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The Right Questions To Ask When Renting A House

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Almost everyone becomes a renter at some point in their lives. It could be you, and it could become your children if you have any. That’s why everyone should know what questions to ask when renting a house.

Quick Navigation
By When Do You Hope to Have the Home Filled?
How Long Is the Lease?
Can You Clarify Rent?
Can You Please Clarify What Is Included With Rent?
Can You Tell Me More About Deposits and Other Fees?
How Should I Pay You?
What About Late Fees or Lease Termination?
Is There a Subletting Policy?
How Do You Screen Applicants?
How Would You Describe Your Perfect Tenant?
Don’t Be Afraid to Ask the Questions

Learning how to handle the tenant-landlord relationship is crucial to anyone renting a home, so knowing what to look for and what to ask is a cornerstone for navigating what it means to be an adult. To start you and yours on the right path, we’ve compiled a list of questions that you should consider asking as you think about finding housing for rent.

By When Do You Hope To Have The Home Filled?

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Start the discussion with the landlord with this question. Having a timeline in place lets you know if you are in a time crunch or if you have some time to make a decision. It also saves you wasted time if you know you won’t be able to meet the deadline they want to achieve.

Even if you’re the ideal tenant, if the landlord needs someone sooner than you’re available, then meeting and talking about the rental isn’t going to do anyone any good.

How Long Is The Lease?

While not quite as open-ended as other questions, this is an important one to ask up front. If you only need some place to live for six months, but the lease requirement is two years, then nothing else really matters from a business perspective.

Of course, that doesn’t mean you can’t ask if the landlord is willing to make exceptions. Occasionally, they are willing, so you do need to know one way or the other before going forward with getting more information about the property you’re interested in.

You can also extend your question into whether or not the lease can be renewed at the end of the duration or if you can continue to live there on a month-to-month basis.

Can You Clarify Rent?

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By asking the landlord to clarify the rent, you give the opportunity for them to let you know what the current rent is for the property along with the expected deposit. If the price has changed from the listing, there are a couple of possibilities.

A higher price in the listing may contradict what the landlord is currently expecting. If the price is lower, you can get a better price than expected. If the rate is higher, you can point out the difference and likely get the lower price.

Can You Please Clarify What Is Included With Rent?

Certain properties also include the cost of utilities with the rent. Theoretically, this should be described in the ad that led you to the landlord, but you should ask just to be sure so that you don’t find out that you can’t afford the monthly cost after the fact.

If utilities are included, make sure you know which ones. Some rental properties will include electricity, but they may not include water or trash pickup. Others will include all of the utilities including certain amenities like cable, satellite, or even wifi.

Can You Tell Me More About Deposits And Other Fees?

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This question works the same way the rent questions do because you may find out that the deposit is less than you were expecting to pay. It also lets you know if there are any other fees that you will have to pay. You can find out whether or not there is a non-refundable deposit required, too.

Plot twist! Some states have laws in place that say non-refundable deposits are illegal, so check your state laws before interviewing a landlord to make sure they’re not doing anything they’re not supposed to. You may want to steer clear because they are knowingly doing this or they are not keeping up with the laws, neither of which bodes well for you.

Another answer you should listen for is regarding pet deposits if you have a furry friend that you want to have live with you. Many places do have a no-pet policy while others may have restrictions on specific breeds, sizes, or other various conditions.

How Should I Pay You?

Asking about how the landlord accepts payment can very well make or break your decision to sign a rental agreement. If they require payment methods you don’t have, then you’re going to need to decide if it’s worth it to go forward. As an example, if they require a service like Venmo or Paypal and you don’t have an account, you need to decide if you feel comfortable paying like that. 

Alternatively, if they tell you that payment must be cash only, there are precautions that you need to take. The best advice is to stay away from a cash-only rental, but if you don’t have any other options, make sure you always get a written receipt that is dated and signed for every payment you make.

What About Late Fees Or Lease Termination?

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Most landlords understand that life happens and that people are going to be late on payments every so often or that the lease may have to be terminated. You also need to understand that when you’re late on your rent or need to end your contract early, you may also be putting your landlord’s financial obligations in jeopardy.

As an example, if your rent pays the mortgage on a rental property, when you’re late, there is likely a late fee that is assessed on the payment. Expect to pay that late fee because it’s only fair. There may also be a fee to terminate a lease early because the landlord needs to be able to meet their obligations, too.

Be wary of a landlord that tells you that you can pay your rent when you can or that you absolutely cannot end your lease early — the first means that they’re not great at following their own rules and the latter means that you could be setting yourself up for failure.

Is There A Subletting Policy?

You need to know if there is a policy in place that allows subletting, so add this one to the list of questions to ask when renting a house or any unit. This is useful in case you do ever need to leave early. What it means is that the landlord allows you to find someone to take your place in the rental unit should you ever need to leave.

How Do You Screen Applicants?

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You want the landlord to give you details about how they select their tenants. By asking this question and giving them the opportunity to elaborate on their criteria, it lets you know what they expect from you.

Some landlords also require credit reports as part of the process. Find out what kind of report they pull because a hard report has a negative impact on your credit, and a soft report does not. If they aren’t sure about which report they’re pulling, it’s a safe bet that it is likely a hard pull which will hurt your credit.

How Would You Describe Your Perfect Tenant?

This can be a very telling question. Depending on how the landlord answers, you’ll get a glimpse of how the tenant thinks as well as what the landlord expects of the tenant. It will also help you decide if you’re the type of tenant that the landlord wants.

As an example, if the landlord tells you that the ideal tenant doesn’t have kids or pets, if you have either one of those, then you may as well be out of the running. The landlord may also show discriminatory preferences, so if that’s a problem for you, you’ll have a chance to hear it and decide.

Don’t Be Afraid To Ask The Questions

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If you’re new to renting, you may feel a bit intimidated, so remember that asking the questions can make your life easier in the future. Open-ended questions are the best because you can get your potential landlord to give more information than was initially intended.

Letting the landlord ramble about the property can give you some insight into the property, the landlord, and how they might handle tenants or issues that may arise. If you go in knowing what questions to ask when renting a house, you’ll be ahead of the game.

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Filed Under: Rental Investments

Managing Your Own Rental Property Is So Easy!

Ummmm…not really.

I’ve got a confession. I always disliked managing my own rental properties. Actually, hated it would be a more accurate way to put it. investing in rental propertyBut, that’s OK. I eventually learned to become honest with myself. And then I went out and hired a nice property manager to handle all my rental units….dealing with the tenant complaints, collecting rents, selecting tenants when old ones left, keeping my vacancy rate down, maintaining my properties, and inspecting them on a regular basis. Oh – and supplying me with monthly accounting statements as well. Let’s face it – if you don’t have the right temperament for the job, fire yourself! And hire a property management company. While you’ll be paying a management company fifteen percent of your gross rent roll, it may well be worth it in your time – and more importantly – your sanity – saved.

The temperament of….a pitbull?

It takes a certain temperament, a certain je ne sais quoi, to be a good property investor and rental manager. Basic personality qualitiesowning rental property include being entrepreneurial, being decisive, and having a proper aptitude (though not genius-level) with math, as well as being meticulous, grounded, and having stick-to-itiveness. These are some of the basic qualities a good property investor will display. Notice I did not include: being good with people, or being a “wheeler-dealer” type. These two traits are not something you need…and they can be learned, as well as delegated to others. That’s what property managers , as well as real estate agents come in and can do for you.

What makes a good property manager?

So be cognizant of what makes you tick – and what your passions are – when deciding if you should manage your own rental property.  Active investors in real estate (those that prefer to control their own properties, as opposed to investing in Real Estate Investment Trusts, REITS, for example) don’t get in for monetary rewards alone. There are too many pitfalls to running a successful property investment buying rental propertybusiness to take on the added risks. Rather, hands-on property investors enjoy wearing many different hats: being the site locator, searching for properties, then being good numbers crunchers to see which are the most attractive properties available at any given time.
They then switch hats to become buyers, making offers, negotiating, then finding financing for the properties. However, the very active investor in real estate is the one who needs to wear the hat of property manager – acquiring tenants, refurbishing units, and keeping them continually maintained properly. This requires great diligence and attention to detail. You are running an active business, not simply parking your investment dollars in a fund that will (hopefully) offer you positive returns.

How to manage your own rental property

In deciding on whether you should ultimately take on the task of being your own property manager and manage your own rental property, buying rental propertyunderstand that this is no simple task. Here are the most basic responsibilities of property managers: Maintaining your rental property –  As your own manager, you’ll be responsible for regular on-site checks on your building(s) to ensure proper safety and regular upkeep/maintenance. Also, you’ll be responsible for all emergencies (ie. – emergency calls from tenants), and making sure the right tradesperson is called to fix the problem, as well as follow-up to ensure the problem was fixed properly, quickly, and resolved to the satisfaction of your tenant – all at the most affordable cost to you. Ask yourself if you’re okay with these emergency calls from tenants – whether in the daytime, or in the middle of the night and on weekends. If you’re a calm person who’s good at “putting out fires” without it taking an emotional toll on you, then by all means you’ll be a good property manager for your own real estate holdings. If not, look towards hiring a professional property management company.

Did someone say…emergency?

Regarding hiring emergency service folks, you’ll certainly be dealing with a list of trades people when it comes to basic maintenance on your property (landscaping, lawn cutting, snow plowing), as well as repairs (mostly plumbing and electrical). Sometimes, hiring a buying rental propertyhandyman you’re comfortable with can suffice, as he can perform many of these tasks as a general all-in-one repair/maintenance service person who‘s “on call” for you.   In addition, you’ll need to advertise, locate, screen and approve all tenants. Show your rental units that are vacant. Prepare all leases, and have them signed.  Collect rent from all tenants. Make all collection calls on delinquent tenants.  Represent yourself in any tenant eviction process, if necessary. Work with your attorney to aid in a smooth eviction.  And keep all accounting for each property – you’ll need to deliver to your accountant each tax season a proper set of books ( or files) for each building you own.

Rent collection

I’ve  mentioned in past articles about property managing that you will also be responsible for collecting rents. If you’ve chosen tenants well, no problem. If you haven’t – big problem. After all, this is a business you’re running, and it needs to be humming along, or else you’ll havebuying rental property cash flow problems paying your expenses. As part of your job as your own property manager, you’ll also want to stay in regular (at least once a month) contact with your tenants. Many times, tenants will not tell you about “small” problems they’ve been having with your property – until it’s a big problem. By being pro-active, you can scope out these problems when they are indeed small. So, for example, you can ask each tenant each month if there are any issues you should be aware of – for example, any small leaks going on in the unit, any bug problems they’re seeing, any safety-related issues (say, a constant flickering light that would indicate a potential electrical wiring fire hazard). By asking you’ll stay way ahead of the curve – and be able to jump on any potentially big problems when they’re still small – and easily (and cheaply) corrected!

Do you have the right stuff?

Rental property management is an acquired set of skills. And I would dissuade any novice investor from hiring a property management firm right after the purchase of their first investment property. It really is buying rental propertybest for you to better understand the rigors that come with managing your own properties. And in the process, you will develop a finer appreciation for the sheer amount of work and expertise required of the job. Even with property management software readily available online, it’s still going to be a learning experience for you. And this experience will only help serve you in good stead as you move forward, and purchase your next investment property. You’ll know from limited experience how demanding property management can be – and time consuming as well. You may find that it will be much smarter for you to hire a property manager as you grow your investment property empire. By doing so, the extra cost for their services should be outweighed by your time costs, as a property management company will aid in providing you more time to search for new property acquisitions.
photos courtesy of houstonmortgagetexas.com, trexglobal.com, landerassociates.wordpress.com, m8property.com, lawofficewalterjennings.com, newhomessection.com, tenantscreeningblog.com
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Filed Under: Featured, Rental Investments Tagged With: how to manage your own rental property, manage your own rental property, managing your own rental property

The Next Wave Of Tenant Screening Services

It’s a science now…

Tenant screening used to be an art. Today, it’s a science. Since there rental property investment strategiestruly is no such thing as privacy in our world anymore due to the internet, it is now ridiculously easy to gather intel, er….I mean…background information, on anyone. This makes screening tenants a cinch.  In fact, any property investor who decides to manage their own properties can simply and inexpensively utilize the services of independent, online tenant screening companies who will do the leg work for you. Not that this leg work is all that difficult to begin with…but if you like to delegate this kind of simple, but time-consuming work, then by all means use these services.

Harkening back to the days of yore…

In the olden days of yore, when the earth was young – pre-internet, that is, a landlord who managed their own rental units would need totenants A - lpmmags.com- meticulously interview current and former landlords and employers of any prospective tenant. Rather obviously, this would be a time consuming process. But today, you have many options available for screening good tenants, and weeding out the bad ones from the quality ones. I have even written in a much older prior article here (from several years ago – ie., the days of yore) about doing one’s own reference checks.  I went on to elaborate on what a time consuming process it could be.

A tip that was an oldie but goodie…

I had advised back then to “make sure you always speak with a prospective tenant’s prior landlord. You need to hear from the horse’s mouth that they never had any problems with late payment of rent or any destruction of property. Or accidents as well. It’s always important to find out if a tenant sued a past landlord! Even if the tenant was in the right, you’ll want to know if you have a litigious sort on your hands. In addition, make sure you check their work references. How long have they been at their current job? Do you feel reasonably secure finding perfect tenantsthey will be keeping their job long into their tenancy with you? And, of course, do they earn enough income to support your rent? These are the kinds of simple, basic questions you need to get answered when running reference checks on potential tenants.”
I also had suggested that “another good tip is to actually visit their current home. Look for how they maintain it, since this will be an excellent sign of how they will treat your unit. In addition, try to speak with their employer about their length of time on the job, as well as their prospects for future employment with the same firm.”

The speed of change

My, how fast things have changed…Today, credit reports are easily investment property mortgagesobtained, with the permission of the tenant. Some landlords allow the tenant to supply their own credit report…while other landlords prefer to do it themselves – but have the potential tenant pay the fee for pulling a report. In addition, many landlords include charging a separate fee for pulling a background check as well. This background check will research and reveal any potential tenant’s past criminal history, if any exists.

Always be conscientious and wary of tenant data

Remember that the internet can be a place with much false information too. Prospective tenants can post false information designed to deceive unwary landlords. So credit and background checks may not be so foolproof as they used to be anymore, because investment property advice - screening tenantsfalse information (disinformation) can be widely disseminated very easily nowadays.
In addition, prior landlords can be “set up” by the prospective tenant to await your call, and give that tenant a glowing review. In fact, these people may not be prior landlords, but in fact could be friends or family. A few pointed questions about the landlord business and their current holdings will help you uncover their veracity, and give you a good idea just how real the reference is turning out to be. Then you’ll have a much better idea of whether to trust the prospective tenant.

Tenant screening services

Another option available to property investors who manage their own properties, is to utilize a tenant screening service to pull these reports, and issue one comprehensive report to you, the landlord. One of the best tenant screening services is offered by Experian, yes, the samerental investment property Experian that provides credit reporting. Likewise, another tremendously large and reputable credit reporting company, Transunion, offers one of the top tenant screening services as well.  You really can’t miss if you utilize either Experian’s or Transunion’s tenant screening services.  They are top-flight.  If you check online, you can also find more localized companies, if it’s important to get your data closer to home.  In addition, check these local companies out by looking at their tenant screening services reviews as well.  Their online reviews will provide a wealth of information that will help you in your selection process.

Obtaining the quality tenant

investment property adviceOnce chosen, some property investors prefer to pay the tenant screening service directly, while others may have the prospective tenant pay for the service. Either way, the landlord obtains the most up-to-date data available about any possible tenant. The winning combination of a great credit report and commensurately high credit rating and no criminal background will virtually ensure a good tenant. It is for these reasons that finding and securing quality tenants today has become such a science.

Sealing the deal

So you’ve used a tenant screening service, and chosen a great new tenant.  Now what?  Well, once you’ve chosen your new tenant, be sureinvestment property dangers to ingratiate yourself with them (thus helping to explode the stereotypical landlord image). On their first day, meet with them to go over the operation of appliances in the unit, as well as to discuss area amenities they should check out. It’s also a good idea to offer them a small housewarming gift too. Remember, this is a business. And it’s always easiest and least expensive for any business to retain clients than it is to search for new ones.
photos courtesy of tenantscreeningblog.com, lpmmags.com, brookdale-pms.co.uk, tenantscreeningblog.com, wilmothpropertyservices.com, lets4u.net, trexglobal.com, mcclurepropertymgmt.com
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Filed Under: Featured, Rental Investments Tagged With: best tenant screening service, best tenant screening service reviews, best tenant screening services, tenant screening service, tenant screening services, tenant screening services reviews, top tenant screening services

What Did Jonas 2016 Teach Us?

Yes, global warming sucks…

Obviously, for any intelligent human being, global warming is a given scientific fact.  Stop reading this article here if you think otherwise.  The most recent spate hurrican-irene-chameleonmarketing.wordpress.com_of natural disasters befalling the United States, as well as the world, involve numerous hurricanes, with so many becoming calamitous.  Jonas 2016 was the latest in a series of acts of God that have befallen the U.S.  And with each natural disaster, whether in liquid form, resulting in tremendous flooding damage, or with the advent of heavy snow storms, resulting in snow damage to huge swaths of the country, property investors need to be extremely well-prepared.  A healthy hurricane can flood your rental property with ease, depending on it’s site location.  A large snow storm can produce numerous extra damage and costs for the property investor – not to mention the costs of simple snow removal.

An ounce of prevention…

I have written previously here in the aftermath of other huge natural disasters, like hurricanes Irene and Sandy.  I have instructed about the proverbial “ounce of prevention,” having noted that “I must preach the rather trite notion of “be prepared” when purchasing an investment property. Unfortunately, it can’t beinsurance stressed enough. You can secure your property with extra flood insurance (if your insurance company will allow it), you can take all necessary precautions to lessen the damage of any potential storm to your investment, and you can (and must) certainly build into your pro forma income statement a generous allowance for emergencies.  But until you’ve waded through your property’s flooding basement in the middle of the night, wondering why you purchased this house, and ruining your decision to having done so, you eventually learn that each property you acquire will be an altogether new learning experience in how best to protect your investment.”

Preparing for the worst

It is critical that you plan ahead of time for emergencies like natural disasters.  I insurancehave gone so far as to recommend in prior articles here that “before bidding on any investment property, make sure to add a line item in your pro forma income statement as a provision for just such emergencies, like storm related damage. It’s very easy to blow this off, especially when you’re trying to make a deal work on paper before you purchase.  And don’t expect insurance to necessarily pick up the costs – some policies don’t allow for flood damage, and even if it is covered, you’ll still have a deductible to contend with too. And then there are the potential demands of your tenants if they have any of their possessions damaged.”

Review the siting of your property

Experienced property investors know that, before they attempt to make an offer on a building, they must review the site to determine the potential dangers in case of a hurricane, for example.  Can the basement flood easily due to the topography of the house?  I have noted before that “if you’re on the bottom of a hillside, you can run into problems. Same with being situated next to any water source – be it stream, lake or ocean. Make sure you look at the house during or just after a big rain storm, so you can see first hand if there are any issues with flooding or water seepage in the basement area. In addition, check to see if the current or previous owner installed any waterproofing solutions already.”

Protect yourself

The two most common ways to waterproof a house involve landscaping and/or installing an interior curtain drain (also known as a French drain). Landscaping is the more expensive solution, and can involve not just re-grading the entire perimeter of a house, but installing an exterior curtain drain at the same timeHurricane Irene effects on property investing around the perimeter. (Of course, always look for simple solutions to a water problem first. For example, if gutters are broken or missing, or if downspouts are emptying directly onto the perimeter, rather than being led out many feet from the house, these can be inexpensively corrected.)  Installing a gravity-fed curtain drain system leading to a sump pit equipped with a sump pump inside the perimeter of the basement is the next best alternative for waterproofing. The main drawback: if the sump pump were to fail. That’s why, in a very flood-prone area, installing a secondary, battery run sump pump is always a good idea. Of course, if power were to go out for an extended period of time, you’re still going to have a problem. Unless you get a back-up generator to run during any power outage…

Beware simplistic waterproofing solutions

I have also recommended that you need to be extremely wary of “the easy way out,” or very simplistic, seemingly cheap waterproofing solutions.  I have written before that you should “not bother with basement wall waterproofing treatments that can be rolled on like paint. Yes, they’re inexpensive – but they’re a waste of time. The walls may stay dry, but all that water behind the wall is just going to fall to the lowest points anyway – and will start coming up through the concrete basement floor slab at some point. This is due to all the hydrostatic pressure of the rising water table surrounding the house.”

Getting the right type of insurance

It’s incredibly important that you never undervalue your insurance needs as you look to acquire investment properties. Too often property investors will consider the expenses that only add to the value of a property. I call these the hard costs of the investment. For example, renovations to a kitchen or bath or performing extensive landscaping on the property are things that will have a direct relationship to your overall costs, since they will actually be seen by the eyes of a potential buyer (or tenant).

Crunching all your numbers

But it’s also just as important to consider the soft costs of investment property insuranceacquisition when crunching all your numbers. These represent the costs not normally associated with what the potential buyer (or tenant) will not see. An expense such as proper insurance should not be overlooked when estimating overall expenses. For property investors, underestimating the cost for insurance is simply foolish.  I have noted before that “you should be considering getting full replacement cost for property in case of something catastrophic…If your asset is wiped out because of a flood or fire you do not want to be woefully underinsured. Thinking that you’re only going to hold the asset for a very short period of time in the case of flipping, or that your tenants don’t care what kind of insurance you carry is terribly shortsighted.
Make sure when you purchase any investment property that you have it properly insured – and that means obtaining full replacement value coverage. It’s extremely important to spend the extra $100 or $200 to make sure that you cover yourself in case of catastrophe. I know it’s not easy to add more expenses when you think you can cut corners since prospective buyers are not going to see this particular expense…It’s foolish to shortchange and not fully protect yourself financially in the event of a real catastrophe to your investment property. Better to be prepared and be safe than sorry. Always protect your assets and add an inflated figure for insurance to your list of expenses that you’ll have to satisfy on a monthly basis.”

Go with a higher deductible for more savings

Make sure you shop around for insurance carriers to find the best deal, but be certain that you’re looking to get full replacement value for the property.  Yourinsurance investment property is too valuable to risk taking such a huge loss (the difference between full replacement value and market value in insurance parlance) in case of catastrophe. If you’re going to save on insurance the best way to do it is through obtaining a higher premium deductible amount on the house. So instead of a $500 deductible, consider going with a thousand dollars or more for each claim’s deductible amount. This will at least help defray the added cost of getting full replacement value insurance on the property.  But be sure to add this extra expense for the higher deductible into your pro forma income statements before you make any offer.
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Filed Under: Featured, Rental Investments Tagged With: acts of God, Jonas 2016, natural disaster, natural disasters, snow damage, snow removal

VRBO, Airbnb And The Short Term Rental Morass

A burgeoning mess…

I have written here in the past about the burgeoning mess that short term vacation rentals have been creating over the last several years. airbnbProperty investors looking to squeeze out revenue from unlikely sources, such as their own home, have in recent years been able to avail themselves of companies like Homeaway, Flipkey, VRBO and Airbnb that offer home rental as a lower-cost alternative to hotels and other traditional vacation lodgings. By going online and booking a vacation stay through private homes offered through these services, the average vacationer can ultimately save themselves a great amount when booking their vacation stay. However, as an investment, it can be risky business.

Homeaway as big business

To best understand just how pervasive these rental companies have become, consider Homeaway. This online service is an umbrella vacation rental marketplace with more than a million vacation rental listings in 190 countries, using several online monikers. Per Wikipedia, overall, this service operates through 40 websites in 22 languages. Theairbnb company offers the most comprehensive selection of rentals for families and groups to find accommodations such as cabins, condos, castles, villas, barns and farm houses.  Unfortunately, this vacation rental marketplace is still, by and large, left unregulated.  So it is ripe for abuse.  In addition, the hotel industry is constantly waging war with these online firms and the private homeowner/vacation rentals they represent.  Most private vacation rentals do not require any local municipality license (though this has been changing  – see below).  In addition, most homeowners renting out their residences do not have to pay hotel bed taxes.  This too has been slowly changing over just the last year or two.  In my small upstate New York community, our local county supervisors just expanded their “bed tax” definition to include not only vacation lodging with area hotels, but also private homes as well.  It’s a trend that’s sweeping the country, as municipalities look to expand their revenue base anyway they can.  Now, enforcing this new bed tax law is another issue altogether…

Risky business

In looking at the risks for a property investment, I have made note of this risk factor before, noting here that “in general, vacation rentals have been a secondary and riskier source of property investments for the experienced investor. They represent a greater degree of risk than airbnbyear-round rental units simply because they tend to be seasonal in nature. So cash flows thrown off from any vacation rental property are not uniformly consistent throughout the year. Ultimately, this makes for a greater likelihood of negative cash flows on an annualized basis. In addition, vacation homes, and time shares as well, are difficult to predict performance over the long term, due to market fluctuations and the overall state of the economy – depending on where they are located. Certainly foreign investments are even riskier, having much greater market fluctuations abroad than in the United States. Values can drop unexpectedly based on demand factor fluctuations. After all, vacations are made up of leisure time dollars. Thus, trying to predict future rental income and cash flows based on prior historical data is a tricky proposition. Also, keep in mind that vacation homes and time shares can be difficult to sell quickly should you need to get out fast.”

A common trend

Keep in mind that local municipalities round the country have been slow to create legislation that clears up the murky waters that home rental vacation investors have to swim in. In a recent news report from the Short Term Rental Advocacy Center (stradvocacy.org, 7/28/15), anairbnb online pro-home rental advocacy group, they note about recent legislation in the San Francisco Bay area: “on July 14, supervisors in the Bay City passed an amendment that would increase scrutiny on short-term renters in order to ensure they are following local regulations. Two amendments addressing complaints by local residents were considered, but in the end the more lenient of the two was passed, giving the recently created Office of Short-Term Rental Administration and Enforcement greater power to impose existing regulations. It also leaves the maximum cap on the number of days people can sublet their homes at 90 days per year; the stricter proposal would have cut the number to 75 days and require STR-hosting sites to submit quarterly reports to the city. “Home-sharing is here to stay in our city,” said Supervisor Mark Farrell. “The proposal in front of me today builds on our current law.” Dale Carson, the leader of a group that opposes STRS said that even with the OSTRAE’s new powers, the 90-day cap will be difficult to enforce. “Pray tell,” he said “how is the city to determine when a host is sleeping in her own bed each night?”

Short term rental pitfalls

I’ve written in several articles here that vacation rentals are inherently riskier investments than year-round rentals. With the advent of Homeaway, VRBO, Airbnb and the like, and their extremely large overseas investment propertyfollowing and popularity in this country and abroad, property investors should know all the pitfalls of this type of investment when considering all their investment opportunities in real estate. At the very least, read up on your local laws regarding short term rentals. These laws are changing fast from community to community around the U.S. As I mentioned in a prior article here, “be wary of one other story that has circulated in the news recently, providing Airbnb with some rather nasty bad publicity. The incident involved a host who rented out their unit to a traveler for a month, only to find that the traveler would not leave. Due to local law, once the traveler occupied the unit for at least 30 days, they were considered a “tenant.” And as such, they were afforded all protections due tenants in tenant law. And the host had to go through a very long, expensive eviction procedure to have the “traveler” removed.” As a vacation renal property investor, make sure you fully understand all local ordinances regarding short term stays, as well as landlord/tenant law before using a service such as Airbnb or VRBO.

 

Photos courtesy of trxglobal.com, fastcompany.com, wired.com, caribreezes.com

 

 

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Filed Under: Featured, Rental Investments Tagged With: airbnb, Flipkey, home rental, Homeaway, VRBO

Consider Title Insurance A Simple Necessity

Why title insurance should be an imperative

As a real estate broker, I recently helped a buyer acquire a piece of property to develop in my area. However, the seller of the parcel had acquired the land at a purpose of title insurancecounty auction of properties. Many of these properties had prior owners who had unfortunately not paid their tax bills for a long period of time. As such, when they purchased the property, the county made no warranties as to the “cleanness” of the title on the property. It was up to the buyer to do their own due diligence and obtain an owners title insurance policy on any given parcel involved in the auction. So the current seller of this particular parcel my buyer wanted to purchase had gone ahead and put the property on the market for sale, figuring they would deal with any potential title issues down the road, once they found a buyer. This was a risky maneuver on their part.

The saga continues…

And this is where me and my buyer come into the picture. Unfortunately, after negotiating the sales price with the seller, we were then notified the seller would have to clear up any title issues before a closing could take place. Unfortunately, we were forced to wait another couple of months, while we were under contract, for the seller to have a title company review the exact chain of title records, and determine that the last owner of the property still had an outstanding mortgagepurpose of title insurance lien that needed to be cleaned up. Luckily, the seller, his attorney, their title company and my buyer’s attorney were able to come up with a workable solution to the problem to allow our sale to go through.

However, this could happen only with my buyer having to obtain a new title insurance policy as “extra” insurance that there would be no future claims on the parcel. (In our area of New York state, title insurance is not a requirement.) Title insurance cost can vary depending on the parcel and area involved. Your title insurance company will usually utilize a title insurance calculator for your area to come up with your one time only policy cost that will be paid by you at closing. In the case of my buyer in this story, it only cost several hundred dollars for her title policy.

A complex process

I have written in a prior article here about the complexities of the title insurance process (see http://investinginproperties.org/rental-investments/purpose-title-insurance-rental-property/). In that article I defined exactly what is title insurance. I also noted that the title company’s title search will include “all records the local municipality has on file for the investment property. This will include…water or tax bills, special assessments, tax liens and any other item that could conceivably affect the title. Traditionally, building insurancedepartment records are also checked to ascertain any outstanding building permits (opened, but never closed as completed), or similar code violations. Once title is completed, a title report is prepared by the title insurance company. It is sent to all the attorneys in the property transaction for their review.

If there are any current problems (for example, an unaddressed easement that was never disclosed), the attorneys need to hash out a solution prior to a closing. Similarly, if a building code violation comes up in the title report, or, as another example, the title picks up an existing, illegally built shed (that was built without a building permit), the seller will need to obtain a building permit (or tear down the shed), prior to the closing. Once the buyer’s attorney is satisfied that all outstanding violations have been removed, and that his client, the buyer, will be able to purchase the property with no encumbrances on it, the title is deemed to be “clear.” And a closing can finally be set.”

Title insurance is crucial

This process illustrates the real need for title insurance. It helps protect any purchaser of property from a prior owner somehow coming into the picture atbuy investment property some point in the future, and claiming the land is actually owned by them. You can see the compound effect of how disastrous things could get without a title company involved as insurer. The title company basically would be guaranteeing they would be on the hook for any potential “damage” in the future from such a claim. Imagine a current owner building on the parcel, then a claimant from the past coming forward saying the parcel is theirs. The potential for a major real estate mess would be financially onerous, if not disastrous, to say the least. In effect, the title insurer makes a promise to make things right. They can afford to do so by being very thorough in their research of the existing chain of title. Though mistakes occasionally occur on the part of a title company’s research, they are very, very rare. After all, title insurance companies are in business to make money. So research thoroughness on their part is essential.

 

Photos courtesy of welchgroup.net, business-law-pa.com, gfmag.com, taylorinsuranceblog.com

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Filed Under: Featured, Rental Investments Tagged With: owners title insurance, title insurance, title insurance calculator, title insurance cost, what is title insurance

Why Millennials Are Betting on Investment Renovation

Some anecdotal notes about millennial investing…

Recently my nephew, a millennial who is soon to be married, asked me millennialsfor some basic advice when it came to property investing.   He and his fiancée were not sure if they should get into the real estate market, and if so, where to start. He was overly concerned with finding a property first, and wanted to know how best to run a search, especially for investment renovation property. I tried to tell him that he was getting way ahead of himself…and here’s why…

Starting with your local lender

As I explained to him, the starting point always begins with an honest assessment of what you can comfortably afford. If you’re looking to rehab a house, it’s best to speak with a lender about a home renovationmortgage rate on investment property loan. So your first stop should be with a local mortgage lender – be it a local bank or mortgage broker. Online national outfits are OK (for example, Quicken Loans), however, as I’ve noted in many prior articles here, it’s best to develop a relationship with one local lender. They can get to know you in person, you can actually sit down and talk with them, and they will eventually become part of your team of professionals aiding you in your property investing journey. Try speaking with several lenders first, then see who you feel you can work with the best. In addition, make sure they are good listeners, and can recommend mortgage products that really address your particular situation.

Expect initial mistakes to occur…

If you intend to get your hands dirty, and are looking for home renovation projects, you’ll be numbers crunching all your estimated inexpensive home renovationshome renovation costs. Renovating an investment property will become easier over time, the more projects you get under your belt. But initial forays into the world of renovating an investment property can be fraught with many mistakes…especially underestimating your renovating costs. For this reason, it’s best to know how much house you can afford by speaking with your local lender before starting your search. Then, you should get several quotes for the repair work to be done from different local contractors as well. If the numbers seem viable, then, and only then, should you consider actually placing an offer in on the property.

A growing trend

According to a recent article in The New York Times, millennials are becoming one of the fastest groups now investing in rental propertiesinexpensive home renovations (“Millennials Investing in Rental Properties,” by Lisa Prevost, The New York Times, November 20, 2015). In fact, many millennial property investors don’t even own their own home, preferring to purchase an investment property instead! In the article, the author notes that “for all the talk about the so-called millennial generation — often defined as those between ages 18 and 34 — being slow to move toward homeownership, some young adults are, surprisingly, drawn to real estate as an investment opportunity.”

A millennial’s rationale

Ms. Prevost interviewed several millennial property investors for her article. One summed up his rationale for this form of investing this way: “I’m interested in real estate investment because of all the ways you can make money — from appreciation, leverage, cash flow, tax benefits. I’m not looking to get rich quick. I’m just looking to have millennialslong-term income I can rely on.” The author also noted how he liked the concept of control over his investment dollars, relative to other forms of investment, like the stock market, for example.

Another interviewee added his summation, warning “inexperienced investors to proceed cautiously when considering a rental property. “There’s a lot of information out there that makes it sound easier than it is,” especially if you’re managing the property yourself, he said.” This particular investor also noted that “buying a multifamily home that you can live in can be a great way to go. Rent from the other units might cover your mortgage payments. It’s easier to manage the property because you’re right there, and if you want to move sometime down the road, you can then rent out your own apartment.” Many millennials are doing just that indeed. It’s a growing trend that’s seen the market for multifamily houses become quite hot over the past couple of years, with no end in sight.

 

Photos courtesy of immersiveyouthmarketing.com, worldpropertychannel.com, profitindetroithomes.wordpress.com, propertymanagerpsg.com, screenmediadaily.com

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Filed Under: Featured, Rental Investments Tagged With: home renovation, home renovation costs, home renovation loan, investment property renovation, investment renovation, renovating an investment property

An Investment Property Insurance Primer

Protecting your investments…

Having the right investment property insurance, not only in type of policy but amounts as well, is crucial when acquiring rental properties. insurance You’ll want to protect yourself should disaster strike – in any form. Whether a fire is started from a faulty electrical outlet, to having a tenant create a fire simply by cooking improperly, you’ll absolutely need insurance to cover you. Otherwise, you could get wiped out financially when the worst happens. You’ll find that rental property insurance is integrally important to have whenever acquiring a new investment.  But, it needs to be the right kind of insurance protection. And finding insurance for rental property is pretty straightforward. It first involves locating the right insurance agent.

Your insurance agent as part of your crew

As I’ve written here before in prior articles on the subject of insurance, I have said that “selecting the right property investment insuranceinsurance starts with having an excellent, trusted property investment insurance agent as part of your overall crew of experts on your property investing team of professionals… And your crew has to be selected well before you even begin searching for new properties to acquire.  Once you find a suitable property to invest in, make an offer, negotiate, then are able to close on it, you’ll need to trust your insurance agent with helping you select the best insurance for that particular property.”

Property conditions are important

Remember too that “a good property investment insurance agent will factor in the condition of the property, and where it’s physically located (for example, is it in a flood zone or not; or, is it prone to other insurance natural disasters that could harm it?).  In addition, they will take into account tenant’s being foolish, and starting accidental kitchen fires, or slipping and falling on ice on a walkway, and then suing you.  Having the right amount of coverage is essential:  too much means you’re overpaying for your insurance, whereas too little leaves you with a personal exposure that could ruin you.  Of course, any good property investment insurance agent will recommend personal liability insurance as well as property insurance.  This personal liability insurance is an absolute necessity when dealing with tenants in such a litigious society as ours.” I’ll come back to liability insurance a little later in this article…

Choosing your insurance agent

To help you determine how to insure a rental property in the best way possible, I have noted before here that you should “make sure you shop around for insurance agents, and go over with them how they would handle various negative occurrences that might befall anyinsurance investment property.  Remember, you need an agent that understands very well that insurance for a business like property investing is far different than insurance for a home.” A good agent will point out the differences between a standard homeowner’s insurance policy and homeowners insurance for rental property.  And they need to protect you at all costs, at the best price.  So make sure you take the time to shop around for a property investment insurance agent you trust. Be sure to put them in place with your other investment property crew members before you begin searching for your next property.”

Don’t be shortsighted

I have also noted here that “many investors undervalue their insurance when they are purchasing any piece of investment property…especially those investors that are just flipping houses. Too often property investors will consider the expenses that only add to the value of a insurance property.  But it’s also just as important to consider the “soft” costs of investment property acquisition when crunching all your numbers.  These represent the costs not normally associated with what the potential buyer (or tenant) will not see. For property investors, underestimating the cost for insurance is simply foolish.” I have also reminded property investors that they “should be considering getting full replacement cost for property in case of something catastrophic. If your asset is wiped out because of a flood or fire you do not want to be woefully under-insured.  Thinking that you’re only going to hold the asset for a very short period of time in the case of flipping, or that your tenants don’t care what kind of insurance you carry is terribly shortsighted.”

Full replacement value insurance

I’m a big advocate of obtaining full replacement value insurance on any and all of your rental properties. Spending a few hundred dollars a year more to cover yourself in case of dire circumstances and a total property loss due to fire, for example, makes smart business sense. insuranceHaving full replacement cost means you won’t have to worry that you won’t be able to rebuild should you want to, in the case of a total property loss. I’ve written here in the past that “it’s foolish to shortchange and not fully protect yourself financially in the event of a real catastrophe to your investment property. Better to be prepared and be safe than sorry. Always protect your assets and add an inflated figure for insurance to your list of expenses that you’ll have to satisfy on a monthly basis. Your investment property is too valuable to risk taking such a huge loss (the difference between full replacement value and market value in insurance parlance) in case of catastrophe.”

Save by using a higher deductible

One of the easiest ways to save on your insurance premiums is to insurance utilize a higher deductible amount for all your properties. So, for example, instead of a $500 deductible, consider going with a thousand dollars for each claim’s deductible amount. This will at least help defray the added cost of getting full replacement value insurance on the property. You can save a much greater amount if you continue to bump up your deductible amount. If you can go with a two thousand dollar deductible for any given claim, the policy savings on your rental buildings will be even greater overall than a one thousand dollar deductible will allow. Crunch the numbers with your insurance agent to determine the best deductible amount for your situation.

Don’t forget liability insurance

Liability insurance is a necessity when investing in rental properties. The “umbrella” of protection it affords if one of your tenants sues you is tremendous. And it protects you from their going after your personal possessions and accounts as well. One of my previous tenants in a fourinsurance family house I used to own sued me once for a “slip and fall.” They had fallen on ice leading from the driveway to their unit’s entrance. With liability insurance, the insurance company hired a local attorney to defend me since I carried a liability insurance policy with them. In most cases, attorneys for both sides negotiate out a settlement to avoid a trial. However, as the insured, you’re not involved in the negotiations. (Though, in my case, I did have to come in to give depositions.) It’s one of the great benefits of securing liability insurance for your investment property….peace of mind. I always recommend a minimum of a one million dollar liability policy for landlords. Make sure you check with your insurance agent for his recommendation for your particular set of properties. Keep in mind that one policy can cover all your rental properties. As you add any new rental property to your stable of investment houses, you can simply add them to your liability policy.

 

photos courtesy of gfmag.com, mrinsuranceinctx.com, imggood.com, generoagency.com,  en.wikipedia.org,  floridianpropertyconsultants.com, orlandoinsurancestore.com, licensedatabase.com

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Filed Under: Featured, Rental Investments Tagged With: homeowners insurance for rental property, how to insure a rental property, insurance for rental property, investment property insurance, rental property insurance

Should I Self-Property Manage?

The all-important learning curve…

When you’re just starting out acquiring investment property, it’s a good idea to attempt to manage your own units. There’s no better learning curve than to Property Management make mistakes on your own properties. It’s not to say “will mistakes occur,” it’s “when will they occcur.” And if you have a single family or duplex, or even a three or four unit building, you should find self-management to be pretty straightforward. Now, you may not have the right temperament for such an endeavor, but you should let your experiences in the real world of landlording help guide you to any future decisions as to how best to answer the question, “when should I hire a property manager?” You may find that dealing with tenants is just not your forte…and so your decision-making as to when to hire a property manager will become easier and easier.

Property management takes a certain skill set

Rental property management is an acquired set of skills. And I would dissuade any novice investor from hiring a property management firm right after the purchase of their first investment property. It really is best for you to better understand the rigors that come with managing your own properties. And in theproperty management process, you will develop a finer appreciation for the sheer amount of work and expertise required of the job. Even with property management software readily available online, it’s still going to be a learning experience for you. And this experience will only help serve you in good stead as you move forward, and purchase your next investment property. You’ll know from limited experience how demanding property management can be – and time consuming as well. You may find that it will be much smarter for you to hire a property manager as you grow your investment property empire. By doing so, the extra cost for their services should be outweighed by your time costs, as a property management company will aid in providing you more time to search for new property acquisitions.

Why hire a property manager?

I’ve written here on several occasions about the time commitment property property management managing represents. In prior articles, I’ve noted that you should not underestimate the time commitment required to do a proper job. You’ll have to place ads for potential tenants, show the units, screen prospective tenants, and choose them. And repeat the process each time a tenant leaves. Or worse, if you chose a tenant poorly, and they end up not paying their rent in a timely manner, or at all, you’ll have to go through the time and major expense of evicting them. In addition, you’ll have to make regular visits to the property to make sure the grounds look in proper order, ensure operating systems are in good order, no new dangers have arisen on the property (for example, loose steps or broken walkways ( a major source of lawsuits by tenants against landlords), all common area lighting is working, etc.

Rent collections and tenant selection

I’ve also mentioned in past articles about property managing that you will also be responsible for collecting rents. If you’ve chosen tenants well, no problem. If you haven’t – big problem. After all, this is a business you’re running, and it needs to be humming along, or else you’ll have cash flow problems paying yourproperty management 4 expenses. As part of your job as your own property manager, you’ll also want to stay in regular (at least once a month) contact with your tenants. Many times, tenants will not tell you about “small” problems they’ve been having with your property – until it’s a big problem. By being pro-active, you can scope out these problems when they are indeed small. So, for example, you can ask each tenant each month if there are any issues you should be aware of – for example, any small leaks going on in the unit, any bug problems they’re seeing, any safety-related issues (say, a constant flickering light that would indicate a potential electrical wiring fire hazard). By asking you’ll stay way ahead of the curve – and be able to jump on any potentially big problems when they’re still small – and easily (and cheaply) corrected!

Property manager fees

If you decide to use a managing agent, know that their fee (usually between 10 and 15% of rents) is yet another expense to be crunched to see if it makes sense for your situation. Clearly, it will reduce your positive cash flow on each of your buildings. However, as mentioned earlier, using one will free you up to continue building your real estate empire…And your time will be better utilized to create more wealth. In this way utilizing the services of a property management company makes much more sense in helping your business show long term growth.

 

Photos courtesy of realestate-byowner.net, lifeenrichmentrealty.com, propertymanagementva.com, screenmediadaily.com

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Filed Under: Featured, Rental Investments Tagged With: property management, property management software, property manager, rental property management, when should I hire a property manager, why hire a property manager

Make Duplex Investing Part Of Your Plan

Pros know how to diversify…

I was recently at a social gathering where a woman I knew, a licensed nurse practitioner, began telling me about her real estate investment holdings. As she went on and on, I was completely floored by her duplexexpertise, talent and farsightedness in planning out a long term plan for her real estate investments. She also property managed all her holdings, which included single family houses, duplex property, as well as three and four family homes. What shocked me most, aside from the fact that this was her avocation and not her primary means of income, was that I considered her a fairly shy, retiring individual. I could not see how she was able to handle so well the necessary dealings with all her tenants. I just couldn’t imagine that she had the temperament to do so and be successful. Boy was I wrong…and I got a good lesson in “don’t judge a book by its cover” in the process of our discussion on real estate investing.

Creating a plan

Frankly, she was an uber-pro at property investing as it turned out. She had been properly following a plan of using a local real estateduplex agent to help her scope out possible acquisitions on a regular basis.   A benefit of working with one agent through the years, she was able to develop a great long term professional relationship with him that created an easy shorthand when a potential investment property came on the market. It also made it easy for her to obtain market research as to current valuations for any different area or even street within the communities she invested in. And she would acquire her properties slowly, over many years, in a planned manner of acquisition.

Duplex expertise

My acquaintance also really optimized her use of duplex investing in duplexparticular. Many investors who look specifically for a duplex for sale are interested in living in one unit, and renting out the other unit. (What is a duplex, you say? Simple…a two unit building, most of the time with each unit side by side, with an adjoining wall between them.) For those investors, it’s hard to create a positive cash flow when living in one of the two units. Duplexes (especially duplex nyc or duplex in any metro area) are great for individual homeowners who are trying to lower their overall housing expenses. However, experienced investors realize that renting both units out is the best way to maximize profits from any style duplex.

Choosing the best tenants for her duplex units

In addition, she knew how to choose the best tenants for her units. Induplex so doing, she kept away from bad tenants who don’t pay, or were late payers. It also kept her away from having to do expensive and time consuming evictions. It also helped that she kept her geographical focus close to home, only investing in properties within a short 30 minute drive of her home. This made staying on top of her tenants, their issues or questions, as well as building maintenance and repair problems, much, much easier to handle.

Knowing when to sell

She also was adept at knowing when to jettison an under-performing property – be it a duplex or any other style she owned. Instead of duplexwaiting many years to sell off any investment property that was not throwing enough income off to hit her target ROI (or worse, that was throwing off a negative cash flow), she was very good at understanding it does not pay to hold onto a bad-performing building. Better to sell it off, even at a small loss, and reinvest in a better property, or at least one that looks good on paper. She also was a master at time management – an imperative for someone who is investing on a part-time basis. She also had her tenants properly trained to let her know of problems with their units – but only at reasonable hours when she could be reached.

 

photos courtesy of activerain.com, denalipm.com, digonline.org, lets4u.net, tenantchecker.com

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Filed Under: Featured, Rental Investments Tagged With: duplex, duplex for sale, duplex investing, duplex nyc, what is a duplex

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