Many federal legislators never stop long enough to read the bills they are signing. This leads to unintended consequences. Take for instance the new home energy efficiency rules that were tucked inside the alternative energy spending bill. There is a clause in that bill that prevents homeowners from selling their property if they don’t have proper weather stripping and if their homes are not energy compliant. But if the homeowner cannot afford to upgrade, then they are not allowed to sell there home to the new buyer or the new buyer is not allowed to buy the home until things have been upgraded.This obviously means there will be fewer home sales at a time when the real estate market is in the trash can, and it could lead to more foreclosures. It’s laws like this that don’t help anyone and while we may be helping ourselves to better efficiency in our energy usage, we are violating the personal property rights of the owners and getting in the way of the right of free contract which is guaranteed in the Constitution.All too often the government gets in the way of private agreements and contracts in the free market, and each time they do their unintended consequences hurt the rights of citizens. Further, many homes were built, which are very old can never be fully energy compliant and therefore they will either have to be torn down or they cannot be sold.What if the home is part of a probate proceeding and the property must be sold. What if the government ends up with a home due to property taxes not being paid? There are all sorts of ramifications of these laws and it just adds another layer of paperwork, and will cause further lawsuits in the future. Real estate laws are already complicated enough and personal property rights are something that we protect in the United States. Please consider all this.
In 1995 the Arizona legislature authorized a husband and wife to hold title to their home (and other real property and even personal property such as stocks and bonds) as community property with right of survivorship (“CPWROS”).Prior to this 1995 Arizona real estate law a husband and wife either held title to their home as community property (“husband and wife”) or, most commonly, as joint tenants with right of survivorship (“JTWROS”). Community property had the tax advantage of a step-up in basis of both halves of the home when the surviving spouse sold the home, but had the disadvantage of requiring probate. JTWROS had the tax disadvantage of a step-up in basis of only the deceased spouse’s one-half interest in the home, but had the major advantage of transferring title to the home to the surviving spouse without any requirement of probate. The purpose of the 1995 legislation authorizing CPWROS was to have the “best of both worlds,” namely, after the death of the first spouse a step-up in basis of both halves of the home, but without probate.The following simplified example will illustrate the importance of a step-up in basis of both halves of the home. A husband and wife buy a home for $40,000 (each has a basis of $20,000). Ten years later the husband dies and the home is now worth $100,000. The wife then sells the home for $100,000.If the home is JTWROS property, only the deceased husband’s one-half interest will be deemed by the IRS to have a step-up in basis, and the wife will have a taxable gain of $30,000 ($100,000 sale price less deceased husband’s 100% step-up in basis to $50,000 less wife’s original basis of $20,000).If the home is CPWROS property, both halves will be deemed by the IRS to have a step-up in basis, and the wife will have no taxable gain ($100,000 sale price less deceased husband’s 100% step-up in basis to $50,000 less wife’s 100% step-up in basis to $50,000).In addition to the tax advantage of owning real property as CPWROS, as opposed to JTWROS, CPWROS real property can only be sold or mortgaged with the consent of both the husband and the wife. JTWROS real property can be sold or mortgaged by either spouse without the consent or even the knowledge of the other spouse.If a husband and wife want to transfer the title to a home or other real property from JTWROS to CPWROS, they should contact the title insurance company that insured the title at the time of closing. The title insurance company will normally prepare the necessary transfer documentation for a minimal fee, generally less than $250.Note: Since 1997 a husband and a wife have the $500,000 capital gain exemption on the sale of a principal residence. This $500,000 capital gain exemption is generally available after the death of one of the spouses if a joint tax return is filed and the principal residence is sold in the year of death. Otherwise, the $250,000 capital gain exemption is only available. Therefore, a husband and wife holding title to their home as CPWROS is not as important as with other types of real property, unless there has been significant appreciation of at least $250,000 in the value of the home.
Hundreds, if not thousands, of people are telling themselves how great it would be if they could lose their 9-5 work week and live the lifestyle of a real estate investor. Many of these people haven’t the slightest clue on how to get started, however. They tempt themselves into buying the courses that are out there. In the end, they have spent thousands on these courses and yet still haven’t a clue on exactly how they should get started. I know because I was once there.When I started to look into real estate investing, I was 24 and didn’t have a clue on how to even buy a house. I spent most of my time on the internet researching. Eventually I bought a few books off amazon.com and purchased a wholesaling course from a well known guru. It’s not my job to list the names of these books or gurus, but I think more importantly it’s my job to inform you how you can get started without those books.If you are a total beginner in real estate, I first suggest you do some research on creonline.com. Visit their article and success story links. This will help broaden your mind a little bit and give you some motivation which will help carry you through the learning process. Keep in mind that you are only going to focus on wholesaling.What is wholesaling? Basically, what a wholesaler does is find ugly houses that need a lot of work. They get the house under contract, and then they do a contract assignment(sell the contract). An assignment of contract is great because you never actually buy or own the house yourself. The investor you assign your rights to will close on the house instead of yourself. This creates very minimal risk on your behalf.I’d also recommend you research your local market before getting started. Get an idea of how much properties in your area are going for. Find out where the nice neighborhoods are and target those locations. Remember… we want ugly houses that are in nice neighborhoods. Make sure you get an idea of what the legal process is like in your state as well because each state is different. You may try doing a Google search on real estate law in your area, or perhaps it would be even better to contact a local real estate attorney. Just make sure that the attorney specializes in real estate transactions.Do you need good credit or tons of money to get started? NO! I started with very little. Believe me when I say that your willpower is more important than your bank account. The great thing about wholesaling is that you are not buying these homes yourself. The only money you will need is to buy an option, put a earnest money deposit on the property, and/or money towards advertising. That’s it.There is just so much information out there on wholesaling. I cannot cover it all here. So I suggest that you do your own due diligence because remember that in this business you are your own boss, and if you procrastinate the learning process too much then you’ll eventually lose interest in doing it. Always invest your time in something that is going to benefit you the most. Start by investing into yourself. Then get out there and wholesale some houses!
I am not going to go into any real estate laws in particular as I really want to discuss the importance of having a good lawyer on your team. Every real estate transaction is different and you need someone to protect your interest and help you to navigate threw all the complex terms and clauses.A good lawyer is key. They can advise you on what repairs need to be disclosed to the buyer. They can also help with the closing and make sure you do not make any careless errors in judgment.If you ever want to get into investing you will need a great lawyer on your team. I can not tell you the number of times I have had real estate agents tell me you can not do that, only to find out they did not understand the strategy and in a moment of confusion screamed “hit the breaks”. As an investor you have a lot more flexibility and leeway.Usually the buyer’s lawyer will advise them to get a property inspection. This is going to include the entire property especially your roof and basement. The last thing you want is to sell your house and get sued.You do not want to be in a scenario where you had your property sold and you purchased another property only to have your original property returned due to contract breaches or litigation issues such as disclosure.I always tell people do not think of the money the lawyer is costing you, rather think of the potentially millions of dollars they are saving you in litigation.