Look for Properties with the Right Things Wrong

I had an appointment to meet an investor at a bank owned property that had just come on the market.  As I waited for my buyer to arrive, there was a parade of potential buyers and Realtors looking through the house. I suppose the enticement was the very low advertised price. The house was a bank owned property and it needed considerable work. There was a poorly constructed addition at the back of the house and there was rotten wood all the way around. The outside stucco was unprofessionally done and was riddled with stair step cracks. One corner of the house was sagging. When we got inside we saw that the house needed to be gutted. The roof was leaking in various places and the ceilings were sagging.  There was no kitchen or bathroom and no flooring. It needed a new electric panel and appeared to need new wiring.  The inside and outside a/c units were missing. It was apparent that there were more issues than met the eye in this dilapidated old house. We agreed that it looked like a Pandora’s Box of problems.

In buying investment property consider a house with the right things wrong with it. The wrong house at the wrong price can be a buyer’s nightmare.  An investor putting his hard earned dollars and his sweat equity into a property should be able to build in some equity of his own. In real estate you make your money when you buy. In figuring purchase price, renovation costs, plus an additional cushion for unforeseen problems and the unprofessional workmanship throughout this particular house, it was a loss. The true value was in the land. In researching further we found no surrounding properties in the neighborhood or on the street to add value on this house after the cost of a renovation. And, the fact remained that when completed, the house would still only be a 2 bedroom, 1 bath.

Some investors may be enticed by a property with a price that seems too good to be true, but leave it for someone else. A bad investment can waste time and drain a pocket book of hard earned money. Look for properties with the right things wrong.

Considering an Investment Property? Do the Math First!

Today, many buyers are looking for that “great deal.” We’ve seen deals in various price ranges. 

Investors have gotten back in the market. Some are looking for houses to use as rentals, while others that are a bit braver are attempting their hand at flipping, for a profit.

Investors typically look at properties that need work, so they can build some sweat equity.  Some will buy a house that needs a new roof, or a new A/C, one that needs a new kitchen, new baths or maybe just new flooring and a coat of paint.  It depends on the amount of time, money and work each is willing to invest.  However, they all have one common thread – they are ALL looking for a great deal.  

Investors are in the business of trying to make money. Remember, an investor makes his money when he buys. An investor may want to be careful if buying on speculation -with the thought of all the money he will make in the future. Right now, no one is certain what the future holds. However, it is important to consider a property that will have positive cash flow each month. 

Some investors are pros in their trade.  They can rehab a house in under a month.  They understand the time value of money – in and out quickly.

Others that are just getting their feet wet, should tread lightly.

 In buying an investment property there are several considerations:

-Will you be doing the work yourself?

-How long will it take to complete the job?

-How much will it cost in materials?

-Will you be paying yourself to do the work? Or, could you be working somewhere else and making more money?

-How much are your closing costs to purchase the house?

–How much will holding costs be?  If it takes 9 months to do the job, how much does that add up to in mortgage payments? What about monthly water bills, electric bills, gas bills?  And, homeowners association fees?

–If the house is going to be resold, how much will the closing costs be to sell? 

-How long will the property be on the market before it sells? Add that and the monthly holding costs.

Most importantly, be sure the house being considered has positive cash flow

In my opinion, sometimes it’s better to pay a little bit more for a property, than spending months fixing it,  while it sits empty.  Buy one that doesn’t need a major overhaul, but perhaps just some elbow grease and a coat of paint.  Get the work finished in a couple of weeks, and get a tenant in as soon as possible, so there’s money coming in. For some people, it pays to save the headache of trying to do the work themselves. They’ll save in fix up expenses and many extra months of holding costs.

Or, consider this; why not buy a house with a tenant already in place? Collect rent from day one. The tenant will be paying the mortgage, taxes and insurance.  If the tenant is in place, money won’t always need to be put in immediately for fix up. When negotiating the contract, be sure to have written in the contract that  the tenant’s security deposit is to be transferred to the buyer, at closing and last month’s rent (if there is any). Ask for a closing on the 3rd of the month (provided rent is due on the first), that way the new owner has to credit the buyer with that month’s rent at closing. I’ve purchased a couple of properties with tenants in place, and it worked out nicely.

Most importantly, when considering an investment property, work the numbers on paper first.  Investors should weigh all of the options.  Which is the best type of house to buy?  What are the plans for the future? If the numbers don’t work, don’t even go to look at the property.  It’s not about buying the prettiest house on the street. It’s about buying the house that brings the most money on the initial investment.  How much cash flow will the house bring each month?  The smallest houses bring the most money per square foot in rent.  Taxes and insurance will be lower on a smaller house, also.

We hear about sweat equity and it adding to the value of a property. An investor should be careful that the house has the right things wrong with it.  It may make more sense to think smarter, instead of working harder For a new investor, if the house becomes a nightmare and it burns a hole in his pocket, I promise, it will be the first and the last house that investor ever buys. Real estate investing is not for everyone!

Remember, every investor is out looking for that GREAT deal.  Don’t sit around waiting for that GREAT deal, and let the good deals pass you buy!

Let me that for you

Sandy Shores, Melbourne FL REALTOR

Specializing in Residential, Investment and Relocation Real Estate.

Melbourne Real Estate / Palm Bay Real Estate

and the Surrounding Areas

I buy, sell, rent, own and manage Real Estate.

 

A Dog or a Cat in a Rental?

I got a call yesterday from a tenant looking for a rental. I asked several questions, and then asked the very friendly caller if she had any animals.  I really don’t mind renting to tenants with pets.  We either have terrazzo floors or ceramic tile, specifically for that reason.  Today, many people have pets. And, in some situations it’s hard to find one without one.

The caller told me that she had 2 dogs and 3 cats. Ouch! Pets are okay, but that’s a zoo! Too many for me.  We talked for a while longer and then kindly parted ways.

I don’t care to have a house full of animals. and actually I prefer to rent to tenants that have dogs, and not cats.

I have had difficulty in getting the cat smell out of a property.  I’ve known owners that had to treat the concrete under their carpets (after the carpets went to the trash) to try and rid the house of the smell of cats that spray, to no avail.  It makes for an unpleasant situation.

So, for me, I’d take a dog (depending on the size and type) over a cat in a rental house in most situations.

Do you have a preference, as to whether you rent to tenants with a dog or a cat or neither?

FOOTNOTE:  This post is based on my opinion through the experiences I have had. I am sure that different owners have had different experiences with all types of animals.

This article is authored by

Sandy Shores Realtor, Melbourne FL Real Estate

Brevard County Real Estate & Investing

Palm Bay Florida Real Estate News

Rent to Tenants with Blemished Credit? YOU BET!

 

As a landlord, would you rent to tenants with poor credit? Especially in light of the current changes the real estate market is undergoing.  I SAY ABSOLUTELY!* A tenant with a foreclosure or bankruptcy?

What is the reason for the bankruptcy or the foreclosure? Did they get caught up in the sub prime mortgage mess and their taxes, insurance and interest rate adjusted up? I know many people that were comfortably paying their mortgage payments, until their interest rate adjusted and the payment went through the roof.

I have no problem with renting to tenants that have certain credit blemishes. The right ones make good long term tenants.

What was their previous payment history on their last rental? How long where they there?

How long have they been at their job? There are many good, hard working people that go to work everyday, but they just don’t earn enough money to cover all of their expenses, each month. Or some people just have poor spending habits. Often times they are unable to make their credit card payments. I am indifferent to that.

The good tenants understand they must pay their rent every month to keep a roof over their heads. Many of them make great long term tenants. I have had tenants with me for over 8 years that pay their rent every single month. They came to me with credit problems and they still have credit problems. 

Many tenants with poor credit, with a history of poor credit make excellent long term renters.  Often times they are unable to move, as they cannot save the move in money to go somewhere else. Or, they are unable to move because other landlords will not consider them because of their poor credit.

In 13 years I have rented to 4 tenants with perfect credit…not a single blemish.  Every one of those tenants broke their lease within 8 to 10 months, to buy a house or to build a house.  My rental was just a stepping stone for them. 

Vacancies can quickly deteriorate a landlord’s cash flow.  I don’t want to tenants that are going to leave in 8-12 months.  It’s wear on and tear on the house, moving in and out, and it’s time and money lost looking for another tenant.

I typically will not consider an applicant that has been evicted or has a repossession on a vehicle.  In many instances, I have seen where once evicted, it becomes a habit. And, if a tenant loses their vehicle because they can’t make the payments, how are they going to get to work, to make money, so they can pay me the rent, so I can pay the mortgage?  It’s a recipe for disaster!  

Over the past year I have rented to half a dozen people that were going into foreclosure due to interest rate adjustments. So far, they have all paid their rent on time, and I look forward to a happy future with them.

But be aware, renting your primary residence is different than placing a tenant in a house that you have never lived in and have specifically purchased to use as a rental. I have never gotten a house back from a tenant in better condition than I gave it to them in. And in 2001, when I moved to the house I’m living in today, I chose to sell my previous home, rather than turn it into a rental. The rent would have been too high, the house was too big to be a good rental, taxes and insurance were too high, and I had equity that I wanted to move to my new property.

In considering tenants with blemished credit, do your homework and be very careful. If you pick the wrong tenant, you will be faced with filing an eviction.

*Please always remember, every tenant’s situation should be looked at on a case by case basis. Everyone is different.  All of the pieces of the puzzle must fit together, to make the “right” tenant, that will care for your property and pay their rent on time.

 

This article is authored by

Sandy Shores, Brevard County Real Estate

Brevard County Real Estate Investing

Palm Bay Florida Real Estate News

Communication is Key in Dealing with Non Paying Tenants

 

I recently wrote a post about my friend, the one that every tenant loves, that has tenants that hadn’t paid him rent in over 5 months. Well, here’s an update.

The article indicated that my friend is the most lenient landlord in the world.  He has a weak spot in his heart and lets tenants go for months without paying. He’s too nice to be a landlord, and he knows I feel this way about him because we’ve  talked about it.

He has tenants that haven’t paid him rent in over 5 months now.  Yes, they’ve sent him a payment here and there, but not enough to touch their almost 6 month arrearage to him.  I told him it was time to get them out.  They are nice people that have fallen on tough times. They have been with him for nearly 4 years, and did remain current, until he lost his job. But, I reminded him that he is not a charity.  Every month they don’t pay, he has to reach into his pocket and pull the money out to remain current on his existing mortgage.

We agreed it was time to get a good paying tenant in the house. So, it was time to serve them a 3 day notice, notifying them they must pay, or he would start formal eviction proceedings.

I learned years ago, that if the tenant is approachable, people that you can talk reasonably to, then talking to them first is best.  I know we always try to rent to tenants that we feel we will have a good working relationship with, however, often that changes when they fall on hard times.  Some become belligerent, as one of my last tenants did and there is no reasoning with them.

I asked my friend if I could go and talk to his tenant before we posted his 3 day notice, as my friend is currently out of state.  So, I did.  I went over and knocked on the door, and asked if I could have a few minutes of their time. 

I told them that I was there to help them. 

They told me they had each lost their jobs, one after another, and couldn’t find work. I explained that the landlord could no longer afford to keep them in the house, and that he had no alternative but to ask them to move.  He was afraid he was going to become delinquent on the payments, then they wouldn’t have a place to live anyway.  They understood. This tenant was on a month to month lease. I explained that they could move on their own accord or the landlord would be left with no choice but to file formal eviction proceedings.  The eviction would go on their credit.  They said they were filing their income taxes that week. And they would get in touch with the landlord.

Well, that was a couple of weeks ago. The tenant sent the landlord a payment for one month’s rent.  They called me on Friday and asked me to stop by.  I did. They are moving out. They will be completely out by the end of the weekend.  He has volunteered to clean the carpets, mow the yard and he would like to paint the interior of the property.  (I know the tenant has good intentions, and we’ll see if any of these things get done. Unlikely.)

Now, not trying to play Monday morning quarterback here, but had this landlord spoken to his tenants as soon as they got in arrears, he may have been able to solve this problem earlier.  If they couldn’t pay, then perhaps they could have left 4 months earlier and he may have had the property re rented already. (He knows this, as we have spoken about it.)

In finally communicating with this tenant, the landlord has saved himself more money…$320 in eviction fees. If they filed a protest to the eviction, it could take an additional month to get them out, so he has saved himself 2 months in time, and 2 more months of lost rent.  He gets the property back today. 

The landlord was not intending to file a deficiency judgement against this tenant for back rent, anyway, as he felt he couldn’t get blood out of a turnip.  That would have required a court date, which could have strung the eviction out to a full 3 months or more, with an additional loss of $1950 in unpaid rent. He has their security deposit from when they moved in.

This tenant benefits because he will not have an eviction on his permanent record.

There is also always the fear that a tenant will tear a property up, and cause thousands in damage during the eviction proceedings,  if they decide to become difficult.  I have heard of one tenant that poured bags of cement down all the drains and both toilets in a house. It caused thousands and thousands of dollars worth of damage to all the pipes. It was horrible!

It is essential in landlord/tenant relationships that the lines of communication remain open, whenever possible.  It’s a win/win for both parties.

 

This article is authored by

Sandy Shores, Brevard County Real Estate

Melbourne Florida Real Estate News

Landlords, Do you Allow Co Signers On Your Leases?

I got a call yesterday.  The polite young man was interested in a house that I currently have for rent. He indicated that he was looking for a place for himself.  He had previously rented a room from some friends, but really had no credit history.  Based on his current income, he didn’t make enough money to cover the rent and utilities. He explained that he could have someone co sign the lease for him.

Landlords, do you rent to tenants that need a co signer to qualify to rent a property?

Although I always say this…every tenant’s individual situation must be looked at on a case by case basis, before making a decison to rent to them or not. There is no hard, fast rule that covers every situation.

But, typically, I don’t care to rent to tenant’s that require a co signer in order to rent a property.  Especially if that co signer will not be living in the house.  I want the parties involved to all have a vested interest and an incentive to pay the rent.  It helps when the roof is over THEIR head, and the co signer is not living somewhere else. More often than not, I don’t rent to tenants that must have a co signer.

Which leads to my next question…do you rent to tenants where there is not one party living in the house that can afford the complete rent payment on their own?For instance,

I’ve had friends call me that want to move in together and each one has wanted to give me a check for their portion of the rent. I really don’t care to do this.  The ideal scenario is when one party makes enough money and is willing to be responsible for the lease and the entire month’s rent, for the term of the lease. 

I want to collect my rent on one house from one person, in ONE check. 

I’ve seen landlords get into situations on one house, where they are collecting the month’s rent from 3 different people. One person has the rent and the other two don’t. I’ve also seen situations where one friend moves out, and the other party or parties cannot afford the rent any longer (because they couldn’t when they first moved in). I don’t do this either.

So, landlords and property managers I am curious to see what works for you, in your area.

 

This article is authored by Sandy Shores, Brevard County Real Estate

Landlord Steals Tenant’s Identity and Ruins His Credit…What?

 

 

Today we are hearing that identity theft is on the rise.  Yesterday I read an article in our local paper about a landlord and prior tenant that had a dispute over $200 in back rent. The prior tenant alleges that his previous landlord took his credit and personal information and posted it on a subscriber list of companies that sell all types of electronics.

According to the tenant, within months his credit score fell from 700 to down below 500 due to the dozens and dozens of companies checking his credit.  

Identity theft is on the rise. I have even read that identities are being stolen from people under 18 years old.

To protect yourself from Identity Theft:

1 – Pay only with cash or credit card.  Do not carry more than 1 or 2 credit cards with you at all times. Leave your checkbook at home.

2 – Leave your social security card at home.

3- Shred every single thing that comes through your mailbox that has your name or information on it, that you don’t want or need. Cross cut paper shredders are best.

4- Do not put outgoing mail in your home mailbox, unless it is a locked box.  Thieves can and do steal outgoing bills out of boxes and take the check and ‘wash’ the ink off of them, only to reuse them.

AND, do not leave incoming mail in your mailbox for any period of time, especially overnight.

Did you ever take time to consider that those catalogs that come to your house with your name preprinted on the outside also have your personal information, including an account number they have provided you preprinted on an inside page where you place your order?  Shred those immediately!

5 – Pull a copy of your FREE Annual Credit Report every year.  And go over it with a fine tooth comb. Make sure everything is in proper order. You are allowed one free report from all the major reporting agencies Experian, Equifax and Transunion per year.

This article is authored by Sandy Shores, Melbourne FL REALTOR.

South Brevard County, Florida Space Coast.

Investors -Single Family or Multi Family Properties?

 

Investors always ask what kind of property they should buy. Many start the business thinking that a multi unit building is their best bet.  My recommendation to them is to start with a single family house.

I do not invest in small multi family complexes.  I prefer single family houses for rental units.  I have had many investors that have experienced the best and worst of both types of properties.

 

I find that single family properties are easier to buy, sell, rent, own and manage than multi family units.

Single family units typically:

(the following comparison is single family vs. small 4-10 unit multi family complexes)

 >are easier and cheaper to buy

 >are easier to get financed. Often times owner financing or creative financing is required.

 >require less money down, because they are often cheaper than multi family.

 >are easier to rent (provided they are affordable) as many don’t want to live in a multi family district.

 >are easier to sell, and sell quicker.  Often because there is a wider audience for the single family unit. A multi family property is usually restricted to investor buyers.

 >appreciate more quickly than multi family units.  Often this is due to the fact that the small multi family units are located in high rental areas with other such properties surrounding them. The value of the multi family is typically based on the amount of your rents. And often times rents are fixed to the rents on surrounding properties in the area.

 >rents are usually higher than multi family units (for the same square footage).  Often in multi family there is price fixing.  A tenant that has been renting from you for several years may be paying less rent than today’s market rent. Thus, you must be cautious in the amount of rent you charge for new tenants coming in, as they will be talking to your old tenants.

Multi family units can be more difficult to manage than single family units because multiple tenants of yours are living in close proximity to each other. This can cause problems:

    >As previously mentioned your tenants will talk to each other about how much they’re paying in rent.

    >If you have one disgruntled tenant. they can wreak havoc with your other tenants.

    >If one difficult tenant is breaking your rules, their bad habits can spill over to your other tenants. 

    >If this tenant begins breaking the law, it can carry over to your other tenants. 

    >Or you may find your tenants calling you regularly to report a difficult tenant. It can turn into a nightmare!

I don’t care to have any of my tenants living close to each other because it gets very complicated

In my opinion small multi family units require micro managing.  They are often more difficult to manage in that often they are lower priced rentals.  Thus, it becomes more difficult to collect rents.  Payment plans often must often be set up with tenants.  And the landlord must be at the property more often than a single family unit. 

Often the cash flow is more than in single family units. But, often the risk is higher. And often the vacancy rates and eviction rates are higher.  I prefer to take my money and divide it between multiple single family units, located away from each other.

Let me twist this a different way though: if you have only one single family rental and it is empty, than you have 100% vacancy.  But if you have a multi unit complex, and 1 unit out of 4 is empty you only have a 25% vacancy. That’s why I like to own multiple single family units.

I buy, sell, rent, own and manage single family rental houses. And I prefer them to small 4-10 unit multi family comlexes.

I also do not buy condos or townhouses.  There are associations that govern them, that can become rather difficult to deal with.  And there is one more hand in your pocket, taking money away from you, the association fee.  No thank you!

NOTE:  PLEASE REMEMBER THIS POST IS WRITTEN BASED ON MY EXPERIENCES IN REAL ESTATE INVESTING HERE IN MELBOURNE FLORIDA.   THIS INFORMATION MAY VARY DEPENDING ON THE AREA IN WHICH YOU  YOU ARE LIVING AND YOUR CURRENT MARKET CONDITIONS.