Real Estate Investing

I keep hearing that investors are starting to snatch up houses and getting them at great deals.  I haven’t worked with an investor yet this year, but several of my colleagues have.  However, I *have* worked with sellers who have taken their homes off the market in order to rent them.  The cost of making months of mortgage payments on unoccupied houses has become too much for them, so they’ve become landlords to stop their pocketbooks from bleeding.

If you’re in this position, you need to know how to protect your home, how to insure the house, what rights tenants have, what your rights are as a landlord, how to budget for repairs, and more.  Even with typos, this site provides a helpful list of 10 Things You Should Know About Being a Landlord.  For example,

Having a clearly defined set of rules for residents can save you time and money. When you draw up your list of rules, make sure the same rules apply to all your residents. Don’t discriminate based on age or gender. For example, don’t just say “children are not allowed in the pool area.” You either have to say “no resident or guest is allowed in the pool area” or “children under the age of 8 must be accompanied by an adult in the pool area.” Using general terms, such as “resident” and “guest” will mean that you can’t be accused of discrimination.

If a resident does break your rules, then you have every right to keep a record of such behavior. Keep written records of the time and date when the incident took place and how you found out about the incident. Keeping records will mean that it’s far easier to evict a residents if there are any problems in the future. Having rules and guidelines for residents clearly laid out means they know what is expected of them before they agree to rent from you. Make sure you look at the laws in your own state before you finalize your rules.

In Ogden, Utah, a Realtor is also a landlord and shares his “no dogs” rule.  Some of his “good” tenants moved out and he discovered ruined carpet and subfloors,

Not surprisingly, the pad was completely disgusting as well. Subfloors too. In all, this reflooring experience will top $2500. The tenant’s (now forfeited) deposit was $700 so I am out about $1800 for the experience. Unfortunately, these particular tenants suffered a significant decline in their credit so it would be pointless for me to take them to court. As the saying goes: You can’t bleed a turnip.

Jeremy says the the biggest step in making money as a landlord is by thoroughly screening potential tenants. 

You can check their credit scores, ask for references from previous landlords (and call them!), ask for personal references.  Also, you can ask for their supervisors name and number to confirm employment.  Once you’re satisfied they have the ability to pay the rent and they move in, open communication is key to a happy relationship.

My colleagues and I have been tossing around newsletter ideas this past month and have decided our next issue will describe how to create college savings for your children and grandchildren through a home purchase.  To this end, another agent just handed me an intriguing list that details the benefits of investing in residential real estate.   This list has five benefits, while most other investments offer only one or two.

1. Cash Flow.  The rent provides income.  A wise real estate investment will pay for itself on a monthly and annual basis, while paying the note. Your ultimate goal is to own property “free and clear,” which creates maximum cash flow.
2. Leverage.  You can own $150,000 worth of real estate with only 15-20% cash. You can borrow cash from one property to buy another. Your short-term goal is to use leverage to acquire a portfolio of real estate. Your long-term goal is to pay the loans off and own your properties “free and clear”
3. Debt Reducation.  Real estate is one of the few investments where someone else will make your payments. In essence, the tenant makes the payments and reduces your debt.
4. Tax Savings.  You are allowed to depreciate the house and write off your expenses in order to reduce your taxes*.
5. Appreciation.  Over time the value of houses and condos have risen. The average value of home has traditionally doubled in value every 15 years**.

*Consult your accountant or tax attorney to specifics related to the tax benefits of investing in real estate.

** The government Office of Federal Housing Enterprise and Oversight figures appreication rates for Metropolitan Statistical Areas around the county. Check this site to see what appreciation rates have been in your area.

Coming Soon: How to buy a home to pay for college on behalf of your children and grandchildren.

Photo from here.

Craigslist, a legitimate online classifieds site, can be a great place to find landlords, tenants, pre-foreclosure deals, investment property, roommates, vacation rentals or simply a really great home. This blog has recommended the site many a time. However, there are vultures lurking, ready to pounce on the innocent and trusting, and vigilance is required.

In 2005, Craigslist CEO Jim Buckmaster told MSNBC that fraudulent postings made up only one-tenth of one percent of the site’s overall listings. The site has a very well-established method for users to “flag” posts for removal if they are posted in the wrong area or posted too often, etc. (signs of fraudulent activity). Furthermore, Buckmaster said the company was considering charging landlords to post property rental ads on the New York message boards, in the hopes of discouraging fraudulent real estate postings in the area where such activity apparently posed the biggest problem in 2005.

Not sure if they actually implemented such a policy, but it sounds like a reasonable one to implement nationwide because three years later, the problem persists. KGET 17, a Bakersfield, California news station, reported yesterday that a local woman was prey for an online real estate scam artist. As it turns out, the property photos and description that were so appealing to Tiffany Llamas were actually ripped verbatim from a listing handled by a legitimate realtor — the same one who happened to be working to help find Llamas a home. According to the KGET web site:

“The return email read: ‘I and my wife came over to the U.K. for missionary work, so I hope you will promise us that you will take care of our house.’ Llamas said, ‘That’s great but I still want to see the house first, and when he told me send $2,400 via Western Union and then he would, you know, send the keys to me.’”

Llamas didn’t fall for it, but such predators persist on a variety of Internet networking sites hoping that someone will fall for it. Apparently, tenants aren’t the only ones being preyed upon either. This is undoubtedly occurring in the property resale market as well. The Real Real Estate in Connecticut blog points out what can happen to landlords and (in the comments section) what can happen to those seeking roommates on Craigslist.

The blog points out some red flags to beware of with Internet dealings. It may sound biased, but the following qualities are true in the vast majority of cases:
-Poor English, i.e. broken sentences, misspellings and bad grammar.
-Asking questions about details you already gave in the advertisement.
-No direct contact information.
-The writer is overseas. Many of the scams are from people claiming to be in other countries.
-Very often, these people represent themselves as high-income individuals, like doctors, lawyers or professors.

Again, Craigslist itself is not bad, but the way it works has the potential to introduce a lot of people to a lot of scam artists. Never, ever give anybody cash, check, bank account information, etc. without having first met with them and thoroughly checking out the situation. Follow your gut instinct, and above all else, the old rule applies — if it sounds too good to be true, it probably is!