Real Estate Investing Facts

The rental agreement: The rental agreement specifies how long the tenant will rent the home and how much they will pay each month in rent to me. During the rental period they can purchase the home, unless otherwise specified. A rental agreement also comes in handy if ever taken to court, so that no matter what the tenant has put into the property, the judge will let me evict if necessary rather than foreclose.

The rental agreement gives the tenant the right to occupy the property during a specified time period. It is similar to the rental agreement you signed with the owner/seller, except obviously your rental agreement with the tenant will be very pro-landlord (pro-you).

The rental agreement needs to be separate only for selling on an option. If you are the buyer, you certainly can put them into one document, but when turning the option around, you’ll want to use the three different documents. The reason is that if the tenant doesn’t pay, or the deal goes south, you will want to be able to evict them as quickly as your state allows. If you have all three agreements in one contract, some judges will look at the lease option as a sale rather than a lease, and therefore make you go through a full foreclosure or forfeiture process versus an eviction. This will take much longer, be more expensive, and may require an attorney.

Anyone who will be residing on the property over the legal age must sign the rental agreement. This includes children of legal age (determined by the state).

A cosigner can be an important safeguard if you have a weak applicant and they have a strong parent or friend who is willing to sign with them on their rental agreement. It works well for giving liability to someone else who will come through with the payments. I have a situation where a mother cosigned for her daughter. It was just a rental but the daughter had terrible credit. The mother, however, had worked for General Motors for 25 to 30 years and made a good guarantee person for me. The daughter stuck me for nearly $5,000 in unpaid rent and damages, and now the mother is paying for itout of her GM checks. In another case, the mother was a local Realtor in Michigan, and she asked me to help her daughter get a house. Her daughter had been through a rough time, and the mother was willing to cosign. I probably didn’t even run the daughter’s credit because I knew the mother was a well-known Realtor and was good for whatever might happen. The mother paid the $5,000 option fee, and the rent was $1,300. Eventually, the daughter left, owing me $3,000 in unpaid rent, and the mom had to pay if off.

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I like to make all rent due on the first day of the month. If a tenant moves in on the seventh, I prorate the rent for the month. My rental agreements specify late fees of $25 for the first day late and $5 per day after wards, and the tenant, of course, must sign the agreement to this. I can’t reiterate enough how necessary it is to have everything in writing, spelled out in detail. That way your tenant can’t say, “I never agreed to that.” All you have to do is point to the contract and say, “Here it is in black and white, and there’s your signature underneath it.” I also like to add an incentive to encourage my tenants to pay on the first of the month. My contracts state that if they make their monthly payments on time, including any unpaid option fees, then I will credit them with $100 towards the purchase price of the house.

Your other fees on the property can include a pet deposit, security deposit, cleaning fees, and the like. In a lease option, I usually do not require a security deposit, because if they have an extra $1,500 for a security deposit, which is refundable, I’d rather have them apply that to the option fee, which is nonrefundable. There are some good reasons and areas of the country where even a small security deposit is recommended. It gives the tenant something they can get back if they don’t purchase. Some judges like a small amount showing as a security deposit. None of the option fees, however, show up on the rental agreement, as the option agreement is a separate document.

Your rental agreement should state the total cost to move in. For example, if there are fees, you will add them to the first month’s rent to get the total for the rental agreement, but that is not the total overall cost since you also need to add in any security deposit. The rental fees plus the security deposit make up the total move-in costs. The rental agreement must also show the total amount of anticipated rent for the contracted period, including prorated months.

You can also state in the agreement that if the rent is more than 10 days late, the agreement may revert to a month-to-month rental (nullifying the option) at the discretion of the landlord. I generally don’t do this unless I want to get rid of the tenant, because when this alternative plan is set in motion it allows the tenant to move out at any time. Be sure your rental agreement states that the keys are due back within 24 hours if the tenant does not exercise the option and/or moves out.

Payments should be postmarked by the post office rather than a Pitney Bowes machine, as these machines can have their dates changed. In my rental contracts I also specify that any bounced checks are subject to an additional fee. Although I start out trusting my tenants and allowing them to pay with personal checks, if one check bounces, all payments after must be paid in certified funds or bank checks only. I also tell them that if their rent is late twice within a 12-month period, their monthly rent will increase by $25 per month.

You should specify to the tenant how their payments will be applied, and in what order:
1. Outstanding dishonored check fees.
2. Outstanding late fees chargeable to tenant.
3. Outstanding legal fees, court costs or both.
4. Outstanding utility bills that are the tenant’s responsibility.
5. Any damage caused by the tenant.
6. Collection agency fees.
7. Costs for re-letting the property, if applicable.
8. Option fees owed.
9. Rent.

You should apply their payment toward rent last because it is easier to evict on unpaid rent than on unpaid utilities. So use their money to pay for unpaid utilities, and if the rest doesn’t cover the rent, you can begin eviction proceedings in most states. Again, check with your local investor group or a local real estate attorney on landlord eviction laws.

Stay tuned for Part 2 of “Points to Consider for the Rental Agreement.”

Wendy Patton is the nation’s leading author and trainer in ?lease options, rent-to-owns and subject-to deals. For more information on Wendy Patton visit her website at www.WendyPatton.com.

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Hans Anderson

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New Yorkers have passed a law banning apartment rentals of less than 30 days. The ban is aimed at short-term tourist rentals, as well as “transient” hotels in permanent residential buildings.

Lawmakers supporting the ban claim that short-term rentals place needed housing options out of reach of other New Yorkers at a time of a housing shortage.

Opponents, however, claim that the action was a concession to the powerful hotel industry that has been losing out to locals who seized the opportunity to cater to budget travelers by renting out apartments to tourists. New York boasts the highest hotel rates in the nation.

The law applies to short-term sublets by tenants as well as property owners.

It exempts “bed and breakfast” arrangements, such as an elderly person who takes in a boarder, so long as the permanent resident remains at the property, and only applies to situations where money is exchanged.

Lawmakers believe this measure was needed because these short-term renters, most of them tourists, are noisy and disruptive, and pose a security risk in private buildings. One senator defended criticism by proclaiming that enforcement will be a “no harm, no foul” scenario, where authorities will be involved only when there is a complaint.

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Hans Anderson

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“Most of the important things in the world have been accomplished by people who have kept on trying when there seemed to be no hope at all.”

Dale Carnegie

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Hans Anderson

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I’m sure you know that buying rental properties is a great way to generate income and build your wealth. But you must keep in mind that a rental property is a serious investment. Doing your homework and finding the right deal is definitely a prerequisite.

I’ve seen investors purchase rental properties with the best
expectations only to watch their investment become a problem child or money pit because of location/neighborhood factors, unforeseen maintenance issues, poor tenant choices or bad decisions like hiking rent up too high for the market. We all need to learn the ropes and sometimes this means making mistakes and learning from them.

Are you interested in finding a cheap property to either live in, rent out or flip? Join the Foreclosure Insiders Club to access a list of distressed properties in your area that desperate owners, fearing bank foreclosure, could be selling at bargain!

I’ve compiled this list to help you find a good rental deal. If you’re even thinking about buying a rental property, you should definitely watch for the following things:

1. Good location. Traffic is good, because it makes rentals easier to rent. Signs can pull more response than an ad in the paper. Also, if it’s in a nice locale, it will usually rent faster. Nice locales include places that are close to amenities.

2. Good numbers. Verify every last expense, figured them into your calculations, and be sure that you’ll have positive cash flow from the start. One of the biggest mistakes investors make is to start with negative cash flow.

3. Expensive homes. High home prices create rental demand. What do people do if they can’t afford to buy? They rent, of course. Look in areas with high house prices.

4. Low maintenance properties. Cedar-shake roofs and wood-sided buildings just mean more expense and trouble. Look past current expenses to how much maintenance the building will need. Lower maintenance means fewer headaches and more profits.

5. A good rental history. Look at the rental history, and note how long residents are staying on average, and how often they pay on time.

6. Below-market rents. Buying rental properties with below-market rents is a sure wealth builder. It means you get to raise rents, and that means you immediately raise the value, because rental property values are based on income.

7. Complies with fire codes and zoning. Have the property
inspected, and ask local officials if there are any existing
problems. Sometimes a violation that was tolerated for years won’t be tolerated once a new owner is in the picture.

8. Less than 25 years old. The number is somewhat arbitrary, but if you limit your search to newer buildings, you’ll be less likely to have building code and maintenance problems.

9.Owner/manager is out of state. These properties are often the best deals. It can be a real headache to manage a property from far away. Out-of-state sellers are often more concerned with a quick sale than a high price.

10. Stable or improving neighborhood. It’s okay if it’s stable, but if you can buy in a neighborhood that is improving, you’ll rent the units more easily. This less vacancy, more income, and therefore, automatic appreciation in value with time.

As you look at properties, you’ll find other things to add to this
list. Some things are particular to an area, like local rental
codes that tell you what you have to fix or improve.

I’ve had some success at finding solid rental properties by joining the Foreclosure Insiders Club – where my membership gets me the inside track on potential rental properties that are available at bargain prices in my area. Membership to the Foreclosure Insiders Club grants me access to a listing of pre-foreclosures that desperate owners are looking sell! I can watch for properties that may be going up for auction. This site gives me access to information before other realtors or investors in my market know anything – keeping me ahead of the game! I highly recommend it!

Add these to the list above, and actually carry the list with you, so you don’t forget anything. Watch for the right things, and you’ll be safer and make more money buying rental properties.

To Your Success!

Aiden Win

Mr. Foreclosure

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Here are the four basic steps to the property foreclosure process which can and will help prospective investors to purchase properties at the best possible price.

1. Pre-foreclosure- This is the stage which a property owner starts missing payments and the stress of falling behind starts to mount. Keep in mind that this stage is before any legal action has begone. A property owner may be more likely at this time to consider any offer if it means they have a chance to save their credit and avoid foreclosure. This is the best time to make a deal with the home owner and make this a win-win situation.

2. Notice of Default- A formal notice to a borrower declaring that a default has occurred and that legal action may be taken.

3. The foreclosure sale- Whether it is a judicial or non-judicial process depends on each individual state as each state can have different laws. The foreclosure sale process itself can take up to a year to complete. Quite often judicial foreclosure sales are held on the courtroom steps as soon as a judgment has been reached.

4. Redemption period- During this stage some states allow the property owner the opportunity to get title back, provided they pay the full amount of the original debt and any new fees that they may have accumulated.

Investors need and should know if the foreclosed property they wish to purchase has a redemption period or not. As an investor you won’t want to make any type of improvements to the property until you know for sure that it is yours.

Rein Canada

Foreclosure Investing

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