Barrans Realty

HOW BANKS SELL REO'S

Each bank/lender works a little differently, but they all have similar goals. They want to get the best price possible and have no interest in "dumping" real estate cheaply. Generally, banks have an entire department set up to manage their REO inventory.  Most homes will have several agents not associated with the sale create a BPO (Brokers Price Opinion) that will help the bank determine the price.  Banks are selling a lot of homes right now and work hard to find a balance between protecting their assets and determining a price that will sell the property quickly.

Once you make an offer to purchase you may get a quick answer or it may takes days.  Sometimes you will be notified to submit your “best” offer as multiple offers have been submitted.  Banks may present a "counter-offer." It may be at a higher price than you expect, but they have to demonstrate to investors, shareholders and auditors that they attempted to get the highest price possible. You should plan to counter the counter-offer.

Your offer or counter-offer will probably have to be reviewed and approved by several individuals and companies. Even once an offer is accepted, the bank may insert wording like “..subject to corporate approval with 5 days."

If you have not done so by the time you accept the banks offer you should have the house inspected by a professional. If you are waiting for an inspection, and already have the contract drawn up you should have an inspection contingency written into the agreement, so that you can pull out of any deal if the result of an inspection produce surprises or faults you are not comfortable with. You should always remember that the bank or loan company will always want to sell the property ‘as-is’

6 Quick Fixes for Your Credit Score

1.    Pull your reports online – get them for free, no strings attached, at the government authorized website AnnualCreditReport.com.  This doesn’t get you your actual FICO scores, but it does get you the content of your report. Look for errors that could be depressing your score, like accounts that don’t belong to you, balances that are actually lower than reported, old debts that are paid off that should have been removed entirely (7 years for credit cards, 10 for bankruptcies).

2. Consider reopening accounts you thought were open but have been closed because you haven’t used them in so long - it will help boost your utilization ratio, one element of your credit score that is dependent on how much available credit you have.

3. Pay down some debt.  This both decreases your debt-to-income ratio (36% is the goal, including the proposed mortgage payment) and increases your credit score, if you do it right (see the next tip).

4.     Don’t close any accounts.  Instead, spread your debt out. The ideal utilization ratio is about 20-30% of your available credit overall, and on any given account.  Closing accounts reduces the amount of credit that is available to you, so it makes it look like you’re closer to being maxed out.

So if you have one card that’s near its max and several others that have zero balances and you’re trying boost your score a bit, quickly, consider balance transfers to spread our your debt more evenly, aiming for 20-30% of the available credit on each card.

5.     Use your credit regularly – and pay it on time, every time:  Having a good FICO score doesn't happen because you have sound personal finances, including no debt. FICO scores are a measure that shows that you have a history of responsibly using and managing and repaying your debt on an ongoing basis.

6. Finally, check in with your mortgage broker.  Have them pull your report and score, as the report they pull is the one they’ll have to go by in the final analysis.  If you’re really close to a score level higher, that would empower you to qualify for a lower rate, they can actually run a credit diagnostic on your score and generate some recommendations for which actions you could take to raise your score by the needed few points. Then many of them can do what’s called a ‘Rapid Rescore’ – once you’ve paid that bill off, they can actually submit a request directly to the credit bureaus to update that information and your score in just a few days.

None of these tips will get someone with a 500 credit score to a 700 (other than a massive debt reduction program).  But if you’re trying to get a little boost to get you over a credit score hump, these can be potent, and save you beaucoup bucks in interest.

Save Money with a Foreclosed R.E.O. - Real Estate Owned Property

Buying a property owned by a bank, known as real estate owned, or R.E.O., has distinct benefits.

Foreclosure First Steps

With all of the foreclosures on the market, you have an unusual opportunity to find deep discounts when buying a home. First, find a broker that has good foreclosure listings, has the temerity to look for the best deals and new listings every day, and will check out the newly listed properties immediately. Second, get pre-approved by your mortgage lender so you can make an offer on your dream listing quickly.

Advantages of an R.E.O.

There are a few unique ways to purchase a foreclosed home, such as through a pre-foreclosure sale or at a public auction. However, buying a property owned by a bank, known as real estate owned, or R.E.O., has distinct benefits.

If you were to buy a home at auction, you could not tour the inside of the home. Who knows what could be waiting there to empty your bank account. You are trying to save money, after all. Moreover, the property might have tax liens or other debt. When you buy the home, you buy those troubles, too. With an R.E.O., on the other hand, the bank usually clears any issues with the title before the property goes on the market. You have access to the inside of the home, and can get an estimate for any repairs.

Racing Against Cash

When pursuing an R.E.O., you are probably racing against cash buyers who are aggressively looking for deals and will more than likely get the contract before a prospective buyer working with a home loan. With a cash deal, the transaction is simple and quick, with no appraisal or possible problems with a mortgage.

Like most foreclosed properties, R.E.O.s are sold "as is", and may require a lot more money after the sale. Beware of deals too good to be true. There's probably an expensive problem waiting for your money after you've signed all the papers. Make sure your offer is contingent on a home inspection - one done by licensed contractor, is best. Though, beware, too many contingencies will probably knock you out of the running. Remember those cash buyers who are ready to snap up these foreclosed homes without a lot of negotiating.

Fannie Mae and Freddie Mac

Of course these mortgage behemoths have plenty of foreclosed homes to unload - and they have helpful programs for homebuyers. Fannie Mae keeps investors out of the game for the first 15 days a home is on the market. It looks like Freddie will also implement the same program. As with all of their home loans, Fannie Mae allows a buyer to put as little as 3 percent down, doesn't require mortgage insurance, and will include a loan for home renovations in the whole home buying process.

What is one thing in life your friends said you could/would never do, but you did it anyway?

SEVEN KEY POINTS TO FIND A BARGAIN

1. Get - and stay - clear on what “bargain” actually means. Learn the difference between the asking price and the fair market value of a home. Many buyers think a bargain is any sale price below the asking price. But a home’s asking price is an indicator of the seller’s intention, and can be roughly the same as, greater than or less than the actual market value of the home. In fact, a bargain is a home that you buy at a discount from the fair market value, or one you get with some other perks. If the list price is set high, a below-asking sale price could still be above-market, and if it’s set low, you could pay more than the asking price and still get a great deal!

Also, get clear on what “bargain” means to you. Are you looking for the biggest home at the lowest price (i.e.,low price per square foot)? The lowest price in the best neighborhood? A home in move-in condition for the price of similar homes that need work? A home with all the furniture and electronics thrown in? There are many ways to skin the “bargain” cat.
2. ‘Regular’ sales may present better bargain opportunities than foreclosures and short sales. Contrary to popular belief, individual home sellers have more leeway and, often, more motivation to accept a lower offer than bank negotiators do. (In a short sale, the bank is the ultimate arbiter of how low the seller can go.) The banks often must adhere to guidelines, including that they may only accept an offer X below the fair market value - many banks have a policy of slightly reducing the list price and re-market the home before taking a lowball offer.

Individual sellers have no such limitations, and often take bargain-priced offers because they must move quickly, or are otherwise motivated. Also, individual sellers have the ability to bargain on other transaction points, as well - you might pay the fair market value to an individual seller, but get them to agree to paint the place, complete the pest repairs and fix the furnace. Chances you’ll get a bank to do that for you? Somewhere between slim and none.
3. Look for sellers who have demonstrated their flexibility on price. When you house hunt online, don’t limit your search criteria to beds, baths and square feet. Search for price-reduced homes or, at the very least, sort and prioritize your search results by the dollar amount or percentage by which the price has already been cut.

These discounted digs might already be a bargain, and in some cases, the sellers might be willing to deal even more!
4. Find a motivated seller - look for homes with longer-than-average Days on Market (DOM). Talk with your broker or agent and have them educate you about the average number of days a home in your area stays on the market. Homes that are lingering on the market for much longer than that may hold the potential for negotiating an even deeper discount, as their sellers might be very, very antsy and ready to take even a below-asking offer.
5. Don’t insult the seller. It might feel like you’re an ace wheeler and dealer when you make a lowball offer on a home for sale. Buyers can get bravado, like, “Ha, Seller, you want X? Well, I’m only paying X minus 40% - deal with it.” Or, you might think, “I’ll offer you 40% less, then we’ll go back and forth 7 or 8 times, and I’ll be happy with a 20% discount off the asking price.”

But when those bottom of the barrel offers come in, both agents often detect a novice buyer at work. What they know - that you may not - is these two things. First, many sellers on today’s market don’t even have that much room to negotiate - they’re already selling at a loss or very, very close to what they owe on the place. If they have to write a check to sell it to you, they’d simply rather not sell.

And, second, many a seller will simply refuse to sell to someone who they feel has insulted or disrespected them. That insult can be inferred from a lowball, below-market-value offer, or from a buyer’s running commentary on all the things they would change about the place if it was their house. (Note - you already know not to rave and gush to the sellers when you see a house you like. Neither should you trash it.)

And it’s not any different when it comes to institutional sellers, like banks selling foreclosed homes or approving short sales. They don’t take lowball offers either - most lenders say a 10% discount off the market value - not the list price! - is about as low as they’ll go.
6. Give to get. Have your agent interview the seller’s agent to glean as much detail as possible about why they are selling, what their priority is (e.g., fast close or most cash?), and what the motivating facts are surrounding their sale (e.g., are they upside down, relocating for work, getting divorced, or any other facts that may be relevant)?

Then - especially if you’re going to ask for a big chunk off the asking price - give them what they want! Try to close when they want, if possible (trust your real estate pro for a reality check on this - short escrows are nearly impossible for all but cash buyers these days). Go as-is, if it makes sense, without waiving the right and the time to obtain inspections. Decide what is most important to you, and if it’s a discount, give the seller what they want on the rest of your the transaction’s terms.
7. Sell yourself. Even when they have multiple offers, today’s sellers will take a lower offer that looks certain to close over a higher offer that has no chance of closing. No seller wants to waste their time on a buyer/offer who can’t close and then have to put their home back on the market 30 or 40 days later.

If you want a bargain, sell yourself and your offer - make a convincing case that you are likely and able to close the deal! Make sure your agent presents a polished, computer-prepared offer (if that’s the standard in your area) - this demonstrates that they have the professionalism and up-to-date market knowledge it takes to get a sale closed these days. Make sure the offer package presented to the seller includes a polished, thorough loan approval letter, which confirms that your credit, employment, income and down payment funds have all been verified and approved for a home loan.

Also, make sure that your agent and loan broker emphasize features of your qualifications and your offer that render it more likely than average to close. Some sellers frown on FHA and VA loans, because they have a reputation of being tough to close. If you are approved for a conventional (i.e., non FHA) loan, your offer should say that. If you have a large down payment, or are paying cash, your offer and your agent should bring that to the listing agent’s attention, too.

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Credit Repair: Self Help May Be Best

You see the advertisements in newspapers, on TV, and on the Internet. You hear them on the radio. You get fliers in the mail. You may even get calls from telemarketers offering credit repair services. They all make the same claims:

• “Credit problems? No problem!”
• “We can erase your bad credit — 100% guaranteed.”
• “Create a new credit identity — legally.”
• “We can remove bankruptcies, judgments, liens, and bad loans from your credit file forever!”

Do yourself a favor and save some money, too. Don’t believe these statements. Only time, a conscious effort, and a personal debt repayment plan will improve your credit report.
This brochure explains how you can improve your creditworthiness and gives legitimate resources for low or no-cost help.

The Scam

Everyday, companies nationwide appeal to consumers with poor credit histories. They promise, for a fee, to clean up your credit report so you can get a car loan, a home mortgage, insurance, or even a job. The truth is, they can’t deliver. After you pay them hundreds or thousands of dollars in fees, these companies do nothing to improve your credit report; most simply vanish with your money.

The Warning Signs

If you decide to respond to a credit repair offer, look for these tell-tale signs of a scam:

• companies that want you to pay for credit repair services before they provide any services.
• companies that do not tell you your legal rights and what you can do for yourself for free.
• companies that recommend that you not contact a credit reporting company directly.
• companies that suggest that you try to invent a “new” credit identity — and then, a new credit report — by applying for an Employer Identification Number to use instead of your Social Security number.
• companies that advise you to dispute all information in your credit report or take any action that seems illegal, like creating a new credit identity. If you follow illegal advice and commit fraud, you may be subject to prosecution.

You could be charged and prosecuted for mail or wire fraud if you use the mail or telephone to apply for credit and provide false information. It’s a federal crime to lie on a loan or credit application, to misrepresent your Social Security number, and to obtain an Employer Identification Number from the Internal Revenue Service under false pretenses.
Under the Credit Repair Organizations Act, credit repair companies cannot require you to pay until they have completed the services they have promised.

The Truth

No one can legally remove accurate and timely negative information from a credit report. The law allows you to ask for an investigation of information in your file that you dispute as inaccurate or incomplete. There is no charge for this. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost. According to the Fair Credit Reporting Act (FCRA):

• You’re entitled to a free report if a company takes adverse action against you, like denying your application for credit, insurance, or employment, and you ask for your report within 60 days of receiving notice of the action. The notice will give you the name, address, and phone number of the consumer reporting company. You’re also entitled to one free report a year if you’re unemployed and plan to look for a job within 60 days; if you’re on welfare; or if your report is inaccurate because of fraud, including identity theft.
• Each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — is required to provide you with a free copy of your credit report, at your request, once every 12 months.
  The three companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report. To order, click on annualcreditreport.com, call 1-877-322-8228, or complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You can print the form from ftc.gov/bcp/conline/edcams/credit/ . Do not contact the three nationwide consumer reporting companies individually. They are providing free annual credit reports only through annualcreditreport.com, 1-877-322-8228, and Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281. You may order your reports from each of the three nationwide consumer reporting companies at the same time, or you can order your report from each of the companies one at a time. For more information, see Your Access to Free Credit Reports at ftc.gov/bcp/conline/edcams/credit/ .
  Otherwise, a consumer reporting company may charge you up to $9.50 for another copy of your report within a 12-month period.
• You can dispute mistakes or outdated items for free. Under the FCRA, both the consumer reporting company and the information provider (that is, the person, company, or organization that provides information about you to a consumer reporting company) are responsible for correcting inaccurate or incomplete information in your report. To take advantage of all your rights under this law, contact the consumer reporting company and the information provider.

STEP ONE

Tell the consumer reporting company, in writing, what information you think is inaccurate. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should clearly identify each item in your report you dispute, state the facts and explain why you dispute the information, and request that it be removed or corrected. You may want to enclose a copy of your report with the items in question circled. Your letter may look something like the one on page 6. Send your letter by certified mail, “return receipt requested,” so you can document what the consumer reporting company received. Keep copies of your dispute letter and enclosures.

Consumer reporting companies must investigate the items in question — usually within 30 days — unless they consider your dispute frivolous. They also must forward all the relevant data you provide about the inaccuracy to the organization that provided the information. After the information provider receives notice of a dispute from the consumer reporting company, it must investigate, review the relevant information, and report the results back to the consumer reporting company. If the information provider finds the disputed information is inaccurate, it must notify all three nationwide consumer reporting companies so they can correct the information in your file.

When the investigation is complete, the consumer reporting company must give you the results in writing and a free copy of your report if the dispute results in a change. If an item is changed or deleted, the consumer reporting company cannot put the disputed information back in your file unless the information provider verifies that it is accurate and complete. The consumer reportincompany also must send you written notice that includes the name, address, and phone number of the information provider. If you request, the consumer reporting company must send notices of any correction to anyone who received your report in the past six months. You can have a corrected copy of your report sent to anyone who received a copy during the past two years for employment purposes.

If an investigation doesn’t resolve your dispute with the consumer reporting company, you can ask that a statement of the dispute be included in your file and in future reports. You also can ask the consumer reporting company to provide your statement to anyone who received a copy of your report in the recent past. You can expect to pay a fee for this service.

STEP TWO

Tell the creditor or other information provider, in writing, that you dispute an item. Be sure to include copies (NOT originals) of documents that support your position. Many providers specify an address for disputes. If the provider reports the item to a consumer reporting company, it must include a notice of your dispute. And if you are correct – that is, if the information is found to be inaccurate – the information provider may not report it again.

For more information, see How to Dispute Credit Report Errors at ftc.gov/bcp/conline/edcams/credit/ .

Reporting Accurate Negative Information

When negative information in your report is accurate, only the passage of time can assure its removal. A consumer reporting company can report most accurate negative information for seven years and bankruptcy information for 10 years. Information about an unpaid judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. There is no time limit on reporting: information about criminal convictions; information reported in response to your application for a job that pays more than $75,000 a year; and information reported because you’ve applied for more than $150,000 worth of credit or life insurance. There is a standard method for calculating the seven-year reporting period. Generally, the period runs from the date that the event took place.

The Credit Repair Organizations Act

By law, credit repair organizations must give you a copy of the “Consumer Credit File Rights Under State and Federal Law” before you sign a contract. They also must give you a written contract that spells out your rights and obligations. Read these documents before you sign anything. The law contains specific protections for you. For example, a credit repair company cannot:

• make false claims about their services
• charge you until they have completed the promised services
• perform any services until they have your signature on a written contract and have completed a three-day waiting period. During this time, you can cancel the contract without paying any fees

Your contract must specify:

• the payment terms for services, including their total cost
• a detailed description of the services to be performed
• how long it will take to achieve the results
• any guarantees they offer
• the company’s name and business address

Have You Been Victimized?

Many states have laws regulating credit repair companies. State law enforcement officials may be helpful if you’ve lost money to credit repair scams.

If you’ve had a problem with a credit repair company, don’t be embarrassed to report it. While you may fear that contacting the government will only make your problems worse, remember that laws are in place to protect you. Contact your local consumer affairs office or your state Attorney General (AGs). Many AGs have toll-free consumer hotlines. Check the Blue Pages of your telephone directory for the phone number or check www.naag.org for a list of state Attorneys General.

Need Help? Don’t Despair

Just because you have a poor credit report doesn’t mean you won’t be able to get credit. Creditors set their own credit-granting standards and not all of them look at your credit history the same way. Some may look only at more recent years to evaluate you for credit, and they may grant credit if your bill-paying history has improved. It may be worthwhile to contact creditors informally to discuss their credit standards.

If you’re not disciplined enough to create a workable budget and stick to it, work out a repayment plan with your creditors, or keep track of mounting bills, consider contacting a credit counseling organization. Many credit counseling organizations are nonprofit and work with you to solve your financial problems. But not all are reputable. For example, just because an organization says it’s “nonprofit,” there’s no guarantee that its services are free, affordable, or even legitimate. In fact, some credit counseling organizations charge high fees, or hide their fees by pressuring consumers to make “voluntary” contributions that only cause more debt.

Most credit counselors offer services through local offices, the Internet, or on the telephone. If possible, find an organization that offers in-person counseling. Many universities, military bases, credit unions, housing authorities, and branches of the U.S. Cooperative Extension Service operate nonprofit credit counseling programs. Your financial institution, local consumer protection agency, and friends and family also may be good sources of information and referrals.

If you are considering filing for bankruptcy, you should know about one major change to the bankruptcy laws: As of October 17, 2005, you must get credit counseling from a government-approved organization within six months before you file for bankruptcy relief. You can find a state-by-state list of government-approved organizations at www.usdoj.gov/ust. That is the website of the U.S. Trustee Program, the organization within the U.S. Department of Justice that supervises bankruptcy cases and trustees.

Reputable credit counseling organizations can advise you on managing your money and debts, help you develop a budget, and offer free educational materials and workshops. Their counselors are certified and trained in the areas of consumer credit, money and debt management, and budgeting. Counselors discuss your entire financial situation with you, and help you develop a personalized plan to solve your money problems. An initial counseling session typically lasts an hour, with an offer of follow-up sessions.

Do-It-Yourself Check-Up

Even if you don’t have a poor credit history, some financial advisors and consumer advocates suggest you review your credit report periodically

• because the information it contains affects whether you can get a loan or insurance — and how much you will have to pay for it.
• to make sure the information is accurate, complete, and up-to-date before you apply for a loan for a major purchase like a house or car, buy insurance, or apply for a job.
• to help guard against identity theft. That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job.

Sample Dispute Letter

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing)

What Not To Do With Your Credit

Spending Too Much On Credit.

The bigger your total balance as a percent of your total credit limit across all your credit cards, the lower your score will be.

You  may lose 1 point for every percent of your credit limit that you use. So if you have a total credit limit of $10,000 and have an outstanding balance of $4,000 (40%), your score would be 40 points lower than if you had a $0 balance.

Ideally, credit experts say, your never want your balance to exceed 30 percent of your credit limit.

It's always good to pay off your balances every month. But creditors may take a few weeks or even a couple of months to report your payment to the credit bureaus.

To boost your score: Don't charge anything for at least 60 days before applying for a loan.  That way it's likely that all the payments you've made to date will be reflected in your credit score by the time a lender requests it.

If you can't pay off your total balance in full, at least keep it under 30 percent of your total credit limit.

Late Payments

Sending in your loan or credit card payments late can really hurt.  When you're 30 days past due and your balance is still unpaid, your score could take a 60-point hit. That kind of drop could mean a much higher interest rate on loans you take out .

Late payments from your past that you have since paid off will have less and less of a negative effect on your score as time goes on.  On average past delinquencies that have since been resolved might cost you 15 to 20 points.

To boost your score: Pay your bill in full and mail it as soon as it arrives, or at the very least the minimum due. Set up automatic online bill payments so you'll never be late. Or, if you are late one month, be sure to pay off what you owe as soon as possible.

How your score affects your mortgage rate
For a $300,000 30-year fixed-rate loan
FICO score	APR	Monthly payment
760-850	5.860%	$1,772
700-759	6.082%	$1,814
660-699	6.366%	$1,870
620-659	7.176%	$2,031
580-619	8.820%	$2,375
500-579	9.679%	$2,562

Not Enough Credit

Even if you're the most responsible, on-time, in-full bill payer on the planet, your credit score won't be as high as it could be if you have just one credit account.

The reason: Your credit profile is too thin and lenders ideally like to see a potential borrower responsibly managing a mix of revolving debt (such as credit cards, where you can reuse the credit after paying it back) and installment debt (such as a car loan or most mortgages, where you pay the same amount every month for a certain period).

To boost your score: Consider opening another credit-card account or two, or taking out a car loan or small bank loan.

Credit Card History Too New

Old credit accounts count more than young ones in your credit score.

Lenders prefer borrowers who have responsibly managed the same accounts for years. That's a more reliable indicator of creditworthiness than a few months of exemplary behavior on a new account. Accounts open less than six months will hurt your score somewhat. Those open six months or more won't, while those open at least two years will help your score.

Lenders also don't like to see a borrower who's gone on a credit binge, applying for a lot of new accounts or loans in a short period.

Every time you apply for new credit, your score may be dinged by 5 points. That's not the case, though, if a broker shops around for the best loans on your behalf. In that case, if they approach multiple lenders who all pull your credit report, that will only count as one inquiry so long as they all do so within a two-week window.

To boost your score: Avoid applying on your own for a lot of loans and credit cards, particularly in a short period. And avoid excessive card-hopping.

Closing Accounts

The bigger your balance relative to your credit limit, the lower your score.

But while it may be tempting to close out a credit card account when you transfer the balance to a lower-rate card, you may inadvertently hurt your score. That's because your total balance stays the same but your credit limit goes down when you close an account.

Say you have three credit cards with a combined credit limit of $24,000 ($8,000 each) and you owe $6,000 total. Your balance represents 25% of your credit limit. If you then close out one of your accounts, your credit limit goes down to $16,000 but your debt is still $6,000, which now represents 37.5% of your credit limit.

To boost your score: Don't close unused accounts when you transfer debt.

Not Paying Attention To Your Credit

You may be a great credit risk, but your score won't reflect that if there are errors in your credit report. The last thing you need is to have someone else's delinquencies wrongly assigned to you.

Or you may think you've got great credit, but don't realize that your spouse has been hiding debt from you, and killing your score in the meanwhile.

Unless you make yourself aware of what's in your credit report a few months before applying for a loan, you'll have no idea how a lender will perceive you, rightly or wrongly. And you won't give yourself the opportunity to improve your score.

To boost your score: Order a free credit report once a year from each of the three major credit bureaus, and make sure they're accurate. Order one every four months by going to annualcreditreport.com or calling 877-322-8228.

Two annoying but true facts: Credit scores aren't free, and the credit bureaus don't share information on you, so your credit reports and the scores based on them may vary. So if you're planning on applying for a mortgage or other big loan, you might do well to order a the 3-in-1 deluxe package from myFICO.com for $47.85. That will include your credit reports from all three credit bureaus as well as the FICO scores based on those reports.

7 Steps in Protecting Yourself in a Lease/Option

Don Loyd, President
Oregon Association of Professional Real Estate Investors

The real estate investors who attend my investment meetings, read my articles and have signed up for my mentorship training know that I'm a real believer in a lease/option approach to real estate investing. I think the lease/option strategy may be a perfect real estate investment vehicle for new investors. No other approach offers the kind of return on investment when a person is just starting out and has limited funds and investment knowledge.

Through a lease/option strategy, a person with little or no money can control a property and enjoy appreciation while experiencing an up front cash flow as well as a positive monthly cash flow. I've written and spoken about these three aspects on several occasions. Not only can you make money, you can do so without the headache of being a landlord if you have the right documents. I have several lease/options enforce at this writing and never get a call from a buyer tenant. When I was a traditional landlord, I received regular calls from tenants.

What is a Lease/Option?
A lease/option is an investment strategy that consists of two parts. One part is a lease, the agreement to possess "equitable title", which essentially means you have the right to live in and use the property free from interference as long as you pay as agreed. The other part is an option to purchase the property. In an option, the tenant buyer has the right, but not the obligation, to purchase the property at a later date. You can either be a "buyer" or a "seller" in a lease/option transaction.

When I"m a lease/option seller I always try to get at least $5,000 down in non-refundable money called option consideration. This sum will be applied to the purchase price if the tenant buyer exercises his option and purchases the house after his lease expires. If the leasee exercise his option and purchase the home, they forfeit the option consideration. I also try to get at least $200 per month in monthly positive cash flow.

I spent $1,200 to have my attorney draw up lease and option agreements that has essentially ended all middle of the night repair calls. You can download a copy of these two agreements at http://www.oaprei.com/Products/ If you purchased on a lease/option with the right to sublet (also called a sandwich lease) you can have the same benefit. It seems that life is perfect when you have the right agreements in place - but be careful.

The reality - A wake up call
While of this sounds great, there is a downside. Things can go wrong causing you to lose both sleep and money. You could loose the house you leased/optioned and you could get sued for not living up to your agreement with the tenant buyer to whom you sold. How do you protect yourself from these possibilities?

Here are some tips that may help you:

1. Check the Title
If you are buying via a lease option, be sure you do your due diligence. Have a preliminary title report done (in my home town it's called a "lot book report" if you just want to check the title). You may find that your seller doesn't own the property or that he has so many liens against the property that you will never be able to buy it. The money you spend here is money well spent. You can also do the research yourself if you have the time to go to the county recorder and go though the county recorded documents.

2. Check Credit
If you are the seller, be sure to run a credit check on your tenant buyer. If you are the buyer, run a credit check on the seller. You will be surprised what you will find. Rule of thumb: Know as much about the buyer (or the seller) as you can before you sign document. It is said that knowledge is power. My advice: Be knowledgeable.

3. Escrow
If I'm a lease option buyer, I want to open an escrow account. I will open it with several documents. Along with a one page lease option agreement, I attach a completely filled out purchase agreement (as an exhibit) describing the terms of the purchase. I have the seller sign a Warranty Deed to place in escrow. If he is off sailing in the China Sea when I get ready to close the transaction I won't have to find him. Also, sellers sometimes experience seller's remorse before your lease it up. A signed warranty deed will avoid this problem. In the event of a legal action or challenge, this paper work also creates a paper trail that spells out the intent of the buyer and the seller when the transaction took place.

4. Option Money
I always get enough non-refundable option consideration to cover costs if my tenant buyer wants to cheat me out of money. So far I've never lost any money or had a house damaged by a buyer tenant. The more money your tenant buyer puts down the safer you probably are. The approach I use to get plenty of money down is to constantly refer to the tenant buyer as a buyer. I let him know that I'm not looking for a tenant, I want a buyer. That usually separates those who want to rent from those who want to buy. The buyer mentality is much better for you than that of a tenant. Rule of thumb: If you are buying on a lease/option use as little of your own money as possible ($10 to $100?). If you are selling, ask for as much as you think you can get to protect yourself and create cash flow. I always start by asking for $5,000 cash, or cash and part trade.

5. Lease Option Agreement
Use good, solid documents for your lease/option agreements. If I'm a lease/option buyer I use a one page Lease Option form. There are good legal reasons for this, like it's not too specific. If I'm a lease/option seller I use very detailed lease agreement and a separate detailed option agreement. There are 16 pages total in my Agreements which you can purchase at: http://www.oaprei.com/Products/. I caution my protégés to not use generic forms from an office supply store or free downloadable forms off the internet when you are the seller. Remember, the stronger and tighter the documents when you sell - the better. When you are the buyer use a one page document.

6. Notice of Option
If you are the buyer in a lease/option transaction, record a Notice of Option (it may also be call a Memorandum of Option) with your county clerk. For a few dollars in recording fees you can go on record that you have an interest in that property. If the seller tries to sell the house from under you, you can stop the proceeding with that document. If your Option Agreement and Notice of Option has the right wording you can even stop your seller from borrowing more money on the property.

7. Insurance
If you are a lease/option buyer, have a letter prepared for the seller to sign that you can mail to his insurance agent that instructs him to include you as an additional insured "as your interest may appear." This may save you money in the event of a loss due to fire or liability claim. If you are the seller, advise your tenant buyer in writing to obtain rental insurance to protect their personal property in the event of a loss.

In conclusion
These steps are not all inclusive but they will get you started down the path of self-protection. People who lose money in lease options are those who have failed to adequately protect themselves by using the properly worded documents.

Don Loyd, President Oregon Association of Professional Real Estate Investors

SELF DIRECTED IRA & REAL ESTATE

A small but growing number of investors have discovered they can use the money in their IRAs to buy real estate -- from raw land to single-family homes to commercial buildings.

The rules are complex, and the stakes for running afoul of them are high. A misstep can disqualify your IRA's tax-deferred status, forcing you to pay tax on its full value plus penalties if you're under age 59½.

Owning property inside an IRA forfeits the traditional tax advantages of investing in real estate.  You can't deduct property taxes or mortgage interest, and you can't use depreciation.  When you sell the property, a traditional IRA turns profit into ordinary income rather than capital gains (with a Roth IRA, profit would be tax-free).

Plus, your IRA must have enough spare cash to pay such property-related expenses as maintenance costs, taxes and management fees because all income must flow into the IRA and all expenses be paid out of it.

DO YOUR HOMEWORK

Still, there are plenty of success stories. If they intrigue you, be prepared for a lot of work. First, you have to find a property you want (you can't use your IRA to purchase your own residence or vacation place). Then you have to find an IRA custodian that allows real estate investments. Don't look to your local bank or mutual fund company for help -- there are only a handful of IRA custodians who do this. You can find them by goggling for "real estate IRA" or "self-directed IRA" on the Web.

That's how Eddie Gant of

Houston

found Entrust Administration (www.iraplus.com). He transferred his $150,000 IRA from his brokerage account to a Self Directed IRA last April and used $62,000 to purchase a run-down single-family home. He spent $16,000 to remodel the house and sold it within the year for $98,000. The remodeling costs came out of Gant's IRA; the profit went back in. He has since purchased three other houses with cash and estimates a minimum 50% return within one year. But Gant, 43, has a big advantage over most of us. He is a professional home remodeler.

Hanneke Jacobs of

Irvine

,

Cal.

, and her husband, Peter, didn't know anything about investing in real estate when they started four years ago. But as the two of them approached 50, they knew they didn't have enough money to retire. "We didn't want to end up in a trailer park," Hanneke jokes. So on the advice of a real estate agent, they used the $100,000 in Peter's IRA as a down payment on a four-unit apartment complex. Rental income flows into the IRA, and the property has appreciated by about $200,000.

If you buy an apartment building or commercial space, you'll need to hire a property manager to collect rent and maintain the building. Depending on the IRA custodian, you may have to pay a transaction fee every time you authorize a check to pay a plumber or your property taxes.

Financing real estate inside an IRA, like the Jacobses did, adds more complexity because an individual cannot personally guarantee a loan to an IRA, and few banks will lend money to an IRA based solely on a property's potential appreciation. If you pay cash for a property, you give up the power of leverage. On the other hand, using leverage inside an IRA can trigger an arcane tax upon sale of the property on income attributed to borrowed money.

SELF DIRECTED REAL ESTATE IRAS AND 401(K)s have been in existence for almost thirty years. These are the same IRAs and 401(k)s with which everyone is familiar, with a small but important twist: these plans have an investment discretion section permitting investments in real estate, notes, options, leveraged property and more.

You can easily transfer any non self-directed IRA to a self directed IRA, or amend and restate an existing 401(k) plan to one which permits self-direction.

Find a third party administrator or a trustee in a location near you offering such diversification.

Have them simply transfer your non Self Directed IRA to a self directed IRA. If you have an old 401(k) where you used to work, you can directly roll those funds over to a Self Directed IRA.

If you are in business for yourself, you can establish a new Individual 401(k) with new generous contribution limits.

Those of you with Defined Benefits plans can just amend and restate.

You are now ready to make a number of real estate investments to build your real estate business. Invest in real property directly. You direct the administrator or trustee to use your IRA and/or 401(k) funds to invest in a property.

COMBINE YOUR IRA WITH "OTHER PEOPLE'S IRA" (OPI) funds so you can make larger purchases or a single purchase of a larger dollar amount, be it a single family dwelling, apartment complex or condo.

YOU CAN COMBINE YOUR IRA, OPI AND OTHER PEOPLE'S MONEY (OPM) to acquire the investment property. Each person receives an undivided interest in the property. All income is allocated in direct relationship to the amount invested by each person, IRA or 401(k). You can even include family members, as long as the transaction closes simultaneously.

LEVERAGE THE INVESTMENT:

You can have leveraged property in your IRA or 401(k). The loan must be non-recourse to you as an individual, and yes there are lenders who do this. Some community banks and savings associations who are portfolio lenders will make non-recourse loans on investment properties.

There may be a tax on the income on the amount financed, but the overall effect can be a real advantage to your IRA. 401(k) plan acquisition debt is not subject to any other tax, except when you receive it from your plan.

SET UP LLCS OR LAND TRUSTS AND FUND THEM WITH YOUR IRA OR PLAN FUNDS:

Your IRA or 401(k) can own interests in Limited Liability Companies or be beneficiaries of Land Trusts. These entities can then purchase investment properties.

BE A LENDER:

Your IRA, 401(k) or other plan can lend to anyone who isn't your ascendant, descendant or spouse thereof. If you have a client that needs a purchase money second, use your IRA or plan funds to finance that crucial loan to make your deal.

FINANCE OTHER PEOPLES COMMISSIONS:

If someone needs cash now, you can have your IRA or plan buy the commission.

CONSTRUCTION LOANS:

Your IRA or Plan can be a builder.

These are just a few of the methods and transactions you as a realtor can do with your IRA and 401(k) funds. In all cases, all income goes into your account and expenses associated with your property or other asset (such as accounting, property management, legal, maintenance and marketing fees) are paid from your account.

Now you have an additional source of cash to make your real estate business grow!

HISTORY OF TAX DEFERRAL IN QUALIFIED PLANS AND IRAS

In the thirty-year history of tax advantaged programs, qualified plans and individual retirement accounts have consistently been at the forefront of opportunities to defer tax. Within this context, self directed investment opportunities have not received the attention that standard IRA and Qualified Plan investments, such as stock, bonds, mutual funds and certificates of deposit, have had. Although non-standard investments in tax deferred accounts are a relatively small proportion of overall

US

investments, these investments may be a significant part of anyone's diversified portfolio. Self direction of qualified plans and IRAs are straightforward as long as the IRS disqualification rules, unrelated business income tax provisions, and other related tax sections are followed.

In 1974 Congress passed the Employee Retirement Income Security Act, or ERISA, to clarify and provide non abusive circumstances under which pensions could be created. Tax advantages to the employer and employee would become available and regulated with the intent of being fair handed.

Variously known as Keogh and HR-10 plans, these eventually became known as Qualified Plans, which are employer-originated tax deferral retirement programs. (These include Defined Benefit and Defined Contribution Plans, which generally consist of Profit Sharing, with or without a 401(k) option and Money Purchase Pension Plans.)

Individual Retirement Arrangements, or IRAs, which are generally individually-originated programs, were also included in this legislation. Employer contributions to IRAs could be made following specific rules. Contributions to Qualified Plans could be made by employers to employee participants, and employees could, under specific adoption of tax code provisions, (401(k)), defer funds from their pay to their plan account. Individuals could always make contributions to their Individual Retirement Accounts provided they had earned income.

From the day the ERISA became effective, January 1, 1975, all Qualified Plans and IRA contributions and deferrals could be invested in anything permitted by law. This included any asset that could be sold or bought in the market place. The limits were and are covered by IRC Sections regarding Prohibited Transactions, Unrelated Business Income Tax and Unrelated Debt Financed Income Tax.

Because of abuse by sellers of certain investments, Congress passed legislation, effective January 1, 1981, prohibiting these investments, specifically gems, stamps, coin collections, works of art, and antiques. This legislation also permitted the deductibility of IRA contributions. Significantly, all other investment opportunities were not excluded.

The investment opportunities which became increasingly interesting to Qualified Plan and IRAs included Real Estate, Notes, Options on Real Estate, Private Placements, Investment Partnerships, and Operating Businesses.

Land, single family, multi family and commercial properties found their way into many portfolios, and the values of Plans and IRAs rose in direct proportion to property values. In some states, investments of $10,000 routinely returned $100,000 in two years. Properties being rehabilitated offer 30% returns to the savvy investor. On some occasions, options on real estate can turn a tidy profit with a very small investment. Cash flow provides many retirees tax-free income in Roth IRAs.

Plan participants and IRA owners discovered that leverage was a way to increase the income potential of land or other property. Leveraged, or debt financed property, was subject to Unrelated Business Income Tax (UBIT) rules, as was operating income generated by assets. However, acquisition debt for real estate in qualified plans is not subject to unrelated business or debt financed income tax. IRA acquisition debt for real estate was not given such generous treatment and tax payments for the debt-financed income needs to be paid by the plan or IRA.

Depreciation expense, interest expense and certain maintenance expenses are allowed as deductions on Form 990-T, Exempt Organization Business Income Tax Return, for the affected debt-financed asset or operating income asset. The implications of UBIT should be considered when making investment decisions.

Debt financing requires the services of lenders willing to lend to an IRA or plan. Non-recourse loans are the only loans permitted for plan or IRA assets. This also precludes the beneficial owner from using their credit or sign on the loan. Any extension by an IRA owner or participant of a plan to their IRA or plan is specifically prohibited. There are a number of non-recourse lenders but some diligence is necessary to find them.

Many individuals elect to partner with their plans and or IRAs, themselves and others, as undivided interests in real or other property. A growing number have established Limited Partnerships, C Corporations and Limited Liability Corporations. Each method has its advantages, depending on the situation.

STEPS TO SELF DIRECTION ARE STRAIGHTFORWARD:

• Locate a plan sponsor or IRA provider who offers completely flexible investment options in their plan and trust document.
• Adopt that plan.
• Rollover assets from any existing IRAs or past qualified plans to the new Self Directed plan.
• Determine the appropriate diversification you desire and direct the trustee or custodian to make the asset purchases on behalf of the plan or IRA.
• Income and expense are treated on a prorated basis of asset ownership and recorded accordingly.
• Distributions must be made beginning age 70 ½ for all plans other than Roth IRAs. Distributions may also be made in kind.

Congress expects the flexibility of plans and individual accounts will expand, contribution levels will increase and tax payments on new plans will be more advantageous. This will allow self direction to expand to additional plan types and generate more savings and investments. Self Directed Plans are slowly generating more interest, especially among high income, high net worth individuals, and small business owners.   

Self-Direction of IRAs and plan assets is a method to increase diversification and grow retirement income. Following the rules is straightforward and, with proper assistance from tax professionals the benefits can be enormous.

PROHIBITED TRANSACTIONS

While the Internal Revenue Code and the Employee Retirement Income and Security Act (ERISA) do not state permissible retirement plan investment options, they do include what is prohibited and by whom. However, there are numerous exceptions to prohibited transactions. In addition, individuals and companies may apply for private letter rulings for unique investments not covered by the currently existing exceptions. We suggest you check with your tax advisor for specific advice.

Generally, a prohibited transaction involves the improper use of your IRA or Qualified Plan holdings by you or any disqualified person. A disqualified person is any member of your immediate family (except siblings), employers, certain partners, fiduciaries, and other categories specified in the IRS code.

IRA owners may not borrow money from their IRA, sell property to it, receive unreasonable compensation for managing it, or use it as security for a loan. Direct investment of IRA funds in collectibles, which include works of art, rugs, antiques, metals, other than gold and palladium bullion, gems, stamps, coins, except certain US minted coins, alcoholic beverages and other tangible personal property as may be defined by the Secretary of the Treasury, is also prohibited.

Qualified Plan members may not transfer Plan income or assets, sell, exchange or lease property, lend money, extend credit, furnish goods, services or facilities to disqualified persons, or allow fiduciaries to obtain or use the Plan's income or assets for their own interest.

Outside of these prohibited transactions, your investment capabilities are extensive as long as you comply with the relevant regulations.

The most frequently asked questions about self-directed retirement plans are about which kinds of transactions are permitted, and which are not. How much freedom do you have when it comes to investing with your tax-free or tax-deferred IRA?

It is interesting to note that the IRS tax code addresses this question by outlining and defining what is prohibited, or what you cannot do. Self dealing transactions are prohibited. The terms "self dealing" and "prohibited transaction" may be used interchangeably. There is little in the way of guidance or direction regarding what is allowed, in specific terms. Therefore it is important to understand the basic intent of your retirement plan, and the language that defines prohibited transactions.

Fundamentally, your retirement plan is intended to benefit you when you retire, and not before then. This simple concept is helpful in understanding the rules on permitted uses of your IRA. If you are planning any transaction which clearly appears to confer direct benefits to you prior to retirement, you should carefully examine the legality of such a transaction.

A working knowledge of several terms is invaluable in examining your options. The meanings of words like "You," "Individual Retirement Account," "Plan," "Disqualified Persons" and "Transactions" may not apply in obvious ways. Exploring these phrases in the context of this specialized subject helps to simplify things:

• "You" are not the Individual Retirement Account. You and the IRA are two entirely separate entities. You establish a trust for your benefit, through a legally permitted entity, such as a bank, savings association, or non-bank trustee. Your trustee or custodian acts on your behalf, based on your direction.
• An "Individual Retirement Account," also known as a "Plan," is a type of individual retirement arrangement which allows tax deferrals or permits tax-free accumulation of money. This account (IRA) is opened so that transactions you direct may be processed on your behalf by your trustee or custodian.
• "Transactions" are the means of moving funds into your account and making use of the funds in the account. These include contributions, purchases, sales, and distributions.
• Contributions are those transactions in which you deposit money to your account based on the legal limits in accordance with your earned income. Rollovers are a different kind of contribution that is permitted. Purchases are the acquisition of assets which you direct through your custodian or trustee. (Accounts opened with insurance companies generally purchase Individual Retirement Annuities). You may never purchase an asset and then contribute it to your IRA--purchases must be done inside your plan. Only cash may be contributed, as noted previously. Sales are transactions in which you direct your trustee or custodian to sell an asset from your account, the proceeds of which (cash or other property) remain in your account. Distributions are withdrawals from your account. You request withdrawals, in cash or in kind, from the trustee or custodian, to be made payable to you. If you ask that such withdrawal payments or assets be conveyed to a third party, it still counts as a withdrawal to you. This is very important information as regards traditional IRAs, where distributions or withdrawals are taxable events. While distributions from Roth IRAs are generally tax-free, the same principals generally apply.

By now it is clear that "You" and your IRA are different, and your trustee or custodian acts on your behalf based on your direction. By inference, it is clear that "you" never "buy" an IRA. Instead, you open an Individual Retirement Account, and then direct the purchase of an asset, which may be through the process of opening the account, or by a separate direction. A prohibited transaction is generally defined as the improper use of your IRA by you or any disqualified person.

In summary, prohibited transactions (self dealing) are those transactions that violate the basic intent of your IRA. They do not impose unacceptable limitations. On the contrary, there are numerous methods which do not violate the law that can be used to meet your long term objectives, and allow you to get the most out of your plan. A complete understanding of the applicable rules is encouraged, in order that you realize all the benefits available to you in directing your IRA

FOR IRAs, A DISQUALIFIED PERSON IS:

·         the IRA holder and his or her spouse;

·         the IRA holders ancestors, lineal descendants and their spouses;

·         investment advisors and managers;

·         any corporation, partnership, trust or estate in which the IRA holder has a 50 percent or greater interest; and

·         anyone providing services to the IRA such as the trustee or custodian.

BEWARE OF THE IRS RED TAPE

One reason you probably shouldn't tackle an IRA real estate investment on your own is the IRS. The money-grabbing branch of the government has a lot of rules when it comes to using retirement funds for real estate.

"Probably the most common question I hear is, 'I've found a really neat timeshare and I want to buy it with my IRA, can I do that?' Yes, you can," says Patrick Rice of IRA Resource Associates. "Then they say, 'I want to use it for a couple weeks a year.' Well, no, you can't do that. Most calls I get, people want to buy products for their own use."

Rice says the IRS allows you to use the land or building, but not while it's in your IRA. For instance, you could buy a retirement home, rent it to someone else, put the rental income in your IRA, and, when you retire, take the house as a distribution. Then you can move in.

Just to show how complicated this can get: You cannot rent the house to your spouse or your ascendants or descendants -- grandparents, parents, children, grandchildren, etc., but you could rent it to your brother or sister while it's in your IRA.

Charitable Contributions

Uncle Sam Will Pay You To Clean Your Garage

Whether it's sweaters or sewing machines, trousers or typewriters, blouses or bicycles, the system is the same.   Most people take a bunch of old clothes, throw it into a bag and toss it into a dumpster outside a Goodwill or Salvation Army building.  One of the most common mistakes in reducing your taxes could be not taking advantage of the charitable contribution laws.  Depending upon your tax rate, cleaning out your closet or garage could put a lot of money into your wallet.

Documentation is key to how much you want to claim for donations. If you want a big number deduction, keep track of the items and their receipts -- the more documentation you have, the higher a deduction you can claim.

Documentation is the best way to arm yourself against an IRS audit. But documenting is no easy task.

According to the Internal Revenue Service, a taxpayer can deduct the fair market value of clothing and household goods. Fair market value is defined as "the price at which property would change hands between a willing buyer and a willing seller, neither having to buy or sell, and both having reasonable knowledge of all the relevant facts."

But the IRS doesn't have an exact formula or method for you to establish fair market values, so what you write down is completely subjective. The IRS does, however, offer vague guidelines.

All the main rules are laid out in Publication 561, Determining the Value of Donated Property and Publication 526, Charitable Contributions."

A former IRS agent who can speak more freely, but asked to remain anonymous, adds, "a sweater is a sweater. It doesn't matter if it was a $2,000 sweater from Nieman Marcus or a $20 sweater from Kmart." He adds that most donated clothing goes to homeless people, so they don't care where the sweater came from.

By following these guidelines, you'll be able to receive maximum tax benefits when donating used clothing and household goods.

1. Give your items to a qualified organization -- an organization that has a tax-exempt status with the IRS. To find out if the organization is qualified:

• Ask the charity if the IRS has qualified it.

• Read the charity's literature to ensure that it is fully recognized by the IRS.

• Check IRS Publication 78, Cumulative List of Organizations, which lists most qualified organizations.

2.  Assign a Fair Market Value to the items you're donating

• You can't claim a fair market value that is more than the original cost of that item.

• CFP Ken Pikor of Westerville, Ohio, who is also an "enrolled agent" (someone who can represent taxpayers before all administrative levels of the IRS) says, "If you happen to be like my wife who saves all her clothing receipts and files them, a good rule to follow when valuating used clothing/items, is to use 25 percent of the original purchase price as a guide when determining the donated value."

3.  Keep a detailed record of your donated items, including:

• The number of items and the condition they're in.

• The dates you received or bought the items -- if you don't know exact dates, use approximate dates. The original purchase prices.

• A quick snapshot or video of the items you're donating -- this will substantiate your contribution if questions ever arise. Keep the visual record with your tax records.

• Signed and dated receipts from the organization receiving your donations -- when Goodwill asks you, "Do you want a receipt?" say "yes."

4. Report your charitable deductions on Schedule A of Form 1040.

5. The value of your charitable deductions can't be more than 50 percent of your adjusted gross income in any single year. Donations exceeding the 50 percent limit can be carried forward to future years.

6. When you donate more than $500 worth of goods to charity, you must include Form 8283, Noncash Charitable Contributions, with your tax return.

7. If your claimed deduction is more than $5,000, you must get an appraisal from a qualified appraiser and attach an appraisal summary (Section B of Form 8283) to your tax return. A qualified appraiser is someone authorized to complete Part III, Declaration of Appraiser, of Section B.

Donating Property? Don't Forget That Receipt!

Like cash donations, if you donate property (defined as anything that is not cash) to a charitable organization, the records you must keep depend on the value of the property you contribute. A contribution of less than $250 requires a receipt from the charity showing the charity's name, the date of the donation, and the location and description of the property donated. In addition to a receipt, donations between $250 and $500 require written acknowledgment of your contribution from the charity, stating whether the organization gave you any goods or services as a result of your contribution.

Donations of property valued between $500 and $5,000 require detailed records of how you initially got the property and the approximate date you received it, in addition to a receipt and written acknowledgment. You must file Form 8283, Noncash Charitable Contributions, for all donations of property valued at more than $500. In addition to every requirement stated above, contributions over $5,000 require a written appraisal from a qualified professional.

Please note that property donations of more than $500 made on or after January 1, 2005 will require written documentation from the charity indicating whether or not the property will be sold or used by the organization. You will not be able to receive a charitable deduction without this documentation.

Drive Away with a Tax Deduction

Instead of trying to sell that old Chevy, you can donate it to a charitable organization and, in return, receive a guaranteed tax deduction. If you donated a car to a charitable organization in 2004, you can deduct the fair market value of the car. The fair market value of a vehicle can be found on Web sites such as the "Kelley Blue Book" (www.kb.com). However, the rules change in 2005. As of January 1, 2005, you can no longer deduct the fair market value of a vehicle if the charity sells it; you can only deduct the amount the charity receives from the sale of the car.

As for all donations of property, you must file Form 8283 when deducting a vehicle donation. This will allow you to describe the condition of the car and how you determined the value. For deductions of more than $5,000, you must attach a copy of an appraisal, made by a qualified professional, to your tax return, in addition to the appraisal portion of Form 8283.

Dealing with large donations
You may be thinking that a donation of more than $5,000 is out of your league. But consider this, if a relative dies or moves into a nursing home, donating their sheets and towels, furniture and kitchen utensils, may be the most practical way of cleaning up. The total fair market value of a large donation like that could easily top $5,000.

The best way to deal with an extraordinarily large donation is to put a note on your return, claiming that it's a donation from a deceased person or an estate situation.  A note explaining the circumstance may just help you avoid facing that dreaded IRS audit.

Ten Tips for First-Time Homebuyers

1.                  Be picky, but don’t be unrealistic.  There is no perfect home.

2.                  Do your homework before you start looking.  Decide specifically what features you want in a home and which are most important to you.

3.                  Get your finances in order.  Review your credit report and be sure you have enough money to cover your down-payment and your closing costs.

4.                  Don’t wait to get a loan.  Talk to a lender and get pre-qualified for a mortgage before you start looking.

5.                  Don’t ask too many people for opinions.  It will drive you crazy.  Select one or two people to turn to if you feel you need a second opinion.

6.                  Decide when you could move.  When is your lease up?  Are you allowed to sublet?  How tight is the rental market in your area?

7.                  Think long-term.  Are you looking for a starter house with the idea of moving up in a few years or do you hope to stay in this home longer?  This decision may dictate what type of home you’ll buy as well as type of mortgage terms that suit you best.

a.                  Most 1^st time home buyers live in a home 2 to 5 years

8.                  Don’t let yourself be house poor.  If you max yourself out to buy the biggest home you can afford, you’ll have no money left for maintenance or decoration or to save money for other financial goals.

9.                  Don’t be naïve.  Insist on a home inspection and if possible get a warranty from the seller to cover defects within one year.

10.             Get help.  Consider hiring a Realtor as a buyer’s representative.  Unlike a listing agent, whose first duty is to the seller, a buyer’s representative is working only for you.  And often, buyer’s representatives are paid out of the seller’s commission payment.

For more information visit our website at www.HelpUSellBarransRealty.com or call us at 253-862-5558