchanging, a property, represents an IRS-recognized approach to the deferral of capital gain taxes, it is very important for you to understand the components involved and the actual intent underlying such a tax deferred transaction. It is within the Section 1031 of the Internal Revenue Code that we can find the appropriate tax code necessary for a successful exchange. We would like to point out that it is within the Like-Kind Exchange Regulations, issued by the US Department of the Treasury, that we find the specific interpretation of the IRS and the generally accepted standards of practice, rules and compliance for completing a successful qualifying transaction. Within this web site we will be identifying these IRS rules, guidelines and requirements of a 1031. It is very important to note that the Regulations are not just simply the law, but a reflection of the interpretation of the (Section 1031) by the IRS.

Real Estate Professional? Maybe Not, Says IRS

Are You a Real Estate Professional? Maybe Not, Says IRS

by Diane Kennedy

 

If you're a real estate investor who has ever taken a real estate loss on your tax return, there is a target on your back. For months, members on my Forum have been complaining about being selected for audit, and losing, based on the IRS's new set of real estate professional guidelines.

Under tax law, a "real estate professional" isn't always a licensed real estate agent or a broker. It's a tax classification, and it's an important one. As a regular real estate investor, you are limited to deducting $25,000 in passive losses each year, against your passive income. That amount begins phasing out once your taxable income tops $100,000 and disappears entirely when your income reaches $150,000. Real estate professionals have neither the dollar nor the income limitation, making this classification an important part of tax-planning.

When the market got hot, the number of real estate professionals shot up. But as the "tax gap" (the difference between taxes that should be paid and taxes that are paid) increases, government is looking for ways to turn things around, and this classification is squarely in the cross-hairs.
To meet the IRS requirements, you need two things: spend the majority of your working time spent performing qualified real estate activities (regardless of what you do), and rack up at least 750 hours. Qualified activities include "develop, redevelop, construct, reconstruct, acquire, convert, rent, operate, manage, lease or sell" real estate.

Practically speaking you won't make the cut if you work elsewhere and report full-time W-2 income. And there's a third hurdle: material participation. In a twist that can only make sense in the IRS world, real estate activities are one of two things: passive, or materially participating passive. If you have a passive loss, it can only be used against passive income. Period.

Materially participating passive losses, on the other hand, can be used against materially participating passive income and, in some cases, other income. This is where the power of the real estate professional classification comes in: the ability to take the loss from real estate investments against other income. Unfortunately, what has been acceptable in the past, no longer is. Here are three areas the IRS is focusing on right now:

Limited Partnership Interests: By definition, if you hold property in a limited partnership as a limited partner, you do not materially participate. This area is being hit hard, and the number of audits of limited partnerships has increased.

Failure to Aggregate Hours Worked: The material participation rule requires that you work 500 hours on each property you own, or make an election to aggregate all the properties together into a single 500-hour block. Fail to make this election, though, and you will run into trouble.

Failure to Meet 500 Hour Threshold: To get even the $25,000 deduction you've got to meet the 500-hour minimum, even if you aren't going for full real estate professional status. Fail to meet this requirement and your passive loss will be limited to the amount of your passive income.

But the biggest change that we're seeing is to the material participation rules, and what does and doesn't constitute a real estate activity. For example, managing real estate is a qualified activity, but managing real estate through a third-party property management company is being challenged. So if you live hundreds of miles away from your rental properties, be on the lookout for this type of question. Another is research. The hours spent on researching properties and markets is being challenged by the IRS who consider this a passive activity.

Proper records are also becoming vital. Anyone looking to claim this classification must be keeping a detailed time log of dates, locations and activities, preferably backed up with photographs or other evidence showing you hard at work.

Finally, frustrating everyone is the fact that in many cases the "new" IRS rules (which came out in December of 2007) are being applied after the fact, and made retroactive to 2007 and earlier – when the old rules were still in force. Both sides are appealing up to the Tax Court, hoping to either set a new precedent or rein in the IRS. Until the Tax Court rules one way or another on whether or not the IRS can apply new rules to old earnings, we're in limbo. Reviewing your activities and taking steps to make sure you're in compliance with the new rules may be your best plan.

Published: July 17, 2008

as to life insurance...

来源: jy101 于 2012-01-18 19:30:29

I am not a big fan of life insurance companies, to me, it should only be use for one propose, is to offer a shield of protection for your family in case of emergency, and usually its not a good investment vehicle.

make sure you fully understand that insurance illustration your agent try to sale you, you must know these numbers are simply hypothetical representations of the best outcome, you should pay more attention what is the guarantee rate of return, instead of the estimated rate of return.

I think most insurance company today only guarantee 3 or 4% on money vested. I have a small whole life policy carries a 7% guarantee, but it was purchased in 1988.

and make sure you understand the different between face value and cash value, some policy's face value doesn't including your cash value, meaning if you die, whatever you had build up in the policy with be gone with the wind.

life insurance policies are usually underwriting productions guarantee by your state, meaning if the company is license to sell in your state, it is guarantee by the state, if the insurance company went belly up, state will take over, but it is only guarantee up to its face value, not its cash value.

I normally recommend a 1mil 20 year leverage term policy, accompany with a small UL or whole life policy, either 50k or 100k.

Tenant Insurance Addendum [PDF copy]

https://www.orcainfo-com.com/uploads/Tenant%20Insurance%20Addendum.pdf

Tenant Insurance Addendum

Tenant Insurance Addendum

This agreement is attached to, and made a part of the Lease Agreement between ________________________________________ (Landlord) and _____________________________________________________ (Tenant(s)) dated _______________, for the Premises known as  ___________________________________________.

It is expressly agreed that Tenant(s) understand and agree that tenant’s personal property is not insured by the Landlord.  Generally, except under special circumstances, the Landlord is not legally responsible for losses to the Tenant’s personal property or for Tenant’s personal liability, and Landlord’s insurance will not cover such losses or damages.  Tenant agrees to save and hold Landlord harmless from any claim for damages to Tenant’s personal property arising from any cause, including leakage from breaking plumbing, roofs, weather, unreported mold, or any other water damage.

Tenant(s) agrees to indemnify Landlord for liability arising from personal injuries or property damage caused by or permitted by Tenant(s), their guests and invitees.  This includes injuries incurred in or around obvious areas of maintenance, repair or construction.

Tenant(s) understands that the following is a non-inclusive list of examples of possible costly misfortunes that, except for special circumstances, tenant could be held responsible for:

1.       The Tenant’s baby-sitter injures herself in her rental unit.

2.       A friend is injured while helping the Tenant move his/her refrigerator out for cleaning.

3.       Tenant’s defective electrical extension cord or burning pan starts a fire.

4.       A burglar (or ex-boyfriend) breaks Tenant’s front door lock and steals valuable personal property.

5.       Due to heavy storms, water enters the garage or windowsill and damages tenant’s personal property.

6.       While fixing your television set, a handyman hired by you is injured when he slips on the floor you have just waxed.

7.       Your locked car is broken into and your personal property, and that of a friend, is stolen.

If damages or injury to the Landlord’s property is caused by Tenant or Tenant’s guest, the Landlord’s insurance company and/or Condo association’s master insurance policy issuer may have the right to sue the Tenant to recover payments made to the Landlord.  This is referred to as “subrogation”.  In other words, after an insurance company has paid an Owner for damages you caused, the company may go after you for the full amount of money paid out.  At the very least, you will be expected to pay the Owner’s deductible on his/her insurance policy.

Landlord strongly advises Tenant(s) to produce a renter’s insurance policy for protection against personal property losses and liability claims.  Landlord does not recommend any particular company. 

The cost of Tenant’s insurance is reasonable considering the peace of mind, protection and financial security that insurance provides.

Tenant(s) agree to purchase and maintain a renter’s insurance policy for the entire term of the tenancy, including providing Landlord written copy or proof anytime upon request.

Tenant: ___________________________ Date:  ____________

Tenant: ___________________________ Date:  _____________

Tenant: ___________________________  Date: _____________

Landlord: __________________________  Date: _____________ 

HOW TO BE A LANDLORD IN MASSACHUSETTS AND AVOID LEGAL TROUBLE - eBook

http://www.attorneyross.com/landlord.pdf

Top 9 Landlord Legal Responsibilities in Massachusetts

https://www.nolo.com/legal-encyclopedia/top-9-landlord-legal-responsibilities-massachusetts.html

Avoid legal trouble in Massachusetts by knowing and complying with landlord-tenant laws. Read on to learn more.

By Marcia Stewart

Share on Google Plus

Share on Facebook

Your success as a landlord in Massachusetts depends on knowing and complying with dozens of laws (primarily state) that affect your property management business. For example, if you violate state security deposit laws, you face a potential tenant lawsuit in small claims court. Or you may end up in court for failing to maintain your rental property or illegally discriminating in your choice of tenants. The bottom line is that too many landlords end up spending a great deal of time and money (attorney fees and court costs, or, in some situations, extra damages for especially outrageous behavior)—that could have been saved by following the law.

Here are some tips on avoiding some of the key legal problems facing landlords in Massachusetts.

1. Comply With Anti-Discrimination Laws

Before you advertise a vacant apartment, it is crucial that you understand fair housing laws and what you can say and do when selecting tenants. This includes how you advertise a rental, the questions you ask on a rental application or when interviewing potential tenants, and how you deal with tenants who rent from you. Failure to know and follow the law may result in costly discrimination complaints and lawsuits.

While Massachusetts landlords are legally free to reject applicants—based on a bad credit history, negative references, from previous landlords, past behavior, such as consistently paying rent late, or other factors that make them a bad risk—this doesn’t mean that anything goes. You are not free to discriminate against prospective tenants based on their race, religion, national origin, sex, familial status (such as having children under age 18) or physical or mental disability. These are “protected categories” under the federal Fair Housing Act of 1968, as amended (42 U.S. Code § § 3601-3619 and 3631). There are a few exemptions to federal antidiscrimination rules, including owner-occupied buildings with four or fewer units, and single-family houses, as long as the owner owns no more than three rental houses at a time.

State law in Massachusetts also prohibits discrimination on the basis of a person’s sexual orientation, gender identity, or source of income.

The HUD website provides extensive details on fair housing laws. Be sure to also check with your state fair housing agency for additional laws prohibiting discrimination or limiting landlord exemptions.

2. Follow State Rent Rules

All landlords want their tenants to pay rent on time and without hassle. If you need to raise the rent or evict a tenant who hasn’t paid rent, you’ll want to be sure you comply with the specific rules and procedures in Massachusetts. State law regulates several rent-related issues, such as how much time (14 days in Massachusetts, if the issue is not covered in the lease or rental agreement) a tenant has to pay rent or move before a landlord can file for eviction. For details, see Massachusetts Late Fees, Termination for Nonpayment of Rent, and Other Rent Rules.

3. Meet State Security Deposit Limits and Return Rules

Security deposits are among the biggest sources of dispute between landlords and tenants. To avoid problems, be sure you know state law limits on how much deposit you can charge (one month’s rent in Massachusetts), when the deposit must be returned (30 days after the tenant has moved out and returned the keys), and other restrictions on deposits. Using some sort of landlord-tenant checklist when a tenant moves in a rental (required if the landlord collects a security deposit in Massachusetts) and again at move out, and sending a written security deposit itemization when the tenant leaves, will go a long way in avoiding disputes.

4. Provide Habitable Housing

You are legally required to keep rental premises livable in Massachusetts, under a legal doctrine called the “implied warranty of habitability.” If you don’t take care of important repairs, such as a broken heater, tenants in Massachusetts may have several options, including the right to withhold rent or to “repair and deduct.”

Every Landlord’s Legal Guide, by Marcia Stewart, Ralph Warner, and Janet Portman (Nolo) includes extensive advice on establishing a repair and maintenance system that will help prevent problems, such as tenant rent withholding or injuries to tenants due to defective conditions in the rental.

5. Prepare a Legal Written Lease or Rental Agreement

The rental agreement or lease that you and your tenant sign sets out the contractual basis of your relationship with the tenant, and is full of crucial business details, such as how long the tenant can occupy the rental and the amount of the rent. Taken together with federal, state, and local landlord-tenant laws, your lease or rental agreement sets out all the legal rules you and your tenant must follow.

6. Make Legally Required Disclosures

Problems arise when landlords include illegal clauses in the lease, such as a waiver of landlord responsibility to keep premises habitable, or when landlords fail to make legally required disclosures (discussed in the next section). And even if it’s not required that you cover a particular issue in your lease, such as how when and how you can enter rental property, you can avoid all kinds of disputes by using an effective and legal lease and rental agreement that clearly informs tenants of their responsibilities and rights.

Under Massachusetts law, landlords must make certain disclosures to tenants (usually in the lease or rental agreement), such as the name of the landlord’s property insurance company (upon the tenant’s request). Landlords must also comply with required federal disclosures regarding lead-based paint on the property, or face hefty financial penalties.

7. Don't Retaliate Against a Tenant Who Exercises a Legal Right

It is illegal to retaliate in Massachusetts —for example, by evicting a tenant for complaining to a government agency about an unsafe living. To avoid problems, or counter false retaliation claims, establish a good paper trail to document how you handle repairs and other important facts of your relationship with your tenant.

8. Follow Exact Procedures for Terminating a Tenancy or Evicting a Tenant

State laws specify when and how a landlord may terminate a tenancy. Failure to follow the legal rules may result in delays (sometimes extensive) in terminating a tenancy. Massachusetts laws are very specific as to the amount and type of termination notice--for example, a landlord must give a tenant who has not paid rent 14 days’ notice before the landlord can file for eviction. See State Laws on Unconditional Quit Terminations and State Laws on Termination for Violation of Lease for more information on these types of termination notices in Massachusetts.

9. Take Advantage of Legal Resources Available to Landlords

In addition to the hundreds of articles on the Nolo, including state-by-state charts of landlord-tenant law, Nolo publishes many books for landlords, as well as online leases and rental agreements.

Be sure to check out government agencies, such as the U.S. Department of Housing and Urban Development (HUD) and state fair housing agencies which provide useful legal information and publications on their websites. You’ll also find helpful guides to tenant rights and landlord-tenant law on the website of your state attorney general’s office or consumer protection agency.

Finally, if you have legal questions about your rental unit, you should consult with an experienced landlord-tenant attorney in Massachusetts.

How Much Does It Cost To Install Asphalt Paving?

https://www.homeadvisor.com/cost/outdoor-living/install-asphalt-paving/

Choosing to pave a surface, whether it is a driveway, blacktop court, walkway, or parking lot, offers home and business owners a variety of advantages beyond enhanced aesthetics and an easier time removing snow in cold climates. The material used matters, and asphalt is an economic, durable, safe, and recyclable building material. When properly installed, it provides a clean, safe surface for work and play.

Choosing to install asphalt paving is a major project, however, that requires the skills and tools of a professional contractor. The cost to pave, replace or resurface asphalt averages between $2,814 and $6,274, though the project can cost as little as $1,500 or as much as $10,000.Homeowners typically spend an average of $4,410.

On This Page:

1. Cost to Pave a Driveway
• Concrete or Asphalt?
• Asphalt Pricing
2. Rip Out or Resurface?
3. Other Asphalt Applications
• Parking Lots
• Walkways & Sidewalks
• Game Courts
4. What Else to Consider

...

Real Estate Purchase Option

Per Wiki:

Seller finance or "subject to"
Seller financing can refer to one of two things:

1.The seller can act as a bank and rather than receiving all or a portion of their equity at close, they can "lend" it to the buyer and receive a regular payment as agreed. They may receive no payments, interest only payments, principal only payments, or a combination. It could be an interest only loan, or an amortized loan. Additionally it could carry either a fixed rate interest payment or a variable rate. These will vary depending on the agreed upon terms of the contract between the buyer and the seller.
2.The seller can allow the buyer to "take over" the loan that he or she has in place. This can be done in two ways. The first way is called an "assumption", wherein the lender formally allows the buyer to assume the loan. This entails approval of the buyer's credit, and often a modification of existing loan terms. The other method is called a "subject to" where the lender is not contacted, and the buyer purchases the property "subject to" the existing financing. This can be financially risky in many ways, since many loans have acceleration clauses which permit the lender to call the loan due if the property is transferred. However, more often than not the lender will not exercise the "due on sale clause" if the payments are being made on the underlying mortgage(s). In the rare event that a lender does call the loan due then an investor could quickly sell the property or pay off the loan using any one of the various financing options available, some of which are described below.


[edit] Options
Main article: Option (finance)
An option is defined as the right to buy a property for a specified price (strike price) during a specified period of time. An owner of a property may sell an option for someone to buy it on or before a future date at a predetermined price. The buyer of the option hopes the value of the property will either go up or is already low. The seller receives a premium called "option consideration". The buyer may then either exercise the option by buying the property or sell the option to someone else to exercise (or sell). This is often done to obtain control over a property without much cash. Option premiums are typically non-refundable. The option represents an equitable interest in the property and may be recorded at the county recorders office.



[edit] Lease option
Main article: Lease-option
This is made up of two parts: A lease, or rental agreement, and an option. They may be written together as one contract or as two. The Lease is simply a rental agreement between the owner and the potential lessee (tenant). Often these leases will be "triple net lease" leases (NNN) in which the lessee is responsible for paying for the taxes, insurance, maintenance, and upkeep of the property. The lease payment is typically 5-15% higher than rent might be for the same property. This type of lease can be structured so that the lessee can take the tax benefits as if he were the home owner.


===
Per guru:

When to Use Lease Option vs. Getting the Deed

by Wendy Patton




Acquiring investment real estate can be handled with many approaches. Two very popular "no money down" approaches are lease options and "subject to," or "getting the deed."

A lease option is a technique that involves gaining "control" of a property, but not ownership--just the right to possess a property now and purchase that property at some future date with terms you define today.

A "subject to" is getting the deed to a property without getting a new mortgage. Instead, the seller signs over the deed to his or her home "subject to the existing financing" staying in place. The buyer in this case makes the mortgage payments on the old loan, but does not get a mortgage themselves to acquire this home.

Both of these techniques usually require little or no money down. In both of these techniques it is possible for the buyer to get money from the seller or the purchaser (or both) in the beginning of the transaction. These techniques, when used properly, can provide for huge profits. They are awesome strategies and when used hand-in-hand, are almost an unbeatable pair! 


===
More per guru:

Lease Option vs. Subject Tos
by Wendy Patton


Lease Options and Subject To, A.K.A. “Getting the Deed” are two very popular ways to purchase real estate with little or no money down. Acquiring investment real estate can be handled with many different approaches, but these two techniques can be implemented with little or no money down in most incidences.

A lease option is a technique which involves gaining ‘control’ of a property, but not owning it. It is the right to possess a property now and purchase that property at some future date with terms you define when you buy it.

A “Subject To” is getting the deed to a property without getting a mortgage for the home. Instead, the seller signs over the deed to his home ‘subject to’ the existing mortgage. The buyer in this case makes the mortgage payments on the old loan, but does not need to get a mortgage themselves to acquire this home.

Both of these techniques usually require little or no money down. In both of these techniques it is possible for the buyer to get money from the seller or the purchaser (or both!) in the beginning of the transaction. These techniques, when used properly, will provide for huge profits. They are both awesome, and when used hand-in-hand by investors are almost an unbeatable pair!

This short article is not meant to give details of each technique, but rather to show when you could consider either of them. If you don’t understand how to document and protect yourself in each kind of technique, then purchase a home study course or my book called ‘Investing in Real Estate with Lease Options and Subject Tos’. It can be found on my website – www.WendyPatton.com.

Why Knowing Both Techniques Means More Great Deals For You!
Unfortunately there are many people that are teaching that you should only do the Subject To – technique. They recommend never buying on an option. I can’t tell you how many times I have heard, “If I don’t get the deed, I don’t do the deal”. With over 20 year’s of experience (since 1985) doing both types of deals, I have to disagree with that statement. The more tools and techniques and ways you have to purchase property or to structure a deal, the more likely you will be able to work with a motivated seller to come to a potential solution. If you only buy “Subject To”, you’ll walk away from a LOT of great deals in your real estate career, but you must know when each technique is appropriate to use.

Finding a motivated seller is the first step to any good real estate deal. There are many types of motivated sellers, but we tend to think of motivated sellers as the ones that are financially distressed. I like to look at motivation from a much wider range. Let me explain. I like to divide motivated sellers into two groups:

Sellers That Have Bad Debt vs. Sellers That Have Good Debt

Sellers that have “Bad Debt” are those in financial trouble. They might be behind on a mortgage, have lost their job, acquired an illness, going through a divorce, etc. In these situations, you need to get the deed either with a Subject To or an outright purchase. Your main concern is that this type of seller will continue to have financial problems that could affect the title to “your” property if the deed is still in their name. For example, if this seller gets judgments from creditors, they can attach to any real estate the seller owns - they will have to be paid off before you can exercise your option to buy. That’s why you want to get this type of seller off of the title.

Sellers that have “Good Debt” are those NOT “in trouble” in the traditional sense, but they do have a reason motivating them to sell. Their problem is not one of financial desperation—it is usually just a change in their life. They might be transferring to a new location for a promotion, getting married (each owning their own home), building a new home, burned out landlords, etc.

Example #1: Here is an example when you MUST get the deed:

A seller calls you on the phone and says he is 2 months behind on payments. Do NOT option this home! This seller is in trouble financially and is not a good risk for an option. Anyone that is in a bad financial situation is not a good seller for an option. This is the type of seller that you must get off of the deed so that his financial situation will not affect the title to the property in the future.

Not every seller who is in financial trouble will tell you so, which is why you ALWAYS need to do research on the title before you get the deed or do an option. In this case, you will need to bring the seller’s mortgage current. Before you do, you want to make sure that he is owner of the property and there are no other liens on the property.

Example #2: Here is an example when you COULD get the deed:

A seller calls you who owes $135,000 on his home—which is worth $135,000. Since there is no equity at all on this property, this type of seller might very well be willing to give you the deed. If there is high appreciation in the area, or a very low payment, you might be able to make a profit even though there’s no equity. However, be careful that you have evaluated the numbers correctly before you take the deed.

On the other hand, if the seller’s payment is too high or the market is slow, you might need to have the seller pay you to take the deed. Yes, there are sellers who will pay you to take the deed to their home. Think about it: if this seller sells conventionally—that is, though a Realtor, he would have to pay up to $10,000 in commission to sell his home. Plus, he’ll have closing costs, transfer taxes, and will probably pay points or fees on behalf of his buyer. If he’s willing to pay all this money to an agent to sell the property and wait 90-120 days to sell, why shouldn’t he just pay you to take over his payments NOW?

If the seller didn’t have the cash to give you, an option would be your best strategy. This way, the seller can pay you the $10,000 over time, or you could arrange for the seller to pay part of the monthly payment during the option period. This way, if he stops paying his portion of the payments, you have the choice of surrendering your option and simply giving the property back to him. When you have the deed, you normally can’t do this.

Example #3: Here is an example where you SHOULD lease option or lease purchase:

A doctor has a new home built for himself. His old home is worth $200,000 and he owes $125,000. He has $75,000 of equity. He is not behind on payments, and he did not need the $75,000 of his equity to buy the new home. His old home is sitting vacant and the realtor has not sold it yet. He qualified for both house payments at the bank and he can technically afford both, but who wants to make an extra house payment?

Although he is motivated to sell because he’s coming out of pocket every month to own a vacant property, this type of seller is NOT going to simply give you the deed and let you take over the mortgage. There is no way is he going to give up all of his $75,000 in equity, and no way are you going to pay that much cash out of pocket.

When you lease option this house, he gets most of his equity back—although it won’t happen until YOU sell the property. The deal might work like this: you option the property for $195,000, and make payments to the seller that equal his total mortgage payments. You SELL the property on an 18 month lease option for $228,000 with payments to match. You get cash flow + $33,000 in profit when your tenant/buyer buys the property; the seller gets his payments taken care of for a few years, then gets the bulk of his equity out. And in the meantime, he doesn’t have to worry about management, vandals, frozen pipes, and all of the other things that owners of vacant houses have to deal with.

Example #4: Here is an example where you COULD lease option or lease purchase:

A seller just inherited a property worth $120,000 from their parent’s estate. It is owned free and clear and they don’t want to be paid off. They don’t need the cash, but they would love some cash flow on this asset. This seller is not going to give you the deed. Let’s say you can lease option this property for $700 per month with $300 per month going to the purchase – or the option credit. Your real payment in this case is only $400. You can compare these numbers with doing a seller financed type of arrangement. See what works the best and make that offer first.

Let’s examine a seller financing deal:

A seller financed deal means that the seller will finance a mortgage for the buyer and the buyer pays their mortgage payment/interest to the seller versus a bank. This is primarily done when the seller owns a home free and clear and they do not have a mortgage on it themselves. It can be called a land contract, contract for deed, or private money mortgage. It will depend on how the offer is made and accepted. Let’s say you negotiate a deal with the seller for a sales price of $110,000 – if you want your payment to be $700.00 as in the above lease option example, let’s see what that really means to a seller for a seller financed deal. First in a seller financing or mortgage your payment includes taxes and insurance (unless the buyer pays them themselves). This must be subtracted from the $700. Each part of the country fluctuates, so I will use an estimate of $250 per month for taxes and insurance. This leaves $450 for the seller. Now we must subtract our principal we negotiated above the $300 per month credit. This now leaves the seller with $150 per month. If this were to be all that is left this would essentially mean the seller is receiving 1.6-1.7% interest on their money. The interest rate has to be disclosed on the loan document or seller financed deal. A very low interest rate is much harder for a seller to accept then a lease option payment of $700 per month. It is the same thing to the seller, but it is spelled out differently. They don’t do the subtraction themselves to calculate the real rate of return. If you do a seller financing deal, you must calculate and show it in writing. Compare the two and see what works the best.

Let’s examine the pros and cons of Subject To vs. Lease Options:

Subject To Pros:

Title is in your name – full ownership.

Some sellers will pay you to take the deed.

Easier to prove ‘seasoning of title’ – when you are the title holder. Easier to refinance.

If you are on the title you will have long term gains vs. short term if you hold the home for longer than 12 months.

Subject To Cons:

You own it and have ethical responsibility to the seller even if the market changes or you can’t sell the home. You own it! No changing your mind on this one.

You will need to get new insurance policy naming you or your company on the policy. In some instances this might trigger the ‘due on sale’ clause. You must insure it based on the title (who is the owner) or you will have no coverage.

In some states mortgage brokers and realtors could be fined and/or subject to revocation of their license. It could be considered against their code of ethics to assist a person in violating a clause in a contract (due on sale clause).

Sellers with lots of equity will be hesitant or completely against giving the deed. Sellers who get legal advice will almost always be against giving the deed to their home. Attorneys tend to be conservative.

Lease Option Pros:

You don’t have to buy later – if the market drops or there is something wrong with the home. You can get out! If it goes up you can exercise and purchase the property. If the market stays flat you will have a choice of what to do.

More sellers will do an option vs. giving up a deed – especially on ‘pretty’ homes.

After 12 months of payments there are many lenders that will treat a lease option as a refinance – as if you were on the deed. It would be treated like a land contract or contract for deed refinance.

A way to get nicer homes. It is more likely the seller that is not behind has taken better care of their home. This type of seller is also more likely to consider a lease option vs. signing over the deed.

Seasoning of title will start when you file a memorandum of option or lien of interest. Most lenders will consider this adequate and similar to recording a deed (with the exception of FHA or possibly some other lenders).

Sellers with lots of equity are more likely to give you the right to buy the home than they are to give you the deed to their home.

Lease Option Cons:

Title is NOT in your name – seller could screw it up – must be careful to screen the seller. Only option from strong sellers, not those in trouble or headed for trouble. (unless you put the deed in a land trust)

You will have short-term capital gains vs. long term if you are not on the title. This can be avoided if you finance it with the 12 months of payments (see the pros) and get on the title and hold it for 12 months before closing with your tenant buyer. This is a minimum of a 24 month solution.

Some sellers might feel like an ‘option’ is not closure on their home. Some sellers will feel better with a deed being transferred or a lease purchase (which is a guarantee vs. an option).

Sellers with lots of equity usually want to close and get their equity out.

Warning:

There are many factors to consider when making an offer with either of these techniques. What is the current market condition for real estate in your area? Are homes appreciating, depreciating, or staying flat? What is the financial condition of the seller? Are they moving up or down financially in their new home? All of these items make a huge difference on how you will structure a deal. I always say, “Strong market – make a stronger offer. Weak market – make a weaker offer”.

Do your research, but if you keep your mind open to new ways of acquiring real estate, you will indeed make more money! Try using Subject Tos and Lease Options.

 

===

purchase option is totally different from lease option or lease-

What are Options On Real Estate or Real Estate Options?

A real estate option gives you 'control' of a piece of real estate WITHOUT BUYING IT!  By having Options on Real Estate, you have the exclusive right to either buy that property, or NOT to buy it. The choice is yours.
It is an 'exclusive' right. That means that NO ONE ELSE can buy or sell that property during the term of your option.  If that isn't 'control' I don't know what is.
And (in most cases), the owner keeps paying all of the inherent costs of the property taxes, assessments, upkeep & maintenance.
What could be better than 'controlling' a real estate empire WITHOUT BUYING ANY REAL ESTATE? Let the owner keep paying the inherent costs. And, either 'sell' the property, or 'sell' the option itself, for a profit.
If the seller sells the property to someone else, while you hold this exclusive option, you are entitled to any monies the seller receives over the price you have agreed to pay for the property  or if the seller sells the property for less than what he agreed to sell it to you on your option, you can collect the difference from the seller.

===
Yes or no: 

purchase option give you the first right to buy, it used often when a developer wants to buy a big piece ground, if the the acquisition can not finish, developer then just let the option expire without any further obligation on purchases.

lease option is the above plus a rental lease..

Real Estate 101 - Part 2 - by JY101

by JY101 2015-04-23 20:20

so tax season is finally over, life is somewhat back to normal and Oct still some ways to go...lol

today I had a little chat with a friend on rentroll and book keeping, as now days most PM companies use industrial standard software like Yardi but for small fish like me, I simply can not afford it.

to me, the most important part of keeping accurate office records, is that it must be easy and effective and able to teach any new office hire in a very short time and make no mistakes and even if there is a mistake , it is easily traceable.

when tenants pay rent, I make sure the office following these 3 steps.

1. all our offices are cashfree operations, payments must be check or money order. when tenants pay rent, we first make a copy of that check, this will go into tenant's lease file.

2. we always issue a receipt when tenant pay in person, if they mail in payments or drop payments in the night box, we send their receipt to their mailbox. our payment receipt book has 3 carbon copies, original goes to tenant, 2nd copy attached to the payment waiting to deposit, 3rd copy remains in the book and if anything goes wrong, as long as we have the book and we can trace the payments.

3. when time to make a deposit, office will make copy of every checks and make sure they match the carbon copies. quickbook entries are base on bank deposit slips only then we compare rent roll numbers to match the quickbook numbers, if there is difference, we have an error.

Our office filing policy consisted of 3 parts too, and we always paper file everything.

1. leases cabinet, we file leases by unit numbers. each tenant has own manila folder, one side has the lease and other side we fasten every receipts we ever issued and every notices we ever send to them. I usually kept the latest 3 tenants in the current file system and older ones are phase out to a paper box.

2. Service work order cabinet, we also file SWOs by unit numbers, for every units we own and manage, I must able to trace everything we ever done to this unit, work order forms, service manuals, etc...

3. Deposits and expense reports: in this cabinet, we file by the month, every bank deposit slip must accompany with a copy of payment receipts and copy of the checks or money orders.
the key here is, it is scaleable, any new office helper can easily master the system.