As a home seller, I despise the entire home inspection business.   A potential buyer is interested in your house, you execute a contract, they engage a home inspector.  The inspector comes out and the buyer receives a copy of the inspection and the resulting negotiations to complete repairs and reduce the price would have you believe the house should be condemned.   Nowhere is there any obligation to share the report with the seller.  Nowhere is there room to object to any of the findings.  Nowhere is there room  to correct errors.   I’m amazed any houses ever get sold.

How did we get to this point?  In Texas, home inspectors are licensed and regulated by TREC, the Texas Real Estate Commission.   There are 3 levels of inspector, Apprentice, Real Estate Inspector, and Professional Real Estate Inspector. 

An Apprentice is entry level and is required to train under a Professional Real Estate Inspector.  After gaining experience and certain educational requirements, the Apprentice can sit for the Real Estate Inspector exam.  To be a Professional Real Estate Inspector you must be a Real Estate Inspector first and meet additional experience and educational requirements and pass the exam. 

Appraisers are required to follow a Standards of Practice “which provides the minimum standards an inspector must follow when inspecting a house”.  The Standards of Practice lists the minimum requirements for real estate inspections.  Per the Standards, “For the purposes of these standards, an inspection is a limited visual survey and basic performance evaluation of the systems and components of a building using normal controls that provides information regarding the general condition of a residence at the time of inspection.  It is not intended to be comprehensive.  It does not require the use of specialized equipment including thermal imaging equipment, moisture meters, elevation determination devices”.

The Standards go on to say, “These standards do not prohibit an inspector from providing a ‘higher level’ of inspection performance than required by these standards of practice or from inspecting components and systems in addition to those listed under the standards of practice”. 

Therein lies the problem.  Home inspectors compete for buyers, so they boast about how rigorous their inspections are.  Identifying the most deficiencies and problems on their report makes them look more thorough and diligent than their competition.  They reach for anything that might be or might have been.

For instance:

1)  It is not uncommon for an inspector to flag a house for having low water pressure.  (City water pressure varies hourly depending on the height of water in water towers). 

2)  I was recently flagged for having a 40 year shingle roof that he recommended be replaced even though 3 roofing companies told me otherwise and the insurance company said there is no damage, there is no leaking, and it was unnecessary to replace at this time.  

3)  If there is any distortion to a wood floor, you will get flagged for possible underground water leak. 

4)  If your HVAC is older than 8 years, they will recommend replacing the HVAC system.   

5)  Oh, and the big one.  If you have aluminum wiring that is properly pigtailed, you may get flagged to replace all the aluminum wiring in your house and have it replaced with copper because you run a substantial risk of dying when your house burns down. 

(The International Association of Certified Home Inspectors actually quotes in their Facts and Figures, “On April 28, 1974, two people were killed in a house fire in Hampton Bays, NY.  Fire officials determined the fire was caused by a faulty aluminum wire connection at an outlet)

1974!  Seriously?

Those are just the big things.  At this point, the buyer is led to believe they will have an immediate repair bill of $30,000-$40,000 the day they close.  Unsurprisingly, they are probably down the street looking at the next house.  

Yes, these are big items.  Yes, they ultimately need to be replaced when they break or no longer function.  But no one in their right minds replaces big ticket items before they cease functioning.  The fear inspectors instill in buyers needs to be controlled. 

How can this be changed? 

1)  Sellers need to be allowed to provide feedback on the report to the inspector before a final report goes to the buyer;

2)  Sellers need to be allowed a copy of the final report;

3)  Delete Section 7 of the TREC Seller’s Disclosure Notice;

4)  STANDARDIZE the methodology for all appraisers.  

In 26 select submarkets in the DFW area, overall sales increased 11.2% from July 2018 to July 2019.  16 of those markets had increased median prices vs 2018., and 8 decreased median price.  6 submarkets improve by more than 10% and only one showed a decrease greater than 10%. 

Days on market for sales prices between $200,000 and $300,000 generally increased as did days on market for homes between $300,000 and $500,000.  

For those of you who own multiple properties – vacation homes, lake homes, second homes, rental properties – real estate taxes can become an issue. Here is a brief discussion on real estate taxes to take to your tax accountant or attorney when you prepare for this year's taxes:

Are there any income tax benefits to owning multiple homes in the U.S.?

Property taxes are due on each property, but owners can save when filing their federal income taxes. For starters, state and local property taxes on second homes are still deductible from one’s federal income returns, according to Mark Stone, a partner at New York City-based firm Holland & Knight.

The same goes for mortgages, although the Tax Cuts and Jobs Act of 2017 limited both of these. (The tax changes are in effect for the period between Dec. 31, 2017 and Dec. 31, 2025, although Congress is considering making them permanent.)

That means $10,000 of one’s combined property taxes for all residences is deductible, he said. However, keep in mind that state and local income taxes are also included in that bucket. And up to $750,000 in mortgage interest, again, for one an owner’s principal residence and one additional residence is also deductible.

For rental properties, there are additional tax benefits, Mr. Kambas said. To qualify, the home must be rented out for more than 14 days a year, or 10% of the total days it is rented, whichever is greater. So if an owner spends 30 days a year at a residence, he or she must rent it for 300 days or more to qualify for the deductions, according to the IRS.

Then, "the expenses of doing business will be deductible," he said. That includes travel to do work on the home or to show it, costs of advertising the property and other activities that benefit the business.

Maintenance, cleaning, professional fees and insurance, utilities and common charges are also deductible, Mr. Kambas added.

If owners are operating multiple homes as a business, they are likely eligible for a 20% qualified business income deduction. The company needs to be set up as a sole proprietorship or through a limited liability company, partnership, S corporation, trust or estate, according to the IRS.

LLCs are most commonly used by real estate investors. Those businesses do not pay income taxes; the tax is instead passed through to the owner or owners of the company. For individuals with less than $157,500 of income (or less than $315,000 of income for couples), there is a 20% deduction. So the owner ends up only being taxed on 80% of the income from that business.

For those with a higher income, the taxes are a bit more complicated. Individuals making more than $207,500 ($415,000 for couples), can deduct either the lesser of 20% of the qualified business income, or the greater of 50% of the W-2 wages paid from the business; or 25% of the W-2 wages paid from the business, plus 2.5% of the unadjusted basis of the qualified property, according to the IRS.

Either way, the owner is taxed at his or her individual rate, not the corporate rate.

Many real estate investors buy property under an LLC for that reason, but Mr. Kambas warned that it is a "highly scrutinized area by the IRS."

Article originally published by Mansion Global 2018.

Hiring contractors is one of the many tasks assigned to landlords or property managers. These contractors can be plumbers, roofers, carpet cleaners, or electricians. Each one of these contractor’s professions provides a vital service that contributes to the proper management and maintenance of your property investments. As you know these contractors are needed, but more importantly, you need to know how to hire the best contractors for your properties. This time we will discuss how to hire an electrician.

The simple act of just finding any old electrician is just that, simple. Unfortunately your property cannot settle for just any electrician. You want to hire an electrician who is not only great at their job, but also licensed and certified to operate within their field.

Hiring a Qualified Electrician

Electricians are required to complete an apprenticeship by being the apprentice of a licensed electrician. After completing their apprenticeship, before going to work they must first become licensed by their respective state. Licensing requirements can vary from state to state, but regardless of the bureaucracy, as a landlord you need to ensure that the contractors you hire are legally eligible to work for you, and also have the skills required to complete the tasks assigned to them.

Safety Concerns

While an unlicensed electrician may insist they have all the skills and qualifications that a licensed electrician has, but at a lower cost may seem temping, the nature of electricity and the safety concerns present, the risk is too great not to go with a licensed professional. While there are certainly safety risks involved with botched plumbing jobs, the results of faulty electrical work can be catastrophic. There is a risk of electrocution to tenants or even the contractors themselves if they aren’t professionally trained. Electrical fires are also an enormous risk, not only for safety concerns, but also for your investments in the form of damage to your properties.

Reliable Contractors

Not only do your contractors have to be licensed and preferably certified, but they also need to be reliable. You are operating within the real estate sector and you need a contractor who is able to accommodate all of your specific needs. Since we are talking about electricians, the wiring situation could be complex, especially if your properties are apartments, condos, or dorm style buildings. This means that sometimes an electrical issue may be isolated to one unit or could spread to others.

The more complex a task is, generally it takes longer to complete. A great question to ask your electrician before hiring them is, what is the rate they charge for their services, and could you come to a more agreeable price if there is a possibility of a future long term working relationship. You need to establish these terms beforehand, so you aren’t blindsided by a bill you weren’t anticipating.

Who Will be Working in Your Properties?

The certified and licensed electrician you might have spoken to when inquiring about their services may not be the person they were planning to send to replace your wiring. Electrician’s apprentices, or other non licensed employees may be sent in their place, and it’s your job to make sure you know who they are and what their skill level is. To ensure the most qualified people are working on your investment you need to speak up and insist that only licensed electricians take action or make consequential decisions during your services taking place.

Are Your Contractors Insured?

legally your electrician has to have some form of insurance, but you need to know what is covered in those insurance policies, by asking for a copy of any insurance documentation they may have on file. Individual plumbing businesses may also have additional warranties or service guarantees that they may offer their clients.

Your Best bet is to Shop Around

Shop around for the best electrical contractor you can find. They will all offer slightly different services, at different price ranges, but your goal is to sort them out and find the best fit for you. Also you need to do all of this before you actually need any electrical work done. You are contracting out this company and they will be your go to resource for all of your electrical needs. You need to be on a first name basis with all of your contractors, and they should know you as well. Apartment, condo, or dorm contracts are difficult to come by for contractors so they need to know you are valuable clients and should be treated as such, as a priority.