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Are you ready to own a rental?

Friday, October 5th, 2012

Think you could become a landlord? Before you jump in, consider the following checklist to see if your property would make a good rental.

Expenses vs. Income
Before you get too invested in the idea, figure out if it’s worth the cost. If your house is in good shape, in a good place, and the mortgage is small of nothing, you’ll likely be making a profit from renting it out. Another reason to go rental might be to help balance or lessen the money drain on a property, either because it won’t sell, or you want to hold on to it longer. For example, rending can help some homeowners hold onto a property long enough for the property value to rebound, even if they make little or no profit in the meantime.
You’ll need to calculate hard numbers, both the best and worst case scenarios, for expenses and income. What must you spend on the home? Include mortgage, utilities, repairs, yard maintenance, insurance, and any services you’ll require, like a legal consultant or property manager. Then calculate what you should be able to get in rent by looking at the area’s market and comparable properties with realistic high and low options. You can get help and advice from several nonprofits that specialize in helping small businesses get started, such as www.score.org.
If the income is bigger than the expense in the worst-case scenarios, you have a potential for profit.

Self Manage or Hire a Manager
Are you cut out for this job? It’s definitely not for everyone. Being a landlord can be the source of major stress and require a lot of tough decisions and hard work. Can you handle the maintenance and upkeep responsibilities? Could you deal with a difficult tenant? Could you evict someone if necessary? Most importantly, could you keep emotion out of it all? If you can, and you live in town, then you might want to try self-managing your property.
If you don’t live in town, or the work isn’t appealing, you can hire a professional property manager. Check up on the person or firm’s credentials and licensing, if they are bonded, the state of their insurance, the services they provide (tenant screening, 24-hourmaintinence, ect.), and ask for references. Make sure they keep client’s money in separate trust accounts (not a master agency account) and provide detailed records of tenant payments and any expenditures they handle.
For a good manager, expect to pay 10% of the rent. Be suspicious of any offer less than 8%, as the undercutting could reflect on quality.

Legal Considerations
Tenant selection is vital for a landlord, but so is keeping it legal. Selecting or rejecting a tenant based on ‘a feeling’ or hiring a data-broker can get you into big legal trouble. Instead, use a detailed application form approved by a fair-housing lawyer, with identity and rental history, and check up on all records and references. To do a credit check, state it clearly and get a credit-check release signed by the applicant. Write out your application and rental policies and stick to them.
Know your legal obligations as a landlord and your tenant’s obligations as well. Make your contract clear and specific, and remember that an illegal clause, even in a signed contract, is invalid. Also learn your state’s laws of handling rental income, deposits, and interest. Keep detailed records for everything from screening to money management for several years in case of an audit.

Money Matters and Bookkeeping
Whether you self-manage or hire a professional, you must keep the rental business records separate and clearly recorded. Financial software can make this easy and can help you determine if the rental business is successful. Operational expenses (including maintenance and professional services such as managers or accountants), property taxes, and mortgage interest are tax deductible business expenses. Keep a separate bank account (or accounts) for the business and keep a portion of profits aside to handle inevitable repairs and other issues.

Want to find out if you have what it takes to be a Real Estate Agent or Broker?

About Geoff ThompsonGeoff Thompson is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.

Tips for the new homeowner: Renovation

Friday, June 15th, 2012

Unlike many major purchases, homes don’t come with instruction manuals. New homeowners often end up wading through a morass of contradictory or confusing advice, or learning things the hard way. Here are some tips from former new homeowners to help others avoid the pitfalls.

Spend on Inspections: Save on Surprises
If you buy a fixer-upper or an older home that’s not called a fixer-upper, take the time, and spend the money, on professional inspections of every potential problem: and we mean everything! Get an electrician to check the wiring; especially if it’s really old, there’s been an addition, or some other clue that the wiring might not quite be standard and up-to-date. Likewise, bring in a plumber, a foundation expert, an HVAC specialist – whoever you need to check for any possible issue. If you do this before closing, you can get code violations addressed by the seller (except in some as-is situations). If these problems are left to you to solve, it’s far, far better to know going into it, than to find out after you’ve moved in and are stuck with both a disaster and a major repair in your living space.

Triage your Fix-list
That is, take the time to determine what projects or issues must or should be addressed first and what can wait until later. Focus your energy and funds on the most important repairs, then you can take the time to save up and cross off the less vital repairs (including the wants and dreams list) after the fires (and potential fire-starters) have been put out.

Fix First
Fixer-uppers are a big part of the new homeowner experience. The majority of new homeowners, especially young couples, buy into a home that needs a little work (or a lot!). If you can afford it, renovate before you move in. Major renovations such as kitchens, additions, and bathroom remodels can be hard to live with; you never truly appreciate a working sink, stove, shower, or toilet until you are stuck without, not to mention noise, dust, workers traipsing about, and other discomforts –and renos always seem to run late! Getting these things finished before you move in will save you a ton of headaches.

Paint before Floors
If you plan on replacing the flooring or carpet, plan to do all of your paint projects first. It’s a double win: you don’t have to stress about drips and mess, and when the new floor is installed, the paint’s all dry and drip-free. If you do both of these before moving your furniture and stuff in, you reduce the risk of having anything damaged while being shifted about to allow the work to be done, and you allow the work to be done far faster and easier than with obstacles.

Expect to be Out of Time and Over Budget
Nothing ever seems to go according to plan with a home repair: think, Murphy’s Law with a side of gremlins. Always pad your budget and your timeline with rainy day funds and rain-out days. Putting aside  an extra 15% over your projected costs to cover disasters, surprises, and reconsiderations will give you the ability to adjust to new realities and “roll with the punches.” Likewise, by giving yourself a few more days to a few more weeks before deadline can help you deal with those issues, weather complications, and other delays.

Take it from those that know: planning ahead and being proactive about your fixer-upper will save you time, money, and hassle!

Want to find out if you have what it takes to be a Real Estate Agent or Broker?

About The Author: Tom Davidson is the acting Director of Sales & Operations for Express Schools, LLC. Since 1996 the companies under this banner have offered online real estate licensing and insurance licensing courses as well as online real estate exam prep and insurance exam prep.

Tips on Raising your Credit Score for your Dream Home

Monday, November 14th, 2011

The revamped regulations in the lending industry have made getting a mortgage more challenging than ever. The bright side of the new regulations is that it is much harder to qualify for something that you cannot really afford. The down side is that you have much stricter guidelines to follow in order to be approved for a mortgage. Credit scores, in particular, are much more important than they used to be.

For anyone that may have been thinking about buying, checking your credit report is the best place to start. Everyone is entitled to receive a copy of their credit report for free once each year from each of the three major credit bureaus. Whether or not you are looking to buy a home, keeping tabs on the activity recorded on your credit reports is important. Your credit score affects more than just your ability to qualify for a loan; negatively reported accounts on your credit report can keep you from renting a home, getting insurance, or even getting a job.

As complicated as a credit report might seem, raising the ever-important credit score is not all that difficult. Stay away from companies offering to fix your credit… for a fee. True help is available through local agencies and nonprofits, your bank, your lenders, even your church, but many people can do it all on their own.

Order copies of your credit reports and review them carefully. Any negative accounts (unpaid debts) on your credit report should be contacted promptly and balances negotiated to be paid, and marked as paid, on your credit report. Any items that you feel are in error or do not belong to you should be disputed through the credit bureaus. When the investigation is complete, the credit bureaus will provide updated copies of the credit reports for you. Review them again and repeat the process if necessary until you are certain that all of the information on your credit report is accurate.

A good credit score is more than just removing negative accounts from your report; you must show a history of responsible use to earn good credit: pay your debts, make payments on time, and avoid collecting new debts. For those without credit, this can start with opening a single credit card. One credit card, well managed, is more beneficial than multiple cards with outstanding payments. It takes time and consistent payment to build good credit, so don’t keep opening new cards.  Each credit inquiry will actually lower your rating temporarily.  Pay close attention to your credit limit. Contrary to appearances, the credit limit should never be the maximum debt you can carry. The limit of your debt should be well below the limit of your credit. For the credit cards to help improve your score, limit the balance you carry to 10% of your total credit limit.

With careful monitoring of your credit report and good credit practices, you can raise your credit score. Talk to your lender and start improving your credit today so that you, too, can jump into the buyer’s market.

Want to find out if you have what it takes to be a Real Estate Agent or Broker?

About David GoldsteinDavid Goldstein is an Owner and Founding Partner of Express Schools, LLC. which operates online education providers Real Estate Express, Insurance License Express and License Tutor. Follow him on Twitter.



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