Wednesday, May 31. 2006
ABCs of Savvy Tenant Screening Posted by Eryn
in Leasing & Marketing at
08:32
Comment (1) Trackbacks (0) ABCs of Savvy Tenant ScreeningReal estate can be an exciting and challenging industry, and an amazing vehicle for achieving both personal and financial goals … if you approach it correctly. Any industry with such potential for success also can carry the potential for gigantic pitfalls. Owning properties and acting as a landlord is not for the faint of heart. If you are new to the business, fear not. The key to becoming a successful landlord is to start with the basic ABCs (and a D): A = Application B = Background Check C = Credit Report D = Deposit These four components make up a tenant screening process that is probably the most important process a landlord can learn. If you master these basics, you will have fewer reasons to learn the processes for the next letters in the alphabet: E = Eviction F = Foreclosure These ABCs may seem like common sense; however, many circumstances occur that might persuade you to skip a step, often with disastrous consequences. Even seasoned landlords can fall victim to the siren’s song of impatience (or worse, desperation) to rent. We’ve all been there: It’s the middle of the month and your investment property is vacant. Looming over you is the dark cloud of a pending mortgage payment due by the first of the next month. All you can think about is getting that payment covered as quickly as possible, and preferably with as little effort and expense as possible. When prospective tenants appear with deposit money in hand, you may be tempted to skip the screening process so they can start paying rent before that next mortgage payment is due. After all, they seem like responsible people. They both have jobs, and they filled in everything on their application. They even listed references. A little voice in your head says, “There’s no need for formalities -- just go ahead and let them move in. What harm could it do?” You’ve always thought yourself a pretty good judge of character. After all, you can actually save money by not running the reports. These people seem legitimate, so why not? “Why not” is one of the most costly mistakes you can make as a landlord. Screening your potential tenants is not an area in which you want to cut corners. In the long run, any money you invest in the screening process is money well spent. If you’re short on time, you can outsource this process by hiring a leasing agent to screen prospective tenants. If you want to do everything yourself, you must follow certain procedures as the minimal effort to screen a potential leasee. A resourceful landlord can find enough information to make an informed decision about accepting a person’s application for tenancy. Application The tenant application is a very useful tool that can provide clues about financial stability and personal reliability.. However, you cannot use the application as conclusive evidence that an individual will be a good tenant. Consider the application as the first step in your information gathering process. Keep the following tips in mind when you receive an application: Make sure all fields on the form are completed.
Background Check Many people feel that a background check is an optional step. I don’t want to encourage paranoia, but as a landlord, you might like to know whether a potential tenant has had prior convictions for issues that could affect your property or personal safety. For example, issues concerning prior drug or assault convictions could make it very difficult for a landlord to enforce a lease agreement or keep a tenant in compliance with city ordinances. Additionally, a background check will show any liens that have been filed against the individual for nonpayment of rent, as well as a list of previous residences that you can cross-reference with the rental history on the application You can obtain background information in several ways, such as hiring a company that specializes in running background checks for employers and landlords, or hiring a private investigator to run reports. Whichever method you select, it is important to recognize that this is a crucial step in weeding out problems with potential tenants. If a full background check seems excessive or isn’t cost effective, consider a warrant check as a prudent alternative. In many cities and counties, you only need to call the warrant department. Officials often are unable to provide specifics concerning the warrants, but they may be able to affirm whether any outstanding warrants are listed. In some cities, a warrant check is as simple as knowing where to look online. For example, the City of Austin has a warrant list online that is updated regularly. You can run a simple search on the last name of the applicant to see if any warrants are currently issued in that name. Credit Report Credit reports are useful to determine a prospective tenant’s ability to make reliable payments. A credit report also can show spending habits that could interfere with a tenant’s ability to prioritize rent over impulse buying. It is not necessary for a tenant’s credit history to be flawless, but many resources are available to help you decide which credit ratings you will accept and which you will not. A credit check is especially crucial if you have an agreement with your tenant that includes an option to buy the property. A credit report quickly shows whether a tenant has the potential to qualify for loans within the timeframe of the agreement. Deposit Deposit money is critical to the acceptance of an applicant, but it is not sufficient in and of itself. Essentially, this money is solid assurance that even if your screening process fails, you will have a monetary buffer to help you bounce back from a bad renting experience. The money alone should never be the deciding factor to accept a tenant. Regardless of whether you have the first and last month’s rent in hand, this money will probably not cover the expenses you will incur if tenants damage your property, force an eviction, or sneak out in the middle of the night taking lighting and plumbing fixtures with them (yes, this has actually happened). No matter how new or experienced a landlord you are, never cut corners in the tenant screening process. After a consistent and thorough screening process, a landlord and tenant can enter into a mutually beneficial arrangement for both parties, averting many potential headaches. The old saying holds true: an ounce of prevention is worth a pound of cure. In my experience, you can’t buy better advice than that. Thursday, May 25. 2006Between Tenants
The previous Tenant has moved out, and you are wandering into The Property for a pre-rental-advert inspection. Time to take stock of what needs to be done, and what extra could be done to increase the rental value of your Property. New paint, flooring, and appliance inspection are pretty standard activities. But they don’t have to be oppressive cost-centers when basic repairs can be done with some simple elbow grease and a little know-how.
HandymanUSA is a great internet resource for finding out how to handle smaller jobs that don’t really require the use of a professional. Jobs like minor ceiling repair, drywall repair, interior painting basics, and appliance cleaning/maintenance/repair (scroll down to bottom for details). There’s even some tips on what to do about the flooring situation. If your Property has usable outdoor space, you might even choose to add something to the yard which might increase its marketability. Perhaps a minor brick patio or some sidewalks. And if you’re less averse to risk, maybe even a simple yet tasteful deck to give you that extra “wow� factor over competing properties. Wednesday, May 24. 2006
Short On Intentions, Long On Results Posted by Craig
in Investing Strategies at
22:27
Comments (0) Trackbacks (0) Short On Intentions, Long On Results
In recent years there have been three main varieties of buyers out there for Real Estate:
The Flipper – made up almost exclusively of renovators who buy a depreciated property at a discount with the sole purpose of owning it only long enough to repair/modify it up to an acceptable market-price/profit-margin for sale. They see their length of ownership in terms of months. Usually single family homes, less often: duplexes. The Speculator – made up of some slower Flippers, and those who follow trends in real estate development. These individuals are hoping to be ahead of whatever development waves are passing through. They want to own houses in the next up-and-coming neighborhood, or the land that will be bid on by competing developers. They see their length of ownership in terms of years, but less than five. Usually single and multi-family homes, along with undeveloped plots. Practically all multi-family home purchases initially fall into this category, although they may be owned beyond five years for other reasons. The Investor – buys long term. Pure and simple. Dream Home buyers. The property typically stays in family after death of buyer. They ‘Invest’ in all aspects of the house, neighborhood, and surrounding community. All that explanation, just to point out how strange it is that today, some markets are seeing Flippers getting caught out there, and having to become Speculating Landlords. It must be something of a shock to go from remodeler/renovator to Landlord over the exact same property. Mind splitting. Wednesday, May 24. 2006Fannie Mae Fallout?
In case you haven’t had time to catch up on Interest Rate worries, Fannie Mae is taking some serious heat for what will likely be deemed "inappropriate use of company funds for the ingratiation of Management and Directors� or some such strangespeak. They’re coughing up restitution for corporate misdeeds to the tune of $400 million to settle up with Uncle Sam.
While it may not be as slight as a parking fine for the average taxpayer, it isn’t cookie crumbs either. Many people are wondering whether or not there will be a “Fannie Mae Fallout� that will hit Real Estate Investors. This is understandable, since Fannie Mae is in the business of bundling loans. Here is a great explanation as to how Fannie Mae works, in a nutshell. And here’s the short answer: while Fannie Mae does not have direct control over interest rates or bank loan policies, they have historically given banks a rather popular avenue to sell their current mortgages, thereby freeing up capital for them to make new loans. If this access to liquidity is compromised for the banks who originate home loans, then loanable funds will become more scarce. Banks will be much more careful about who they are loaning to, and at what rate, if the secondary market provided by Fannie Mae is somehow compromised. In other words, rates could rise a bit, along with a reduction in accepted applicants (due to shrinkage in liquidity). But that’s only if Fannie Mae’s ability to operate is somehow hampered by all the commotion. If their operations continue as normal, and the $400 million is the worst of it, then everyone’s worries simply remain with the general economy. |
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