Editor’s note: Robert Bruss passed away on Sept. 26, 2007. Inman News is republishing his work, which still holds value in today’s market, in an ongoing "Best of Bob Bruss" series.
DEAR BOB: I am a beginner in real estate investing. Is it a good idea to get my real estate sales license? Or should I skip being a real estate agent and only be a real estate investor? What about being both an agent and an investor? –Martin M.
DEAR MARTIN: If you want to represent real estate buyers and sellers to earn sales commissions, you will need a real estate license. To qualify for the license exam, you must take one or more basic real estate courses, such as "Real Estate Principles," depending on the state where you want to obtain your license.
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However, you do not need a license if you want to invest for yourself. Some investors think they will find the best property bargains by having a license and working in a real estate brokerage office.
I thought that when I obtained my real estate broker’s license. However, I quickly discovered the big disadvantage of having a realty license is that other agents with the best investment listings hesitate to bring them to other licensees because then they will have to split the sales commission.
If you need to earn sales commissions for cash flow, you will need a real estate sales license. However, you can earn far greater income as an investor without getting bogged down in the details of representing buyers and sellers.
Also, if you have a sales license, buyers and sellers might be reluctant to do business with you because they fear you have greater real estate knowledge than they do.
My suggestion is to take all the real estate courses available at local community colleges, such as "Real Estate Principles," "Investments," "Appraisal," "Practice," "Property Management" and "Law." Then decide if you really want a real estate sales license.
IF NEIGHBOR IS DAMAGING YOUR PROPERTY, TAKE ACTION
DEAR BOB: What are the steps to take when a neighbor’s lot is reconstructed and adverse drainage problems affect the foundation and basement of an older adjacent property? –Thomas F.
DEAR THOMAS: If your neighbor is damaging your property, such as by diverting water toward your lot rather than away from it, you should immediately notify the neighbor of the problem. Perhaps he is not aware his drainage renovations are causing problems for you.
Unless the matter can be resolved quickly on a friendly basis, you should consult a local real estate attorney because legal action may be necessary. You might have to get a court order (called an injunction) requiring the neighbor to divert the drainage water away from your property. Don’t wait. Take action promptly.
CONVERTING RENTAL TO PERSONAL RESIDENCE IS NOT A TAXABLE EVENT
DEAR BOB: We have owned a condominium since 1991 in a golf and ski resort community. It was in a rental pool for many years. But rentals of our unit have recently declined. As we near retirement, we are thinking of not renting it anymore so we can have it for our exclusive use. What are the tax ramifications if we do this? –Katherine B.
DEAR KATHERINE: If you convert the condo from rental status to your personal residence with less than 14 days of annual rental time per year, that is obviously a major change. You will no longer be entitled to deduct applicable rental expenses, such as insurance, utilities, repairs and depreciation on Schedule E of your income-tax returns.
But the change to personal-use status is not a taxable event. You will still be able to deduct your mortgage interest and property taxes, but not the other expenses that you deducted on Schedule E. However, you can rent the condo for up to 14 days per year and Uncle Sam doesn’t want to tax that rental income. For full details, please consult your tax adviser.
The new Robert Bruss special report, "How to Profit from Lease-Options (Rent to Own) Whether You are a Property Buyer, Seller, or Realty Agent," is available for instant Internet delivery at www.BobBruss.com.
(For more information on Bob Bruss publications, visit his
Real Estate Center).