Should I use a real estate agent to find a rental investment property?If you find a good one they can be quite worthwhile. Make sure you use a "buyers agent". Do not sign an exclusivity agreement with any agent.
What is the MLS?MLS stands for Multiple Listing Service and is used by Realtors to list houses. Realtors have special MLS privileges that allow them to do comparable searches but you can look at properties for sale at websites like
Realty.com.
What is REO?REO stands for Real Estate Owned which is property owned by banks gotten through foreclosure. Review
bank owned real estate.
What is a short sale?A
short sale
is a sale that is made at a price below what the mortgage value of the property is. A bank may accept less than what is owed against the property to avoid the costs of foreclosure.
How important is my credit score?Unless you buy property directly from sellers who are willing to finance their property, your
credit score
is pretty important. In addition, many real estate agents won't even work with you unless you have a "pre-approval letter" from your banker.
Where can I get money for my rental property investment?Lots of places: banks, mortgage brokers, the seller, your 401k, IRA's, private investors and even family members. Check out this discussion of
financing investment property.
What is the most important criteria I should use in deciding whether to buy a property - outside of location?
Does the property have a positive cash flow based on what you can get from a typical rent minus your expenses of ownership? Learn the rules of
buying rental properties.
Do I need a
real estate attorney?
In some States it's a necessity, in others not so much. If you are a novice, it would not hurt to have a real estate attorney look over the contract (make the contract "subject to" a legal review). Experienced lawyers can keep you from making a foolish mistake.
Should I have a
home inspection
done?Certainly you should in the beginning of your investment career. Even experienced investors overlook some problems that can cost you lots of money down the road.
My real estate agent says a low offer will insult the seller - should I make a low-ball offer?Get rid of that real estate agent. You never know what the homeowner will accept until they have something in writing with a check in their hand.
What is a contingency clause?This is a clause that will help you get out of a real estate contract. Every contract should have several contingency clauses (for example, "subject to" financing approval, home inspection, etc.)
What other things can I insert into a real estate contract?Everything is negotiable. You can include the car in the garage as part of the contract.
What if the seller turns down my offer?If the buyer is open, you can try another approach. Try to find out what is important to the seller - time, price, terms?
What is a HUD-1 statement?
A HUD-1 statement
is a required statement the closing agent must provide your when you take out a loan backed by the government. It outlines costs to the seller and the buyer at closing. You should receive it at least one day prior to closing.How much money do I need to buy a house?Typically you should plan for the following expenses:
- down payment of 10-25% of the purchase price
- closing costs on the loan, typically 2-3% of the loan amount
- escrowed real estate taxes and insurance as well as one year's insurance premium paid in advance
- Utility bills while you are rehabbing and showing the house
- any mortgage payments before the property is rented (holding costs)
Learn more about
how to finance investment property
from number of sources - but it should be in your checking account a couple of months before closing
Once I own the property what should I do?First you need to assess the condition of the property and make the
best home improvements.
Determine if you are going to
do-it-yourself or hire a general contractor.
How should I go about getting tenants?I advertise with
"Rent to Own" signs
and on Craigslist. Advertising in large newspapers is a waste of money.
Why not just lease out my property? Why use a
lease-purchase?
There are a number of reasons - better cash flow, larger deposit (some non-refundable), more demand for your property, reduced maintenance costs and, most importantly - higher quality tenant. Getting a tenant with an "owner mentality" eliminates 80% of the hassles of land-lording
I want to buy a house for a long term investment - what if the tenant exercises their option?Tenants usually don't exercise their option to purchase. But, if they do, use a
1031 Exchange
to buy another property and you won't pay taxes. That way you can continue to build equity for the long term.
What's a good way to screen tenants?Always call their current landlord and verify their employment. References are useless because potential tenants always seem to give you a relative. You might find a Tenant Trace service from attending meetings at your local real estate investment club. I like to visit their current residence and see how they live now. That will give you a good idea of what type of tenant they will be.
Why should I give tenants a rent credit?A rent credit is a powerful incentive to get the tenants to make their payments on time. In addition, it gives them more of an ownership stake and a reason to treat the property well. I give rent credits of typically one-third of the rent. But I usually charge more than the local market rent and command a premium sales price - so if they do purchase, I get the profit I desire.
Why do you use two separate documents?You want to avoid the possibility that some Judge will think that this is a land contract and that you must follow foreclosure law to evict the tenants. Maintaining a separate lease with a refundable deposit is one way to help distinguish that.
What do you include in your
lease-purchase contracts?
I have very strong language about late fees and loss of rent credits if the rent is not paid on time. I also make it clear that the tenant will forfeit all accumulated credits if they do not pay by the 25th of the month. I also require that the tenants assume responsibility for all small repairs (I use $200) so that they are not calling me every time the toilet plugs up or their child breaks a window.
What if I have to evict the tenants?
Some tenants will leave if you just give them an eviction notice. Others will not leave until you get a Court order. Check with members of your local real estate investment club for what is customary in your region and learn
rental property law
.
I'm not sure I want to manage my property. Why not use a management company?
If you follow my
Rent to own
recommendations, it is not that much work to actively manage your properties. If you use a management company you will lose at least the first months rent every time you get a new tenant. In addition, you will not be able to claim tax losses that exceed your income. Some, like depreciation, can be very substantial.
