slip joint pliers

Slip Joint Pliers

What Are Slip Joint Pliers?

Although there are many types of pliers, the one model that always stands out is the pair of slip joint pliers. They are versatile and should be in every person’s toolbox.slip joint pliers

Slip joint pliers are a device that consist of a fulcrum or a pivot point. The fulcrum is moved in order to increase the size of the jaws. Most of the slip joint pliers allow the pivot point to be changed and the pliers can be opened in several positions. These pliers are also called lineman’s pliers. In fact the slip joint plier is a hand tool which is devised for gripping, bending or mending the apparatus. German pliers are usually considered as the well developed and advanced class of the slip joint pliers. For working on electric appliances insulated pliers are the best known types of pliers.

The have a long nose with a slip joint spring which is loaded on the comfort handles. With handles these pliers provide a lifetime warranty and packed in the blister pack. These pliers can be of many kinds like Hand pliers, steel pliers, locking pliers, miniature pliers, multi Stanley pliers and so on. Many tool manufacturing companies that make the slip joint pliers along with the other instruments like German pliers, insulated pliers and other equipment also offer shipment facilities for the slip joint pliers in bulk.

The material of construction of a slip joint pliers are different and may vary from different materials like wood, copper, steel, bronze and so on. In fact it is the material of the tongs of the pliers and not the jaws which are made of different materials. The jaws of the slip joint pliers are always made of the same material all over and that material is stainless steel.

While making purchase for a slip joint plier the assortment regarding different forms of slips joint pliers which differ from each other in both material and functions. A slip joint plier can produce twelve out of thirteen models of pliers which can be purchased online as well as from the outlets where professionals dealing with the instruments and tools can guide you very well regarding the purchase of slip joint pliers.

The main criterion which determines the accurate working and functioning of the slip joint pliers depends on the depth of its jaws, the directions in which the fulcrum or pivot can be rotated and how to use them.

Because the handles of slip joint pliers are longer in size than the jaws, for this reason the handles of the can act as levers and these long handles have the ability to increase the force which is being applied to the object. Basically these pliers are meant to gripping and holding of the objects. For this reason the pliers are designed in such a way to provide a good grip to the user of the objects being held. The holding capability of slip joint pliers can be enhanced by coating of rubber or any friction reducing agent.

The pliers also include the cutting features and the sizes of slip joint pliers are decided according to the work which they perform for the user. The history of these pliers dates back to more than 4000 years when it was used in Europe and with the passage of time the structure was modified. In the beginning it was a simple structure with two handles joined at the neck or pivot. The adjustment point of the slip joint pliers is joined in two ways. The jaws are designed in such a way so as to give an opening angle of 45 to 60 degrees in the centre.

types of pliers

Types of Pliers

Types of Pliers and Their Uses

Just about every household tool set on the market includes a pair of pliers. Like many hand tools, the design and function of the different types of pliers hasn’t changed much over the millennium. Way, way, way back in the day, pliers were made of wood. In fact, ancient Greek art depicts the god Hephaestus using pliers in his forge. Apparently even a god can get a boo-boo by grabbing a hunk of superheated metal!

As the centuries rolled by, specialized styles and shapes evolved to meet the unique demands of a task. Think of the old west blacksmith who had to shoe horses all day long and how much the right pair of pliers helped him avoid a swift kick in the behind.

Over the past few decades, advances in metallurgy and ergonomics have led to refinements, but it’s likely our ancestors would instantly recognize and understand the function of a pair of modern pliers. Seems you can’t improve a whole lot on a classic.

So if you find yourself confused about the right style of pliers to use for a project, get a grip on yourself and read this summary of the most common and useful pliers.

Types of Pliers

Slip Joint Pliers

Slip Joint PliersBy far the most common type of pliers and probably the most versatile too. You can use them to pull nails out of walls and boards, grip, yank andturn stubborn objects and even use them as a makeshift wrench for very small nuts and bolts. Though we don’t recommend it, pretty much everyone has use slip joint pliers as a makeshift hammer. “Slip joint” refers to a simple jaw positioning scheme, which allows you to adjust the jaws for a narrow or wider grip by opening the handles wide and slipping the jaw pivot post into a new position. Hard to explain, easy to figure out and pretty darn handy sometimes. There are a few different sizes available, with the 6 inch length by far the most common and suitable for just about everyone.

As with pretty much all types of pliers, the cheapest slip joint pliers have bare metal handles and loosey-goosey pivot joints. Not great but adequate for occasional household use. More expensive models offer heat-treated carbon, nickel or chrome vanadium steel, more comfortable and ergonomic handle designs and tighter joint tolerances.

Groove Joint Pliers

Groove Joint PliersGroove Joint Pliers, A.K.A Tongue and Groove Pliers, have jaws that can be adjusted for a wide range of openings.  Each “groove” represents a slightly wider span between jaws, from touching two or more inches apart. This feature, along with serrated jaw teeth, makes it handy for grabbing, holding and turning lots of different sizes and shapes, from round to hex any pretty much anything in between.  These are popular pliers for plumbers and contractors and can come in pretty handy around the house too.

Here’s a tip: if you want to loosen or tighten a showerhead, faucet or something else with a nice finish that you’d like to avoid scratching, first wrap the showerhead etc. with a rag, and then grip the rag with your groove joint pliers and turn.  If you can’t get enough leverage to loosen it this way, then it’s time to employ a pipe wrench or strap wrench.   Groove joint pliers come in sizes ranging from 8 inches to 18 inches or longer.  The most versatile size that provides enough leverage for most household jobs would be 12 or 14 inch sizes.

Long Nose Pliers

Long Nose PliersLong nose or “needle nose” pliers are suitable for holding smaller objects, these pliers are widely used for electrical, electronic, jewelry and hobby tasks. The long narrow jaws with serrated teeth can fit into confined spaces and hold very small objects. When used for jewelry making, the jaws are often smooth as not to harm the softer metals needed for jewelry making.

Long nose pliers are available in lots of handle lengths, from a mini size 4 or 5 inch handle suitable for jewelry to long handle models with 11 or 12 inch handles that fishermen and women swear by for extracting hooks. They’re great for hobby crafting with a dremel tool too.

Diagonal Pliers

Diagonal PliersProbably the second most useful household pliers, diagonal pliers don’t grip, they cut. Which makes them indispensable for any kind of electrical project as they are great for cutting and stripping wires.  They’re also perfect for snipping cable ties and bicycle brake and shifter cables. They’ll even cut thin sheet metal in a pinch.  Sizes range from 4 inches to 8 inches, with a 6 or 7 inch size being about right for household tasks

Locking Pliers

vice gripsLast but not least are the handy locking pliers.  Locking pliers are designed to clamp firmly onto objects, with a built-in spring loaded locking device that holds the pliers jaws together until you unlock them. This makes them ideal for gripping and turning stubborn pipes and they can be pressed into service as a clamp as well. Clamping force can be adjusted via a thumbscrew which adds to the versatility of these pliers. Sizes range from 4 inches to 12 inches and curved or straight jaw styles are available as well.  A 10 inch size would be a good choice for most tasks.

How to Use a Dremel for DIY Projects

How to Use a Dremel or Rotary Tool Correctly!

dremel toolFew power tools are as versatile as a rotary tool, and for some jobs, a rotary tool is the only practical choice.   Just try and name another tool that can drill, cut, grind, sand, file, buff, debur, carve, engrave and polish.

A rotary tool is pretty darn easy to use, too.

There are three keys to success:

  • Select the right bit, wheel, brush or other attachment for the task
  • Set the correct tool speed
  • Apply the right amount of pressure to the workpiece

Overview

Let’s start with the basics.  I’ve selected a typical Kawasaki Dremel Tool Set that includes a rotary tool and a vast selection of accessories. A kit like this will pretty much answer the needs of every hobbyist and do-it-yourselfer on the planet.

Kawasaki Rotary Tool Set

Let’s look at the rotary tool itself.  First make sure the tool is unplugged now and whenever you change bits, clean, maintain or store your rotary tool.   One of the keys to the versatility of a rotary tool is the variable speed function.   This Kawasaki model has a speed adjustment dial on the back of the tool that allows speed adjustment from about 8,000 RPM to 30,000 RPM.   Adjustment is made by rotating the dial, in this case clockwise for higher speed and counterclockwise for lower speed.

rotory speed dialRotating The Speed Dial to Adjust RPM

Now is probably a good time to don some safety glasses, plug in your rotary tool (without any attachments attached), turn it on and play with the speed control. This is a good way to get an idea of how the tool feels when running at slow, medium and fast speeds.

There is a noticeable difference, as the tool motor exerts a bit of centrifugal force as speeds increase.

Now turn off the tool and unplug it – let’s look at the business end of the tool where bits and accessories are attached.   Note the silver shaft lock button on the side of the tool.
rotary lock button

Rotary Tool Shaft Lock Button

If it weren’t for this button, you’d never be able to load a bit into the tool.   To see why, grab the knurled collar at the end of the shaft and try loosening it by turning it counterclockwise.   You can turn it all day by hand and nothing useful will happen.

Now push and hold that silver button with your thumb and turn the knurled collar counterclockwise again.   The collar will spin freely for part or most of a revolution, then the silver button will depress all the way into the tool body.   At this point the knurled collar will stop spinning uselessly, and you can loosen and/or remove it either by hand or with the mini-wrench included in the kit.

Pushing the Shaft Lock Button

Go ahead and spin the knurled collar off the threaded shaft.   Underneath that collar is another critical part called a collet.  The collet can be pulled straight out of the shaft by hand -go ahead and pull it out and have a look at it.

Rotary Tool Collet Assembly

Note the collet has slits cut into the sides; this allows it to clamp down on the shaft of a bit.   Some rotary tool kits like this one have a few different collets included of varying shaft diameter.

Changing a Dremel Bit

Different bits have different shafts diameters to match these collets. Take a look at the drill bits in the set we’re using – note the shaft size difference between the smallest and largest bit.

Rotary Tool Bits with Various Shaft Diameters

I’ll bet you can guess what to do next – yep, you’ve got match the collet size to the bit shaft size. This is a trial and error process, but not a difficult one.  Once you’ve selected the correct collet size, load it into the tool then screw the knurled collar back into place lightly.

Load the bit into the collet, then push that silver button to lock the collar and tighten the whole assembly down.   Don’t go all he-man when tightening the bit;  the design of the collet assembly is such that it will hold a bit firmly without a lot of torque.

Selecting the Right Bit

Now that we know how to load a bit into the tool, the next task is to figure out which bit to use for a particular task.

The Kawasaki rotary tool kit we’re using here has over 190 bits and attachments, which is a testament to this tool’s versatility.    Let’s start with the most familiar: drill bits.   Why use a rotary tool to drill holes if you have a perfectly good cordless or corded drill?

Rotary Tool Drill Bits

Two good reasons are precision and control. It’s much easier to hold and control a relatively small and lightweight rotary tool versus a heavy full size drill, especially when using a very small diameter drill bit to drill very small holes. If you need to drill the hole in a precise location, again this will be much easier with a small lightweight tool.

When drilling holes, keep the tool speed at a medium setting;  too much speed will make it difficult to control the rate of drilling and may distort or melt plastics. It’s also critical to keep the tool and drill bit aligned with each other and square to the workpiece to avoid breaking a bit with sideways pressure.

Some rotary tool kits have unusual looking bits with odd-shaped sparkly tips. These are diamond-coated engraving bits. As the name suggests, these can be used to engrave or cut hard materials like metal, gemstones, ceramic, glass and plastic. The different shapes can be used for everything from drilling to channeling materials.

Diamond Coated Engraving Bits for Rotary Tools

Up next are grinding stones. These come in a myriad of shapes and sizes.  Two common stone materials are red aluminum oxide and green silicon carbide.   In our Kawasaki rotary tool kit, both the red and green stones are 120 grit, a medium grit useful for general grinding and shaping.

Rotary Tool Grinding Stones

These stones can be used to grind and shape precious metals, gemstones and non-ferrous metals like aluminum and brass.  When grinding, it’s best to keep tool speed on the slower side to help control the amount of material you’re removing.  Here’s another important tip for grinding stones – never use a grinding stone that is cracked or chipped as it can fly apart at high speed and cause property damage or injury.

Many rotary tool kits also come with a selection of brushes. For example, our Kawasaki Rotary Tool Kit includes nylon, stainless steel and brass brushes.

A nylon brush is handy for buffing, polishing and light duty cleaning. The metal wire brushes are much more aggressive and thus useful for removing tarnish and rust from metal surfaces.

Nylon and Wire Brushes for Rotary Tools

Next up are mandrels and the various accessories that are attached to the rotary tool using a mandrel.   The Kawasaki Rotary Tool Kit we are using here includes three types of mandrels:

  • One that looks like a shaft with a wood screw on the end – used for attaching “soft” accessories like cloth polishing wheels
  • One that has a small screw and washer threaded into one end – used to attach “hard” accessories like polishing stones and cutting wheels
  • One that has a rubber drum on it used to attach sandpaper drums
sign lease

5 Reasons You’re Not Getting Your Security Deposit Back

Why Your Landlord is Keeping Your Deposit?

When you sign a lease or rental agreement, you also pay a security deposit to the landlord. This security deposit is kept by the landlord to pay for any cleaning or repairs that need to be done after you move out. Here are five reasons why a landlord will keep your security deposit.

Remember, these aren’t the only reasons you may not be getting your deposit, but they are some of the easiest to prevent.

Failing to Comply with the Lease

If you don’t read the lease, you won’t know when you’re violating it or the consequences. To avoid potential problems with a landlord, do the following before you move in:

  • Read the lease or rental agreement carefully before you sign.
  • Know your renters rights and the local housing laws.
  • Do a walk-through of the apartment and document any chipped paint, scratched countertops and all other damage. Even if the damage existed before you moved in, you’ll need to prove it or you may be held liable.
  • Do a walk-through when you move out and document the condition of the apartment.

Bad Housekeeping Habits

A sure way of not getting your deposit back is to leave a dirty apartment. To get back the entire deposit:

  • Keep a clean and odor-free home during the entire time you live in the apartment.
  • Care for the apartment like it was your own.
  • Do a thorough cleaning after you have moved out all of your belongings. Wash floors, walls and cupboards. Remove fingerprints from light switches and door knobs. Clean out drawers and cupboards.
  • Leave the apartment in better condition than when you moved in. The kitchen and bathroom should sparkle.

Damage Beyond Normal Wear and Tear

No matter how careful you may be, something is going to get broken, scratched or stained. If you break something in the apartment, fix it right away. Don’t use your security deposit to pay for:

  • Broken cabinet knobs
  • Stains on the carpeting
  • Holes in the walls
  • Closet doors and towel bars that are not hung properly

Neglecting to Report Repairs

Sometimes things just break. Leaky pipes and faucets may be the responsibility of the landlord but it is the tenant’s responsibility to report these issues before there is a serious problem. This should all be in the lease, and if you used a real estate agent in Hua Hin, they should have gone over all of the paperwork and made sure things were clear to you. When problems are not reported and there is damage (such as water damage from a leaky pipe), the landlord may deduct the cost of the repairs from the deposit.

If the landlord does not repair the problem, the tenant may elect to pay for the repairs. Depending on the agreement, this amount may be deducted from the rent.

Unpaid Rent

Many times a landlord will keep a security deposit because of unpaid rent or failure to give the required written notice.

  • If the rent was not paid on the 1st of the month and you moved out on the 6th, the landlord may charge a full month of rent against the security deposit.
  • If the agreement requires 30 days notice and you give 20 days notice, the landlord may take 10 days rent out of the security deposit.
  • If you stay past the date given in your notice, the landlord may charge for every day past your expected move-out date.

Before you hand over the apartment keys to the landlord, do one last check and make sure you have complied with all of the terms of the rental agreement. Doing everything expected in the agreement is the surest way to get back all of your security deposit.

Short Sale Home For Sale Real Estate Sign and House - Right Side.

What Are The Consequences of a Short Sale?

3 Consequences of a Short Sale

Short sales have become one of the preferred ways many homeowners relieve themselves of an underwater mortgage. This is often seen as a better alternative to a foreclosure since the mortgage balance is forgiven and nothing is reported to public records which can then end up on your credit report.

However, many fail to understand the devastating effects of a short sale. For this reason, it is important that you plan strategically while understanding the consequences when initiating a short sale. One of the ways to do this is to first have a real estate business plan for things like this.

Prior to the short sale

  1. If you’re considering a short sale, plan the sale in such a way that you’re able to secure another place to live before your credit score takes a dip.
  2. Discuss with your realtor how you will address concerns around your credit once the short sale is completed. Whether you plan to buy or rent another home, there will be questions and you need to be able to answer. They should be addressed in a manner that does not raise red flags about your ability to pay your monthly obligations moving forward.
  3. Pay your mortgage through the end of the sale. This preserves your credit and reduces the amount of delinquent payments on your credit report

Now that we understand how to plan strategically, let’s discuss the potential consequences of a short sale. Many believe that a short sale has consequences, however this is not the case.

Short sales are reported equally as foreclosures

A common myth amongst homeowners is that short sales are less damaging than a foreclosure reported on your credit report. This is untrue. The short sale indicates that you were unable to fulfill your financial obligations and this always results in a deep dive of your credit score, just as a foreclosure would.

The common alternatives to foreclosure, such as short sales, and deeds-in-lieu of foreclosure are all “not paid as agreed” accounts, and considered the same by your FICO® score. This is not to say that these may not be better options for you from a financial perspective, just that they will be considered no better or worse for your FICO score. – MyFico

This is why it is important for you to keep making payments through the completion of the short sale. Adding delinquent payments to the short sale increases the damage.

Difficulty obtaining a new loan

After the short sale, you may encounter difficulty securing a loan that doesn’t involve what may approach usurious interest rates. And, rightfully so. Lenders want to make sure that if they take a risk lending you money, they are paid handsomely for doing so. Be sure to connect with the lender or whoever may be reviewing your credit report to explain your situation, while assuring them based on current assets that you will be able to fulfill your monthly obligations.

Mortgage waiting game after the short sale

The Federal Housing Administration (FHA) mandates:

….a two-year wait after a short sale, deed in lieu, or discharge or dismissal of bankruptcy, and three years after foreclosure. Without extenuating circumstances, waits can extend to four years after bankruptcy and seven years after foreclosure. –NY Times

If you were thinking about purchasing a new home right after the sale, then you’re out of luck for 2 years. At a minimum. Plan ahead and secure your new home prior to the short sale. This will require consultation with yourrealtorand possibly a real estate attorney depending on your situation.

In the end, when handled properly, short sales can be better than a foreclosure because nothing is reported to the public records and the balance is forgiven. However, we discussed above, there are other deleterious effects that must be planned for in advance.

Your Business Plan for Real Estate

A Beginner’s Business Plan for Real Estate Investing

If you’ve been in business long, you know that business plans are a must for raising capital, gaining new partners, or for other ventures of major corporations.

However, have you ever considered the real benefit of having a personal business plan for buying and selling real estate, while leveraging your current equity?

The planning process, as well as a written plan of action, is essential to executing tangible initiatives and achieving real wealth.

New clients often ask what steps are required to develop this sacred document: the Business Plan.

Every planner works differently, but I like to start with my client’s Big Why.

Every overachiever has one.

Why do you get up in the morning? Why do you want to pursue this venture?

The answer to this question generally points directly at my client’s real goals more than anything else.

This question naturally leads to a discussion of my client’s ambitions, and I like to use a worksheet of questions to narrow these ambitions to a plan of action.

Sometimes a detailed plan has gelled in my client’s mind, and he just needs to get these details on paper, but most often we need the planning process to help distill strategy into actual initiatives.

Here are a few starter questions:

  • What future milestones do you need for success?  Number these in order of importance or in chronological order. What actions will generate revenues for you within the next 60 days?
  • What tangible initiatives will generate a large sales volume for you over the next year?
  • What are your associated costs for each?
  • In what ways can you consolidate these initiatives along with your other business activities to make the most of your schedule and energy?
  • How much money do you want to make over the next year to five years, and what concrete steps will you take to achieve this goal?

Partnering with a professional planner or simply a co-worker can make your planning process much more effective. Sit down with someone and brainstorm about the future. Ask your partner to help you organize your plan and develop a written plan of action.

Once you have your ideas in writing, review your goals, mapping your overall goals to daily action items, and focus your weekly schedule and time blocking needs.

Then you should know with assurance how to achieve your goals on a daily basis, what income to expect, and what your expenses will be.

If you have any start-up capital needs, address those and determine where to get the funds needed to implement your plans.

If you need a particular type of business plan for that capital raise, be sure to ask a professional planner to help you pull that together – often banks and venture capitalists are looking for a formulaic business plan.

If you want a more detailed written plan, make certain you cover these areas:

  • What you hope to achieve ultimately in one straightforward sentence
  • Why you will be successful
  • Your business structure (sole proprietorship, S corporation, partners, etc.)
  • How your business will unfold over the next three years with concrete milestones to achieve each quarter (number of houses sold or bought, income, etc.)
  • Specific initiatives detailed with goals, a step-by-step plan, marketing and sales strategy, and a budget
  • A section dedicated to time blocking and how you plan to leverage yourself through an assistant, subcontractor, or other help
  • Overall financials and assumptions
  • An addendum projecting balanced portfolio growth and development using specific properties

At the end of your planning session, make sure you ask your partner to hold you accountable and to meet with you at least once a quarter about your plan.

By setting up future meetings together, you’re guaranteeing yourself a means for measuring your success against your plan.

I like to create written financial projections and an executive summary for the plan so my clients will have two easy reference sheets while they work.

Do whatever works best with your business style, but put something in writing, even if it is very brief.

Whenever you start a new venture, your business plan should be tweaked once a month because you will be learning lessons about your business on a daily basis and the plan is still fluid.

In most cases, after you have been in business two years, you need only update your plan once every quarter.

These updates may only take 1 hour of time, but they are crucial to staying on track.  This is where good accountability from your partner may be essential.

If you decide to use a professional business planner, make certain you pick one with direct, hands-on CEO experience actually conceptualizing, initiating, staffing, funding and operating multiple, multi-industry companies and plans.

Make certain they own real estate and have written plans surrounding their investments.

Their past experiences will directly benefit the quality and reality of your own business plan.

Finally, ask for a sample plan they’ve written for someone else, and make certain that you find their writing style readable and useful given your needs.

This will guarantee that you use the product you’re paying for.

Balance Your Real Estate Portfolio

How a Balanced Real Estate Portfolio Can Save You Millions!

Financial planners generally advise that we maintain a balanced portfolio of assets, spreading our risk over different types of investments.

For example:

  • Maintain 3 to 6 months worth of liquid funds in a money market account in case of emergency.
  • If you’re 40 or older, take a conservative approach and maintain a portfolio that is 25% real estate, 33% bonds, and 42% stock mutual funds.
  • If you’re younger than 40, take a more aggressive approach because you have longer to live. Develop a portfolio that is 35% real estate, 17% bonds and other fixed-income vehicles, and 48% stock mutual funds.
  • Maximize your 401(k), IRA, and SEP plans.
  • Develop a focus with your financial planner and stick with the plan.

This is terrific advice. So why don’t most real estate investors apply the same philosophy of balance and diversification to the real estate portion of their holdings? If you own solely condos or all warehouse space, over the long-term you can get burnt.

I have clients who purchased real estate nationwide, particularly in Texas and New York, during the early 1980s. The market appreciated quickly, and their net worth was phenomenal.

Many of their purchases were leveraged, and when the real estate crash occurred in the late 80s, they lost millions of dollars.

However, the folks who had balanced portfolios, with rental agreements in place that guaranteed their overall debt repayment, rode out the crash and regained their high net worth during the following years.

What does balance and diversification mean to real estate investors?

Real estate is different than cash, bonds, or stocks in that it is real property – you can physically see the home or business or lot that you purchased. Intense emotions are often involved with real estate purchases for this reason, and investors struggle to diversify.

Individual investors lean towards buying property to flip, to renovate, to build new construction on, to rent out, to run a business with, or to take residency at.

Many investors specialize because of the different temperaments, pocketbooks, and skills that we have.

Specialization can be very useful, but consistent success depends on balance.

Here are a handful of principles that I encourage my clients to use:

  • Escrow for roof and other unforeseen maintenance on all your properties along with at least 3 months worth of rent for every leveraged property you hold. Keep these funds in a liquid bank account, like a money market fund, set up for this purpose alone. Go ahead and factor these funds into every purchase, and your holdings will remain safe during catastrophes like hurricanes or soft rental markets.
  • If you’re a real estate professional and have special knowledge of your market, take a more aggressive approach and maintain a portfolio that is 45% flipping and/or light renovation projects, 15% long-term residential or commercial rental properties and vacant land, and 40% condo conversions and/ or new construction.
  • If you’re not a real estate professional, take a more conservative, long-term approach. Develop a portfolio that is 25% flipping and/or light renovation projects, 45% long-term residential or commercial rental properties and vacant land, and 30% condo conversions and/ or new construction.
  • If you own five or more properties, purchase in different geographic regions, both urban and rural. This will make it easier to ride out economic trends over the long haul. However, be very savvy about rural purchases – these are best made in areas where the principles of supply and demand work in your favor. For example, mountain resort property that is surrounded by national forestry land has built-in appreciation.
  • Discuss 1031 tax exchange advantages with an expert intermediary and maximize the tax savings available through your properties.
  • Develop a focus with your business planner and stick with the plan.

The above percentages are of course general suggestions.

Your investment strategy could be wildly different if you are a carpenter or lay tile for a living.

If you have physical limitations, you won’t want any renovation work in your plan.

So utilize the principles of diversification, but customize these basics to best fit your particular situation.

Real Estate Investing 101

A Beginner’s Guide to Real Estate Investing

Think real estate investing is just for old married couples featured in TV infomercials? Wrong! I was about 30 when I bought my first piece of property. It was a two-bedroom house in a quickly appreciating neighborhood in Orlando. It was the cheapest good quality house in the area, and I netted $30,000 by flipping (reselling) it eight months later.

I wish I had started investing sooner.

The only reason I didn’t invest was because I didn’t understand the process. Now, I buy two more homes every time I sell one.

Here are the basic steps for investing in real estate:

1) Determine your strategy early: flip, renovation, or long-term rental. Do you want to hunt for something undervalued, hold it, and then flip it in the coming months? Are you a skilled carpenter, or do you know what’s involved in a renovation? Are you willing to deal with a renter? If so, the renter will pay your mortgage and give you some immediate profit.

2) Interview realtors. Don’t waste everyone’s time looking at property with a realtor until you know you’re with someone who is investment-focused. Most realtors will not be able to tell you the basic numbers you’ll need on a property. A good place to research these is TheSRE.com, the real estate investor networking community.

3) Interview mortgage brokers. Once you find a realtor, ask for three broker recommendations and check out what your local bank or credit union offers. You’ll want to know what each offers in terms of interest rates and closing costs. Bring a copy of your three credit reports to your meetings, along with a sample property (in the same price range), so they can run hard numbers.

4) Put contracts on the cheapest house in the best neighborhood. These contracts will put you in control of that market. For example, let’s say the cheapest two-bedroom house in the best neighborhood in Nashville costs $100,000 and the next cheapest, comparable home goes for $140,000. You can buy the home at $100,000 and raise your price to $130,000 the next day and still make a profit.

5) Contract to Close. You’ll sign a contract, show the seller a pre-qualification letter from your lender, and get your home and termite inspections. Next, your lender will do an appraisal of the home. If you want to renovate the house, a Purchase and Renovate loan may appeal to you – this wraps the cost of construction up in the loan so you have few out-of-pocket costs – and this may require an estimate from a general contractor and plans from an architect. Once your lender approves the loan, you will close on the house. In general, this process takes about 30 days.

6) Execute your investment strategy.

Flip: Just sit and wait until the market allows you to sell at your target price. You don’t even need to turn on the utilities until you go to resell it.

Renovate: In general, your lender doesn’t care if you use the general contractor who provided them with an estimate, so make sure you’re working with a solid crew who will get the project completed on time. You can burn up a lot of money if they’re inattentive to your house. Once the project is done, determine how much property in the neighborhood is selling per square foot, and you’ll know your new sales price. Also be aware of 1031 strategies if you have more than one property.

Rental: Go to your local hardware store and buy a sign that reads, “For Rent.” Include your cell phone number on the sign. Drive around the neighborhood and determine what the average rent is for the number of bedrooms you have (renters care more about bedrooms than square footage). Then ask your lawyer for a lease agreement, or just find one through a link at TheSRE.com. Finally, draw up a basic application for potential renters and have them fill it out.

These are just the basics, but they demonstrate that the buying and selling process isn’t too tough. Keep in mind that if you have good credit, you may be able to get loans of up to 100% of the home cost. Also, typical closing costs are about 3% of the sales price, and this can either be paid for by the seller or wrapped into the loan.

Don’t wait as long as I did to try real estate investing. If you’ve got the right motivation and resources, then it may just be the best investment you ever make.

What Is a 1031 Exchange?

What Is a 1031 Exchange and How Can it Save Me Money?

What if the government was willing to give you an interest free loan to invest in real estate?

No-brainer, right?

You’d be calling for the application and hurrying to sign up while the going was good.

Well, the government has actually been making that opportunity available for many years in the form of the IRC Section 1031 tax-deferred exchange, one of the most misunderstood and underutilized sections in all of the tax code.

Myths of Tax Deferred Exchanges

Pursuant to IRC Section 1031, a seller of property that is held for productive use in a trade or business, or for investment (homesteads are excluded), can permanently defer the recognition of capital gains upon the sale of their property.

They can then leverage the present value of the resulting tax savings for future investment. In order to do this, the exchanger must direct the proceeds from the sale of their existing property (the “relinquished” property) to a reputable qualified intermediary.

Then, the qualified intermediary uses those proceeds to purchase a “like-kind” property for the exchanger (the “replacement property”) that is of equal or greater value to the one that the exchanger just sold.

As a general rule, you can safely assume that any real property will qualify as like-kind to any other type of real property for 1031 purposes.

Real estate is real estate, whether it is improved or unimproved, residential rental or commercial, and so on.

It is important, however, to keep in mind that both the relinquished and the replacement properties must be held for investment or for productive use in a trade or business on their respective sides of the exchange.

The 1031 exchange is not a dubious tax shelter scheme nor will participation in a properly structured 1031 Exchange trigger an audit.

To the contrary, IRC Section 1031 is an affirmative section of the tax code that is fully sanctioned by the government, provided that the various IRS guidelines are followed.

Initial skepticism is common but there is actually a rational incentive for the government to provide this tax-break. While it may initially seem that the government is foregoing substantial tax-revenue, more revenue is actually derived from other sources when the disincentive from selling low basis property (the capital gain tax), is removed.

For example, allowing the owner of a growing business to move into a newer and larger manufacturing facility, without a debilitating capital gains tax, facilitates the creation of new jobs which, in turn, generates more income and sales taxes. This growth, in turn, creates more opportunities for that company’s suppliers and its providers of employee benefits and services.

It also generates more title premiums; creates more opportunities for realtor’s commissions; increases transfer tax revenue; and so on and so forth.

This phenomenon is commonly called the “velocity of money.”

Motives for Doing an Exchange

Keep in mind that a tax-deferred exchange is not a reason to sell property. Rather, it is a means by which another goal or purpose can be achieved for a particular investor or business property owner.

Some common motives for doing a 1031 exchange include upgrading into a larger facility for an expanding business; consolidating many smaller properties into one larger facility with less management burdens; diversifying one’s holdings from a single, large facility to a group of smaller ones in different regions; moving investments to a location closer to where the investor lives (or is relocating to); or simply reinvesting into a hotter market.

Every property owner has their own unique perspective and, therefore, the motive for exchanging can be as varied as the property owners themselves.

Whatever the motive, though, a 1031 exchange is considered an essential tax tool to accomplish the desired goal.

The Timing Requirements

The most widely known requirements of the 1031 exchange, even among those with just a cursory knowledge of the code section, are the 45 and 180 day rules.

What these rules refer to are the strict timeframes under which the taxpayer, also known as the “exchanger”, must “identify” potential replacement properties and acquire at least one of the identified properties.

These seemingly simple rules, however, are fraught with pitfalls that can easily jeopardize an exchange.

In a typical delayed exchange, where the exchanger begins by relinquishing property that they already own, the 45 day period to identify replacement property begins running from the date of the closing of title on the exchanger’s relinquished property.

That day is day zero and the next day is day one for both the 45 and 180 day time periods (which run concurrently).

During this 45 day period, the exchanger must specifically identify, in writing, the property or properties that they intend to purchase with the proceeds of their relinquished property.

Furthermore, the identification must be in writing, signed by the exchanger, and delivered to an undisqualified party (usually the qualified intermediary).

If the exchanger fails to identify any properties as “replacement” properties during the 45 day period, the exchange is over and the proceeds of the relinquished property are taxable to the extent that they represent capital gain (Such gains are taxable at the Federal Capital Gains rate plus any applicable State capital gains tax, depending on the location of the “relinquished” property).

Assuming, however, that the exchanger does successfully locate a replacement property or properties, and properly identifies them, the exchanger then has 180 days from the date of the relinquished property closing to close title on the replacement property or properties.

Remember, however, that the 45 and 180 day rules refer to “calendar” days, not “business” days. Therefore, even if the 180th day falls on a national holiday, or if the exchanger is incapacitated or unavailable for some reason, there will be no extensions granted by the IRS.

None. Don’t even ask.

If the closing of title on the replacement property does not occur within 180 days, the exchange is over and, again, the relinquished property proceeds are taxable to the extent that they represent capital gain.

Furthermore, a common pitfall of the 180 day rule is the mistaken assumption by many taxpayers that the 180 day rule is absolute. It is not. In reality, the rule requires that the closing of title on the replacement property must be completed within 180 days OR before the exchanger’s tax return is due or filed (including any extensions.)

This means, for example, that an individual exchanger who commences an exchange on December 1st, in a non-leap-year, would have only 135 days to complete their exchange, instead of the full 180 days.

Worse yet, if the taxpayer were to file their tax return before they closed on their replacement property, the exchange would terminate immediately upon the filing of that return.

The aforementioned tax-deadline predicament is easily resolved by the filing of a request for an automatic extension of time to file a tax return but it’s crucial that the exchanger be aware of the problem and actually does so.

The exchanger should also be aware that there are different tax deadlines for different types of taxpayers.

For example, C and S corporations are generally required to file their tax returns on or before March 15 and will have to consider the implications for the 45 and 180 day rules with respect to that earlier filing date.

Fatal Errors

A common error in attempting a 1031 exchange is for an exchanger’s attorney to close on their client’s relinquished property, place the proceeds of that sale in their attorney’s escrow account and then contact a qualified intermediary to facilitate the exchange.

Unfortunately, though, under this scenario, the exchange is blown before it’s even begun.

The exchange agreement between the taxpayer and the qualified intermediary must be in place prior to the closing of title on the relinquished property and, if it is not, then no tax deferral is realized.

An even worse scenario would be where the client’s attorney actually facilitates the exchange from start to finish, essentially acting as their client’s intermediary.

It’s easy to see that this is an unacceptable scenario for a tax-deferred exchange since Section 1031 expressly disqualifies the exchanger’s own attorney or CPA, among others, from acting as their intermediary and performing this type of service.

Qualified Intermediaries

For now, the Qualified Intermediary industry is unregulated. It is, therefore, imperative that the prudent exchanger chooses a reputable, experienced intermediary whose documents and services have routinely withstood IRS scrutiny.

Perhaps even more importantly, though, is that you choose an intermediary that you can be sure is going to be there with your funds when you need them.

Many of the so-called independent intermediaries will provide a guaranty that your funds will be returned but just remember that a guaranty is only as good as the assets that are backing it.

What if that company goes bankrupt while your exchange is in progress or, worse yet, what if the intermediary simply disappears with your seven or eight figure proceeds?

Be aware that this is not an uncommon occurrence so make sure to use an intermediary that is affiliated with a major financial institution

. If a qualified intermediary’s name isn’t one that you readily associate with a reputable and financially stable company then you shouldn’t be using them.