MONEY Housing Market

Where Are The Most Underwater Homes? These 13 Cities

Fremont Street, Downtown Las Vegas
In Las Vegas, 32% of homes are underwater. Sounds bad, but a year ago the figure was 47%. Brian Jones—Las Vegas News Bureau

Homes without enough equity to pay off the mortgage continue to plague the market, especially in the cities hit hard by the bust (basically, anywhere in Florida). The good news: There's way fewer of them than a year ago.

Home prices rose enough to put another 300,000 homes above water in the first quarter, according to CoreLogic. Over the last year, in fact, prices have bounced back enough to put a significant dent in the percentage of homeowners who don’t have enough home equity to pay off their mortgages.

As of March 30, 12.7% of all homes with a mortgage were upside down, compared with 20% a year ago.

And if prices rise just another 5%, as the research firm predicts, a year from now that share of underwater homes will be closer to 10%.

Still, the financial stability of American homeowners remains stubbornly fragile, reflecting just how painful the housing crash was. In addition to the roughly 6.3 million homes in negative equity, an additional 10 million have less than 20% equity.

Homeowners in that “under-equitied” position are less equipped to sell or refinance, because of lender requirements. Homeowners looking to trade up, for example, often need the proceeds from the sale of their current home to make a 20% down payment on a new one. A 20% down payment not only secures the best interest rates, it eliminates the need for costly mortgage insurance.

Money 101: What Mortgage is Right For Me?

The depth of the underwater problem hurts potential buyers too, by keeping homes off the market amid general overall shortages of listings. First-timers are particularly impacted, because far more lower-priced homes are underwater than higher-end, according to Zillow research.

More: Why Underwater Homes are a First-Time Buyers’ Enemy No. 1

Where the water is deepest shouldn’t surprise: Nevada has the highest share of underwater properties (29.4%) followed by Florida (26.9%). After that comes Mississippi, Arizona and Illinois. Of the 25 largest regions, Tampa had the highest share at 29.5%. Still, that’s a nice improvement from 41% a year ago.

When looking at the largest 170, fellow Florida city Ocala takes the top spot with a remarkable 34.4% of homes in negative equity followed by Lakeland, Fla. (32.7%) and Las Vegas (31.8%).

The list below represents the highest percentage of underwater homes in cities with at least 200,000 mortgaged properties, according to CoreLogic.

UnderwaterCities
Source: CoreLogic
MONEY Rentals

How Your Home Can Bring In Some Cash This Summer

140530_REA_VacayRental_1
In addition to beach and ski destinations, homes in rugged outdoor spots do well as vacation rentals, says HomeAway. Spaces Images—Getty Images/Blend Images RM

Ever considered turning your home into a vacation rental? Here's how to make your house pay for your time away. Plus:

AAA predicts this summer will be the strongest travel season in years, and all those vacationers will need a place to stay. Should your home (or second home) be one of them?

Turning your home into a short-term vacation rental could bring in some nice extra change to pay for your own vacation, or even help you pay off that second home: Rates on rental site HomeAway.com average $217 a night.

Before you decide, ask yourself these four questions:

Do people want to come to your city?

Certainly you’ll have the best luck if your home is in, or at least near, a top travel destination. Most of the cities seeing the biggest increases in traveler inquiries, according to HomeAway, are on the beach – places like Mexico Beach, FL and Lavallette, NJ.

No sand in sight near your home? The most important thing is being near your area’s main attractions, whatever those may be, says Jan Leasure, founder of Monterey Bay Property Management. You’ll just have to charge accordingly.

So, how much CAN I make?

Your price depends on the location, of course, and your home’s size and amenities. Search comparable listings on HomeAway and similar sites to determine how much you might fetch.

Then, expenses. There’s marketing: HomeAway and VRBO charge renters 10% of each booking or a flat annual fee of $349 to $999 (the more you pay, the higher your listing will rank in search results). FlipKey and Airbnb, which offer fewer services, charge 3% per booking.

You’ll also need to hire a housekeeper to clean up after guests. HomeAway suggests ballparking each session at $20 for each bedroom and bathroom.

The biggest cost may be your time: An average nine hours a week, according to a HomeAway survey. You may prefer to pay a property manager to help with booking and maintenance. These businesses generally charge anywhere from 10% to 50% of your nightly rate depending on the level of service they provide.

And don’t forget taxes. If you rent your home for two weeks or less, you won’t owe the government a cent. Longer, and you have to pony up the taxes — but you’ll be able to deduct certain expenses. How much you can deduct will depend on how often you stay there yourself. Learn the IRS rules. You also may have to pay local tourist taxes.

Is it legal?

Your county or city may not allow short-term rentals at all (New York City largely prohibits leasing property for fewer than 30 days) or might have specific requirements such as registration and tax collection. Even if the law allows it, your individual homeowners or condo association may not.

Check the rules with your zoning department and your association board. Ideally, consult a local real estate lawyer.

HomeAway offers a helpful guide. Other good resources are at Realtor.com and the Short Term Rental Advocacy Center.

How do I protect my home?

If you’ve decided you do want to try this, guard against vacationers trashing your place with a strong rental agreement, insurance and a security deposit. The security deposit— a few hundred to a few thousand dollars depending on the value of your home and length of stay—may save you the trouble of making an insurance claim if a rowdy vacationer acts up.

HomeAway offers a sample rental agreement. Consult a lawyer to ensure it complies with local laws and to lessen the chances you’ll be on the hook for any damage your guests cause.

A good agreement should cover liability for any necessary repairs or cleaning charges following your guest’s stay, rules on smoking and pets, and a liability waiver for pools and other hazards. Miami real estate lawyer Ben Solomon also suggests adding an occupancy limit so that nice young man doesn’t bring his entire fraternity along with him.

As for insurance, call your home’s insurer to let them know you’ll be renting out your home. Most insurance are “fairly accommodating” to occasional renters, says Jeanne Salvatore of trade group Insurance Information Institute. Make sure you’ve maxed out liability coverage on your homeowner’s policy, which offers protection in case of, for example, a guest’s injury. Consider an additional umbrella liability policy of at least $1 million, says Maryland real estate lawyer Harvey S. Jacobs.

 

MONEY buying a home

13 Rules for First-Time Home Buyers

Man and woman embracing in front of house with sold sign
Man and woman embracing in front of house with sold sign Paul Bradbury—Getty Images/OJO Images

Millenials stepping into the home buying arena for the first time grew up in an era of boom-and-bust, insane home price escalation and subprime lending. Here are today's new rules to follow.

Having witnessed the housing market’s wild ups and downs, Millennials may be wondering what new rules apply in this evolving real estate realm. Luckily, the ‘new rules’ can be discovered in the same tried-and-true traditional rules of home buying that were overlooked in years past.

Here are 13 rules for Millennials looking to buy (while avoiding a housing bubble burst):

  1. If you can’t afford it, don’t buy it.
  2. Don’t jump into a home purchase blindly. Do your research, learn about the area, get advice from others, and study all the available data.
  3. No more creative financing: buy properties with traditional 30- or 15-year fixed loans – and know what your mortgage payment will be each month for the entire mortgage term.
  4. Always put 20% down.
  5. Whatever the bank says you can afford, subtract 20%, and you’ll never be house poor.
  6. You’re not just buying a house, you’re buying a neighborhood.
  7. It’s harder to get a mortgage because qualifications are more stringent these days. Keep great financial records, and be patient throughout the process.
  8. Don’t expect the market to bail you out. That means no overpaying for a house you can’t really afford in hopes of market appreciation making up the difference.
  9. Less is more. A smaller, practical, easy-to-maintain house is the new, big, rambling mansion.
  10. Stay on top of your credit, and shoot for an excellent score (above 750).
  11. Plan to stay in your home at least 5 years. Think you’ll need to sell before then? Keep renting until you know you can stay put for a while.
  12. Budget for all the ongoing costs of home ownership – not just the monthly mortgage payment. Be sure you have the funds for property taxes, insurance, maintenance, upkeep, and even an emergency repair fund.
  13. If you are questioning your job security and your ability to get a new job quickly in the event of a layoff – don’t buy yet.

To a generation who saw risking everything and buying homes with zero down as the norm, these rules may seem new. But, as they say, everything that’s old eventually becomes new again. In this new era, Millennials simply need to look back to get ahead and buy safely, sanely, and securely in the current housing market.

More from Trulia:
9 Things to Look For When Touring An Open House
The Pros and Cons of Buying a Newly Built Home
The 10 Most Costly Home Selling Mistakes – & How To Avoid Them

Michael Corbett is Trulia‘s real estate and lifestyle expert. He hosts NBC’s EXTRA’s Mansions and Millionaires and has authored three books on real estate, including Before You Buy!

MONEY home improvement

Tackle These Projects Before Selling Your Home (And After Buying)

Home improvement projects that pay off for buyers and sellers, according to Porch.com.

That outdated powder room you never bothered to fix up? Well, that’s not going to fly with potential buyers. So it makes sense that general contractors were the most popular project home sellers took on before listing their home, according to a new report from home improvement firm Porch.

What if you just moved in? You were far more likely to hire a painter.

Whether they’re buying or selling, many homeowners turn to home improvement projects to boost property value or enhance curb appeal. Porch’s analysis of more than half a million projects by region show that many popular projects go hand-in-hand with practical considerations such as repairs and home inspections.

For sellers: The most popular home improvement hires are general contractors and handymen, followed by electricians, plumbers, and roofing professionals. The reason is simple: to avoid any issues during home inspections.

Top Projects Sellers“Have a professional remodeler walk around the house with you inside and out,” Paul Sullivan, chair of National Association of Home Builders (NAHB) Remodelers, recommended. It will “make the process much smoother.”

The work appears to pay off. Contractors provide, on average, 68% return on investment, according to Porch.

One surprise, Porch said: Not many sellers said they were hiring painters. A fresh coat of paint returns close to 100% of the money spent in boosted value, its report said. Sullivan cited one home in a Boston suburb which sold for $60,000 over the asking price within four days, which was “absolutely” due to improved presentation.

Sellers often wonder if they should make the investment in improvements solely to sell, says Tom O’Grady, of the National Association of the Remodeling Industry. They might be comfortable accepting a lower selling price rather than risk not getting their money back in the form of a higher sale price.Top Projects Buyers

Painting is one of the first things buyers tackle after moving in. That brings an average return on investment of 152%, Porch says. Other top projects included installation of new appliances such as dishwashers and refrigerators, roof repair, and home inspections.

Larger endeavors like renovating kitchens and bathrooms are common, Sullivan added, but both he and O’Grady advised against making drastic, costly changes immediately after moving in.

Instead, O’Grady said, small enhancements like crown molding, new tiles, and better light fixtures can dramatically change a room, making it more comfortable for new owners until it’s financially feasible to do a complete renovation.

“Live in the house for a month or two and get a feel for the place,” Sullivan said. “When you’ve lived in a house for 10 years, you know its shortcomings. But when it’s a new house, you only think you know.”

MONEY Investing

If You Live in Vegas, You Might Want to Buy More Bonds

140527_REA_LasVegas_1
Las Vegas' more volatile home prices suggest residents should invest their portfolios more conservatively, a new report says. Glenn Pinkerton—Las Vegas News Bureau

Where you live, and how much home equity you have, should impact how you invest for retirement, argue Morningstar experts.

The collapse of housing prices five years ago made a lot of people question whether owning a home was a good investment. But you probably never connected where you live with how you invest.

That’s a mistake, says David Blanchett, head of retirement research at Morningstar. Blanchett argues in a recent paper that investors’ strategy for building retirement wealth should look beyond typical portfolio considerations — stocks versus bonds, growth versus value — and take into account the health of your real estate market.

“Real estate is the largest physical asset most households have,” Blanchett says. And it can be an important financial asset: Home equity could be tapped to help fund retirement, or a paid-off home passed along to heirs.

But, as the housing bust taught us the hard way, a downturn in home prices can wipe out equity in a flash. Especially if you own a home in a market where prices are volatile, such as Las Vegas, Miami, or Washington D.C.

In that case, you might want to adjust your investment strategy, according to Morningstar. Here are some ways your housing situation could impact your investing style:

If you live in a one-company town: Invest more conservatively. A city dominated by one industry or one company leaves you vulnerable. “If that company went out of business, or had a significant layoff, lots of people might all want to move at the same time,” Blanchett says. Even if you don’t work for the company, you’re still exposed.

If you have a lot of equity in your home: Invest more aggressively. The more equity you have in your home, the less affected you are by pricing changes. For example, if you’ve just purchased your home with 10% down, a 10% decline in home prices would completely erase the value of your investment. That same decline for someone who has paid off the mortgage would represent a much less significant loss. “You can afford to take on more risk in other parts of your portfolio,” Blanchett says.

If you rent: Increase your allocation to REITs. Stashing a 5%-10% chunk of your portfolio in real estate investment trusts is a common diversification tactic. But owning a home also exposes you to real estate. If you have a lot of home equity, or live in a riskier market, you want to stay at the low end of that allocation. If you rent, on the other hand, you could put closer to 10% of your nest egg in REITs, Blanchett says.

 

MONEY home prices

Home Prices Are Still Going Up, But Not As Fast: CoreLogic

Home prices rose 10.5% in April, says CoreLogic, but the days of double-digit gains are nearing an end. Seven states saw home prices surpass boom-era peaks.

Home prices in April rose 10.5% over last year, the lowest rate of appreciation in 14 months, according to CoreLogic. The research firm predicts home prices will continue to increase at a slower pace: 6.3% over the next year.

April was the 26th month of year-over-year increases in national home prices.

CoreLogic CEO Anand Nallathambi attributed the persistent price appreciation to an insufficient supply of homes on the market. “The purchase market continues to suffer from a dearth of inventory,” said Nallathambi.

10 Largest Metro Areas YY growth

Despite the still-double-digit growth, April’s price gain represented the lowest year-over-year increase in home values since February 2013.

“The weakness in home sales that began a few months ago is clearly signaling a slowdown in price appreciation,” said Sam Khater, deputy chief economist for CoreLogic.

While home appreciation may be slowing, seven states have seen housing values reach new heights. Prices in Colorado, Louisiana, Nebraska, North Dakota, South Dakota, Oklahoma, Texas, and Wyoming have surpassed their housing boom highs.

Homeowners elsewhere in the U.S. haven’t been so lucky. Prices in Nevada increased 14.8% in April, the second-largest year-over-year increase of any state, but remain off 38% from their March 2006 peak. That’s the biggest drop of any state in that time period.

Of the top 10 most-populated regions, metro areas in California, Texas, and Georgia saw the largest year-over-year home appreciation. Prices in the area comprising Riverside, Calif. area led the pack, increasing almost 20% from April 2013 to April 2014.

The Denver, Dallas and Houston metropolitan areas experienced their highest prices since their boom-era peak.

Anthony Rael, market trends committee chairman for the Denver Metro Association of Realtors, says Denver has become a seller’s paradise.

“If it’s priced right in a good neighborhood and in good shape, sellers are getting top dollar,” said Rael. “In many cases, within the first week [on the market].”

MONEY home improvement

Budget Redo: $468 Transformed This Farmhouse Kitchen

140529_REA_BudgetRedo_After_1
A rustic island and a homemade mason-jar pendant become stunning focal points, lending the right amount of vintage-inspired charm. Courtesy of This Old House

With just $468, the owners of a farmhouse transformed their dingy, dated kitchen in this Budget Redo from This Old House.

They say the kitchen is what sells a home. Not so for Brandi Milligan and her fiancé, Jeff Singer, who loved their early-1900s farmhouse, in New Brunswick, Canada, but loathed the kitchen that came with it. While the space had great bones and a stunning original tin ceiling, it also had dingy wallpaper, dark cabinets, and a red-and-blue-checkered floor.

140529_REA_BudgetRedo_Before_1
Even after removing the dated wallpaper, garish blue paint on the cabinets and a bold checkered floor detracted from the kitchen’s gracious size and lovely tin ceiling. Courtesy of This Old House

First to go was the wallpaper, replaced by creamy white paint. Next, Brandi removed the blue upper-cabinet doors to create open shelves, and Jeff helped move isolated corner cabinet units to the other side of the room. Brandi added crown molding to the tops of the cabinets, then refaced the lower doors with white beadboard wallpaper and trim attached with wood glue. A spray-paint treatment gave the counters the look of granite for minimal cost. Brown epoxy paint on the floor provides a neutral look short-term until the couple can afford a new floor. For the focal point, Jeff built a handsome island using stock pine; Brandi distressed it with a hammer and a chain before staining it. The finishing touch? They built a mason-jar light inspired by projects they saw online. The centerpiece is by far Brandi’s favorite part: “It helped turn a plain kitchen into something really special,” she says.

Project Cost:

Strip wallpaper and prepare walls: $48

Add crown molding to cabinets: $20

For the full tally, see the original story at This Old House:

MONEY home sales

12 Cities Where Homes Are Flying Off the Market

The average home sold in April spent 86 days on the market. But in these 12 cities, homes flew off the market a lot faster.

  • 1.

    Denver, CO

    140527_REA_MoveFast_Denver_1
    Homes in Denver sell, on average, in just 25 days. Scott Dressler-Martin—Visit Denver

    25 days: There’s just not enough homes on the market to meet demand in the Mile High City. Listings shrunk 13% in April over the same month last year. That, naturally, pushed prices up 20% to a median $340,000.

     

  • 2.

    Oakland, CA

    28 days: California buyers overall have to move quickly to buy, though competition is creeping up. In April there were 47% more homes on the market–probably why prices were up just 3% over last year to a median $499,950.

     

  • 3.

    San Jose, CA

    30 days: The home market in the center of the tech universe held fairly steady in April, with home prices up a solid 5% from last year. Median: $709,500. For the month, the average home sold at 106% of the list price, indicating bidding wars are still going strong, according to the Santa Clara County Association of Realtors.

     

  • 4.

    San Francisco, CA

    140527_REA_MoveFast_SanFrancisco_1
    Scott Chernis Photography—San Francisco Travel Association

    33 days: Bidding frenzy slowed a bit, with homes taking 18% longer to sell than last year, even as the market got tighter. Prices jumped 7% to a median $879,000. In all of California, in fact, single-family home sales were down 7% over last year, according to the California Association of Realtors. Association president Kevin Brown attributed that to investors slowing their buying.

     

  • 5.

    Seattle, WA

    33 days: The Seattle-Bellevue-Everett area saw listings jump 19% and prices stay flat at $380,000. Tyler McKenzie, president-elect of the Seattle-King County Association of Realtors, says 75% of his listings have seen multiple offers since January 2012. In the last five weeks, 90%.

     

  • 6.

    Anchorage, AK

    140527_REA_MoveFast_Anchorage_1
    Michael DeYoung/Design Pics—Getty Images/First Light

    39 days: Buying is heating up in the wintry north, pushing prices up 7% to $310,000 in the last year.

     

  • 7.

    Stockton, CA

    41 days: Prices are still bouncing back strong from the housing bust. In April, the median price jumped 42% to $269,250, partly because low-end foreclosures have virtually disappeared from the market.

     

  • 8.

    Sacramento, CA

    43 days: Another robust California market, this area saw prices rise 20% to $334,900. The majority of homes–69%–sold in under 30 days, according to the Sacramento Association of Realtors. Short sales are down from 23% of the market last year to 9% in April. The market needs more homes in the $250,000 to $500,000 range, says Paula Swayne, president of the Sacramento Association of Realtors. She cited a recent home in the Land Park neighborhood, listed for $525,000, that sold a week later for $561,000. “It’s a tough market for buyers right now,” Swayne says.

     

  • 9.

    Boulder, CO

    43 days: Like its larger counterpart to the south (No. 1-ranked Denver), this university town continues to have a shortage of homes for sale. Listings are down 5% from last year while prices rose 5% to $405,339.

     

  • 10.

    Boston, MA

    140527_REA_MoveFast_Boston_2
    The Beacon Hill neighborhood of Boston. Greater Boston CVB

    47 days: April prices in the Boston area, which includes Worcester and Lawrence, rose 4% in April to a median $359,900. Too few homes on the market contributed to a 12.4% decline in sales, says the Greater Boston Association of Realtors, while pent-up buyer demand continues to send prices higher. At the current pace, the batch of for-sale listings would sell in 3.6 months, nearly half the six months considered a balance between buyers and sellers.

     

  • 11.

    Austin, TX

    48 days: Another city that needs more sellers. Listings fell 8% over last year, while prices rose 18% to $295,000. It’s a sellers’ market, with only a 2.3-months supply of homes.

     

  • 12.

    Dallas, TX

    49 days: Price hikes are starting to slow in Dallas. In April, they were up 8% to $233,900. Sellers in Dallas County received 95% of their asking prices, according to the MetroTex Association of Realtors.

     

MONEY Investing

Thinking About Becoming a Landlord? Avoid These 6 Rookie Mistakes

For Rent sign
Zachary Zavislak

Putting your property up for rent can be tricky. Here’s how to sidestep six of the most common blunders.

Ever considered becoming a landlord? There are plenty of reasons you might. For some, it’s the temptation to scoop up a cheap property before the last of the deals vanish. Or maybe you’re like the 39% of homebuyers who told real estate firm Redfin that they’re interested in renting out their old place. Then there’s the lure of steadily escalating rents. The cost of renting the typical single-family home or apartment rose 4.5% in the past year, and spiked by more than 10% in the hottest areas, according to Trulia.

Becoming a landlord can be a profitable move, but learning the ropes requires some effort; it’s easy to take a misstep and end up in the red. “It’s not a passive investment, like putting your money in a mutual fund,” says Robert Cain, founder of landlord resource site Rental Property Reporter. Below, six slip-ups frequently made by newbie landlords, and strategies that will help you avoid making the same mistakes.

No. 1: Underestimating costs

You’ll most likely account for your insurance, taxes, and if you have one, mortgage. But you might miss expenses such as water, garbage, gardening, and regular repair and upkeep tasks. Even riskier, you may fail to put aside a large enough pot for unexpected expenses and big-ticket items. “Mom-and-pop investors tend to skimp on reserve and emergency funds,” says John Yoegel, author of Perfect Phrases for Landlords and Property Managers.

For a realistic estimate, plan for annual costs (not including your mortgage) to run at least 35% to ­ 45% of your yearly rental income, says Leonard Baron, who runs the real estate investor website ­ProfessorBaron.com. When calculating future income, it’s a good rule of thumb to include only 10 or 11 months of payments per year. After all, whenever a tenant moves out, you’ll still be stuck with expenses.

Parsing Rising Rents

No. 2: Breaking the law

Tenant and landlord laws vary from state to state and even city to city. For example, in some areas, you can require a month-to-month tenant to move out within 15 days, while in others you must give him 60 days’ notice. Yet when real estate site Zillow quizzed landlords on basic rental laws, the average respondent missed at least half the questions. One easy way to avoid getting into legal hot water: Never buy generic lease or other tenant forms, which don’t account for local laws, from a general real estate site or a big-box store, says Cain. To get the skinny on what’s permitted in your town, talk to your local or state landlord or apartment owners association. These groups usually cost at least $50 to join.

You know that federal law prohibits you from denying a rental to someone based on race, religion, or gender. Keep in mind that it also means that you can’t advertise a place as perfect for female roommates or specify no kids. You may, however, include a cap on the total number of occupants or ban pets.

No. 3: Skimping on vetting prospective tenants

When you’re looking for a good renter, it’s not enough to trust your instincts, or even to go on a referral from a friend. “Landlords get in trouble when they are in a hurry to find tenants and when they feel sorry for someone,” says Cain.

Never rent your property without checking the prospective tenant’s credit, confirming the source and amount of income, and checking in with the current and previous landlords, he says. Look for income to run at least 2½ times annual rent. Sites such as E-Renter.com and MySmartMove.com provide credit and background details for around $25.

No. 4: Ignoring renters insurance policies

Landlord policies cover the structure of the home, your appliances, and liability in case of injuries or property damage. Not on this list? The tenant’s stuff. You may think that’s not your problem, but Michael Corbett of Trulia warns that renting to one of the 65% of tenants who lack a policy can cause problems if something goes wrong. “Tenants lash out when they realize they aren’t being compensated,” he says.

In places where it’s legal, such as California, he recommends requiring that renters purchase a policy (go to your local landlord association to check the law in your state). This may shrink your pool of potential tenants, but is likely to increase the odds that you end up with someone responsible. If that’s not an option, be sure to explain to your tenant that you are not covering his things, and suggest he buy his own insurance.

No. 5: Failing to check out the property regularly

Don’t count on your renter to tell you about problems. “A tenant will complain about an inconvenience, such as plumbing issues, but not necessarily something like broken rain gutters that can produce major problems down the road,” says Yoegel. What begins as a dripping pipe or watermark on the ceiling can quickly swell into a multi-­thousand-dollar repair if left unaddressed. “Water damage is a big one,” says Corbett. “It can be outrageously expensive to fix.”

While you must respect your tenant’s privacy and cannot legally enter the residence without advance notice, you should find a way to take a regular look at the property. One solution: Add a clause to the lease specifying that you or your property manager will inspect the home at least every six months. It’s also a good idea to drive by the place once a week or so to look for exterior trouble spots. Finally, swing by anytime work is being done; you can verify that the job goes as you see fit and take a quick glance around for other potential issues.

No. 6: Going DIY at tax time

The tax treatment of rental properties is nothing like that of your home, and keeping it all straight is nearly impossible for novice landlords. The rules of depreciation are a prime example. The IRS requires that you take a deduction for wear and tear on the property each year. However, “the rules say depreciation is ‘allowed’ or ‘allowable,’ so people assume it’s optional,” says Cindy Hockenberry of the National Association of Tax Professionals. If you don’t claim the deduction for depreciation, you’ll miss a yearly tax break. Then, when you sell, the IRS requires you to retroactively depreciate the home, and that’s likely to leave you with a larger-than- expected tax bill. Not tricky enough? Starting this year the government “complicated” the regulations about what types of repairs you can deduct annually, says Hockenberry.

The bottom line? Get a professional’s help—at least for the first year or two until you fully understand the rules. And don’t forget to keep receipts for everything: You can deduct all the costs involved in managing your property, including the mileage for all those drop-bys.

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