Any other options?  If you’re currently a homeowner, you might have the good fortune of having a home that’s been saving for you!

Even with the current downturn of home prices, if you’ve owned your home for some time or perhaps if you got a good deal when you purchased it you might just have some equity waiting to be used.  If used wisely, this equity can be used as a great investment tool.  By “used wisely” I mean refinancing, which can be a good idea if you use that money to make MORE money, like using it as a down payment on an investment property.

Wanting to purchase a new jet ski is NOT a good use for the money because it depreciates in value over time and does not provide any income or any tax benefits.

Keep in mind your monthly debt obligations will be higher but, so too are your tax benefits. Remember, all mortgage interest is deductable so your increased payments will be somewhat offset at tax time. Remember to sincerely ask yourself if the money you take out is going to make you more money.  If it’s not, you’re going the wrong direction!

Avoiding any negligence that could later become grounds for a lawsuit is crucial as a landlord.  One potential risk that could easily be overlooked on a busy day is changing locks between tenants.  Isn’t it tempting to just hand over the keys from the former tenant to the next? 

While a tenant is in possession of keys, you have little control over how many copies he or she makes.  What happens if you don’t change or re-key the locks between tenants and there is a break-in by someone with non-forced access (a.k.a., they have a key!)?  Even worse, imagine the sinking feeling when it’s discovered during an investigation that YOU didn’t change the locks!

I am not a lawyer, so be sure to consult with one about any legal specifics,  but with the too hot coffee in lap settlements of our day it’s not hard to imagine that you could be found at least partially at fault for the break-in.  And if any injuries or death are sustained during the break-in, your liabilities will only grow, not to mention the personal remorse you would feel.

The point: change or re-key locks between tenants because you never know who has copies of the keys!  The cost of replacing the locks is usually under $20 if you do it yourself, and even less if you have locks that can be re-keyed or keep a few on hand that can be rotated to different properties.  Your customers and peace of mind are WELL worth the money!

The word I come up with is COMFORT.  Again, assuming one’s sense of security is not an issue, I would claim it’s a universal wish to feel comfortable in the place one calls home.  When you as a landlord are showing units for rent, you will have more success in signing leases quickly if you’re able to portray comfort as an inherent quality of the space. 

Now, of course, people have varying opinions of what “comfortable” means.  Some people will find a very simplistic space to be pleasing (little to no clutter) while others might find a highly decorated place to be enjoyable.  No matter how hard you try, it will be impossible for you to appeal to everyone’s tastes. 

What you can do is think of neutral items that will be enjoyable to the largest spectrum of people possible.  For example, I recommend having some type of furnishings in units you are showing.  After all, even if the items you put in the unit aren’t exactly what a tenant might pick out for himself, it almost certainly looks a lot better than having empty rooms.  Take a simple chair or loveseat and place it in the living room.  Put a table next to it with a burning candle on it (make sure the scent isn’t overpowering!)  Put a table complete with place settings in the dining room.  These, of course, are just a few examples. 

The idea is to set up a unit so that prospective tenants have to make less of a mental leap from looking at the space to imagining it as the place they go to relax and be in their “comfort zone”.  You obviously don’t want to spend lots of time furnishing a unit in order to show it, but a little effort will be well worth it.

So usually I recommend the new investor make a quick phone call to their favorite lender/bank/credit union/mortgage company (and I’ll recommend a few, if they don’t have a favorite). That person will ask a bunch of questions in order to make a close approximation. He or she will collect this information and make a determination as to how much the investor can be pre-approved for.

One of the first things the lender needs is a social security number. They use this to run a credit report. From this they learn the full credit history, how much debt is on loans and credit cards, how much open (unused) credit is available, what credit score is and your whole financial history. This will tell them exactly what your current financial state is.

From all this information, one of the first things they will calculate is your debt to income ratio (DTI). This is an important number to know, because it will tell them how much you can afford to borrow.  And it’s exactly like it sounds: it is the ratio between how much income you receive and how much debt you have. If you earn $4000 per month and have payments of $2000 per month your debt to income ratio is 50%. (it’s actually much more sophisticated than that, but you get the idea)

The lender will also need to know what types of funds you have in your IRAs, 401Ks, stock and stock options, other retirement plans or savings. If you own your own home, they will need to know how much equity you have in it.

After this phone call, they will be able to “ballpark” what you may qualify for. And that estimate is based on all the information you gave them is true. If it turns out that your income, or some other factor has changed, so too will the amount you may qualify for.

Well, allow me to explain the process a little better and you can decide for yourself…

So, when you make an offer on the property, you specify ALL the details of the offer: what personal property is included, what outbuildings might stay, your right to have an inspection performed, how taxes will be handled,  and what (if any) part of your closing costs you want the seller to pay.

So now you’re sitting down to make an offer, let’s look at an actual example of how this works:

Let’s say you find the place you like and it’s listed on the MLS for $100,000. You really like it and want to offer list price for it… $100,000. Then you get back to the page about how much you want the seller to pay towards your closing costs and you say $5000. You want $5000 towards your closing costs to be paid by the seller. Well, now your offer isn’t really $100,000, your NET offer is actually $95,000.

You’re basically saying “I’ll give you 100,000 for your house, but I want 5,000 back”.

$100,000 – $5,000 = $95,000.

If you want to truly offer $100,000, you must raise your offer amount to $105,000, THEN ask for $5,000 back.

$105,000 - $5,000 = $100,000.

It’s not rocket science, but if there are multiple offers on the same property, it could make the difference on which offer gets accepted. An offer without (or with lower) seller paid closing costs is always stronger than one with high seller paid closing costs at the same offer amount.

Whenever you make an offer on a property you will write a check (yes, bring your checkbook!) to accompany an offer. The reason it’s called earnest money, is because it actually speaks to how “earnest” (serious) you are about purchasing this property. In general, the more the earnest check, the more earnest you are about getting the place. This is why it is also sometimes called a good-faith deposit. Now that money continues to be yours, it’s just held for you until you close.

Granted there may be limiting factors, such as how much do you really want the place vs. how much cash you have sitting around.  Many properties (especially bank properties) even have certain requirements for the earnest money. Like they might say: 

Earnest money must be at least 1% of the total purchase price

Or
Earnest money must be at least $5000

Or
Earnest checks must be in the form of cashier’s check or money order

Or any variety of other specific requirements – just be aware, sometimes there are requirements and minimums.

 Depending on the price and location of the property, an earnest money check could be as low as $500-$1000 or on up to 5% or more of the purchase price. Again, the higher the dollar amount, the more serious you are telling the seller you are.

 When the offer is submitted, the earnest check is submitted too. When an offer is accepted (has both buyer & seller signatures on everything), that check is deposited into an escrow account of the sellers brokers choice and it sits there until close at which time it is applied to your closing costs, down payment, discount points or whatever you choose. If an offer is not accepted, generally the check is returned.

*how much earnest money is being presented

*how much down payment you intend to make

*what personal property stays with the property

*what type of loan you will use

*does the offer depend on you selling a home first

*do you want the right to do an inspection (highly recommended)

*who pays any taxes or special assessments due

*will the property be your residence (homestead vs. non-homestead taxes)

*are there any environmental concerns

*is property hooked up to city utilities

*does the property potentially contain lead based paint

And these are just some of the variables you will deal with – there are several others as well. Don’t let all the details overwhelm you though. At the time you sit down to make the offer, your Realtor will go through all that with you and help explain anything enigmatic. This is also a great time to ask any questions and get your agents recommendations around these issues. Remember though, this is your offer. At the end of the day the choice is yours to make.

The front ratio (F) represents the percent of income that goes toward basic housing costs. For someone who rents, that is your rent and insurance if applicable. For homeowners that number stands for your mortgage (principle, interest, taxes and insurance), hazard insurance and homeowners’ association dues, if applicable.

The back ratio (B) notates the percentage of income designated towards all recurring payments (including housing expenses). This number will contain such things as car loans, student loans, credit cards, and legal judgments such as child support or alimony.

For a standard conventional loan, those numeric limitations are always 28/36. Meaning if you are calculating the front ratio (F), your income vs. housing expenses must not be more than 28%. Similarly, if you are calculating your back ratio (B), all your recurring expenses must make up 36% or less of your income.

FHA and VA loans have their own set of rules that differ from conventional loans, however. FHA DTI limits are 31/43 and VA is (essentially) 41/41, although they do not use this particular notation. For help calculating yours, see your favorite lender, bank or credit union.

One simple and affordable item to consider adding is window coverings.  I have been a “renter” on many occasions, and the last thing I ever wanted to do was put up my own window coverings in a place I was renting.  As a real estate investor, I want to attract customers (future tenants) with the EASE of choosing my housing.  Offering clean, move-in-ready housing can set your properties apart from other housing options.

I think most people would agree that spaces with no window coverings tend to look very un-cozy, not a comfy place to call home.  My window covering of choice is the mini-blind.  They are practical for tenants, easy to install yourself, and cheap!  (The blinds I buy are decent quality and less than $4 each!)  You probably won’t be able to increase rents because you have blinds, but you WILL make your units more attractive or at the very least not lose out to competition by not having them.  In any case, it’s not hard to justify $4 per window!

You should also be aware of housing laws in your area.  Many places mandate that landlords provide window coverings in any room to be used for sleeping (a.k.a. bedrooms).  Whether required or not, it is my opinion that the $4 mini blind is a landlord’s best friend for every window.

~Staff Writer

I’ve tried putting at the end of my rental ads “call or text [phone number] for more information“, and it works!  Many people are busy and don’t necessarily feel like having a phone conversation about a possible place to live, but maybe they have a quick question they want to ask and are willing to send a text.  It’s one way you can set your ads apart from others.  For generic inquiries you can respond with a pre-written text you’ve already written so you don’t have to type a new one each time.  It will save YOU time, too!

I’ve had phone conversations about rental units lasting a long while, only to discover the inquirer needed section 8 housing, which I was not offering.  I’ve also received text messages saying “do u accept section 8″ to which I respond “no, sorry!”  Less than 10 seconds of my time!  I’ve also made showing appointments via text; again, less than a minute of my time.  And remember, prospective tenants might want to schedule appointments or make inquiries while at work.  They are a lot more likely to do so if they can text message versus talking on the phone for all to hear.

It seems a bit impersonal compared to the tried and true voice conversation, but you’ve gotta go with what works!  It’s a new generation and the way business is done is changing, just like it always has.

~Staff Writer