Option Cash vs. Security 106 Rental Options - The Best Choice Available 108 Option Rentals 109. One day I was invited to the home of an elderly couple in Madison, Tennessee - the most beautiful couple in the world.
The Upside
I've never seen an investment where you can buy for 60 to 70 cents on the dollar, see your wealth increase, have regular cash flow, and not have to use your own money. I've never seen a company where people who have perseverance, buy smart, and are willing to work can't succeed, regardless of their background.
The Downside
Over a period of twenty years, this man bought houses, duplexes, and a small apartment complex with eighty apartments - all the while enduring his wife's criticism. Her net worth is around $8 million, all because of what she called her husband's "headache."
Policies and Procedures
Don't let tenants do repairs unless you have a written agreement with them and have inspected them so you know they can do it. Do not allow any repairers to work for you unless you have checked two references and passed a credit and criminal background check.
Buying and Holding Real Estate
I suggest taking out at least a 20-year mortgage or longer so you have the option to pay it off sooner by putting extra dollars toward paying the principal.
Vacancy/Repair Rate
My first business plan assumed a vacancy and repair rate of 10 percent, which turned out to be absurd. Make sure you build in a buffer when setting rental prices, and estimate a vacancy and repair rate that is realistic: more than 25 percent.
Single-Room Occupancies
The property pyramid in Figure 2.1 and the descriptions that follow will help you decide which property types may work best for you. You are likely to face crime and the inevitable disputes between people living in close quarters.
Trailer Parks
So if you have a trailer park with 100 people, expect a lot more problems than if you have fewer houses and fewer tenants. You have to decide what your own level of pain is in relation to the profit earned.
Low-End Houses and Duplexes
I've always thought I was blessed to grow up in a middle-class family and neighborhood, but I've found that people in low-income neighborhoods are often friendlier and more orderly, hardworking, and sometimes more honest than people who live in wealthy neighborhoods. But if you put those features on a low-income property, the marble and those bushes disappear; in some neighborhoods, tenants perceive no value in them.
Apartment Buildings
I have found that in low to moderate income neighborhoods this is often enough if the house is clean and in good repair. In my low-income properties, I've learned that people prefer commercial carpets, the flat, pile-free stuff, to high-end carpets.
Town Houses and Condos
Single-Family Homes and Duplexes
It's true that you will spend more time driving around to maintain these properties than you would if you had an apartment complex in one location, but it comes down to the best return on your time and money. Because you deal with only one tenant (or one couple) in a single-family home, he or she will probably stay for a long time and you will therefore have less turnover than when renting a maisonette or apartment building.
Commercial Property
Realize that if your tenant moves out, you could spend thousands of dollars finding the next commercial tenant (and you could lose money due to vacancy). When negotiating a lease, you can spend hundreds of thousands of dollars on a tenant-friendly addition.
Luxury Houses
And when the economy goes down, the property can sit empty – even for a year or two.
Other Options
So while some people can find good deals on commercial real estate, they should be more careful because their success will depend on the economic trends in the community. You will most likely need to hire an on-site manager for your property there.
Best Recommendation: Low-End Houses and Duplexes
Ready to Rent
There's nothing wrong with doing the bare minimum to get your place ready to rent; you just need to know the tenants in your market and what meets their minimum expectations.
Attracting Your First Tenants
Target Your Market
The Advertising Supersystem
Remember to speak slowly and clearly in the message; this is your company's first contact with potential tenants and you want the right person to come and see the place.
Creating Your Voice-Mail Message
Additionally, discount voicemail is available nationwide for about $15 per month; you can get 20 boxes with 50 messages. Prompt customer service is essential, so check your voicemail regularly and answer all phone calls promptly.
Setting the Rent
If they are seriously interested, they will listen to the message for a full three or four minutes. If they can't afford to pay the rent plus the deposit up front, they won't be able to pay the rent for months to come.
Higher Rates Attract Better Tenants
Special Rent Programs
People will go for it because they have already signed up in the $425 to $500 range. If they keep the units clean and relatively sanitary, it is likely that attacks will not occur.
Application Fees
I will do my best to get more registrations.” So it became a good motivator. I'm going to rip out the toilet and throw it through a window!” After waiting 45 days, I might do the same.
Repair Policies
I don't know the key to success, but the key to failure is trying to please everyone. Along with this, one tenant says, "I've been calling my landlord every day for ten days and they never call me back."
Policy #1: We Require Written Requests for Repairs
If you have a problem, someone will reply and we will fix it in time. Please remember that we cannot carry out a repair if you do not leave your name, address, telephone number and a description of the problem.
Policy #2: We Return All Phone Calls within 24 Hours on a Business Day
You have to ask for name and number twice; if you say it just once, tenants will ignore it. In real estate, if you actually call back within a day, you're in the top 5 percent that do.
Policy #3: We Guarantee to Do Repairs within Three Days
You don't need to do anything else; you just call the tenants back and do it with empathy. In cases of rental options, landlords do not carry out repairs - see Chapter 9 for more details; see also the discussion of flawless maintenance in Chapter 6.).
Policy #4: We Call the Tenant a Day or Two after the Repairs to Follow Up
Call your tenant as soon as you know about the delay and send the promised money. When tenants request repair work and your repairman is available today, but you can't get in touch with the tenants, you can walk in.
Six Steps for Handling Repair Requests
Remember that when tenants rent an apartment, it becomes their place, not yours – even if you own it. Follow up each repair performed with a phone call to tenants and ask if they are satisfied.
Policies for Dealing with Contractors
Policy #1: We Get Every Repair Bid in Writing
These examples show why you should break down any repair bid into materials and labor and get an estimate of how long it will take.
Policy #2: We Always Do a Credit and a Criminal-Background Check before Hiring a Contractor
Policy #3: We Make Sure Everyone Who Works More Than 25 Hours a Week for Us has Workers’ Compensation Insurance
Policy #4: We Never Pay until the Job Is Completed
Two-thirds of all landlords, when they screen their tenants, they just look at them and think, “She looks nice and she was really polite -.
Breaking My Own Rules
Some people even slept in the tool shed in the backyard - it was their home. Meanwhile, the police kept going there, the neighbors kept calling, and the other tenants got ready to leave the neighborhood.
Screening Questions
If a potential renter says they've lived in the same place for four years, ask, "How long did you live in your previous home?" “Oh, I lived there for six years.” That's a good response. Where were you before?” “I worked at the other machine shop.” “How long were you there?” "Two months." That is not good.
Credit Check
Criminal-Background Check
Authorizations
Verifying Income
In some states, a law called Megan's Law requires landlords to screen prospective tenants to make sure they are not child molesters. But it's better to ask the question this way: "How much do you bring home per week?" If the answer is $285 and the rent is $400, that amount will not cover the rent.
Talk to Two Previous Landlords
Verifying Employment
Screening Summary
Minimum Requirements
Fair Housing laws say you must rent to the first person who meets your minimum requirements, so put these in writing or risk getting into all kinds of trouble. You can ask that "the applicant must have had a steady job for three years" as one of your requirements; just make sure you don't base any claim on race, creed or color, as the statute says.
Fair Housing Laws
If you like Tom more than Sally, or choose one applicant who is black over one who is white, or choose a Catholic over a Muslim, the government can prosecute you for violating Fair Housing. Then, if someone questions your decision or you are tested, say, "This candidate did not meet my minimum requirements." If someone is disabled and uses a wheelchair but says they will pay to make your apartment wheelchair accessible, you need to hire that person.
Credit-Denial Letters
You are not required to spend $9,000 to install a ramp, but if the tenant is willing to pay for it, you should oblige. So keep it clean; get everything in writing; do not violate Fair Housing regulations; and don't do anything that looks like a violation.
Occupancy Limits
You've advertised your property, received calls from people wanting to view the property, and set the rents. But if something doesn't work, they call in with complaints, their attitude goes down immediately, and they certainly don't feel like they've been treated as valued customers.
A Move-In Inspection
Therefore, my goal is to have the place ready and perfect when they move in. Then, using a move-in inspection (see example of the move-in inspection form in Appendix B), we go through the place and check things out.
Inspecting Your Properties
In addition, you will likely give your tenants a lead-based paint disclosure form and booklet if your apartment was built before 1978. The form can be obtained from your local HUD office; this is a federal law that applies not only to properties built before 1978, but also to any property that you know may contain lead-based paint.
Making Tenants Your Friends
In addition to the lead-based paint disclosure, I send another letter telling the tenant that he or she is "renting a place built before 1978" and that "it may have lead-based paint." I put this signed letter in the folder I keep for a tenant so that if there is a lawsuit about lead based paint and if I don't have the signed disclosure form and proper insurance on me, I have another letter saying these people knew what they were doing.
Rules and Regulations
In return, the tenants would like a place to live and the things looked after when they need to be repaired or replaced. It is one of the simplest business relationships out there – I urge you to remember that.
Four Absolutes for Your Lease
For example, your policy might say that rent is due on the 1st of the month and at the end of the month on the 5th. On the other hand, if you are tough and show it by your actions by evicting on the due date, most tenants your will pay the rent on time or certainly by the stated eviction date.
Never Accept Cash
If Steve is a landlord who allows tenants to pay a little on Friday and a little the next week, he will fill his seats with people who want to pay a little at a time. If Mary lets drug dealers in, guess what most of her tenants end up with.
First One to Pay Gets the Place
In many countries, you must have deposits in a deposit account; in some countries you can't even earn interest on deposited funds. And in some states, you must give the tenant in writing and itemized the reasons why you are keeping the deposit—.
Move-In Summary
You are supposed to maintain a separate bank account for security deposits in almost every state. If you have tenants who always pay their rent on time, you really have great tenants.
Rent Discounts
If a tenant has previously paid late, it is likely that he or she will pay late again. To avoid that, you can send a letter that says, "If you're late next month, here's what you owe and here are the fines." It is best to write a letter, mail it and know that they will receive it quickly.
Keeping Rent Rolls
Tracking Systems
Create a tickler file to know when leases are up so you can get a rent increase. You can't just casually tell tenants, "The lease is up October 1st and your rent is going up." You must inform your tenants in advance.
Group Rentals
I’m Just the Manager”
Broken Leases
In most states, you are not allowed to charge double rent on your property. What do you suggest we do?" Maybe the tenant offers the full amount; if so, take it.
Alternatives for Nonpayment
If the tenant cannot pay the rent, we will send a letter saying, “Here are some people who can help you with the rent because we don't want you to be evicted.” The list includes government social agencies – most cities have programs to help tenants with their rent – as well as churches, Big Brother organizations and other charities. In my city, many agencies give one month's rent (just once) to anyone who asks for it. One agency is an organization in Nashville called Metro Action.) Most cities have similar programs.
The Appliance Business
However, there are many things you can do to reduce the stress level and cost of repairs. Or you can take the next step: buy new high-quality equipment, pay for it and have a warranty.
The Repair Business
When tenants own their own appliances, they can damage the flooring as they move them in and out of the home. After they were installed, my maintenance line remained ringing off the hook (that was when I answered the phone myself) and Mrs. Smith would call, for example, to say, 'It's hot outside and I don't have air conditioning; it does not work.".
No-Fault Maintenance
Note: These may or may not be legal in your area or may not apply if you manage a large complex.). In some states, this may not be legal—the law may not allow you to opt out of regulating rental units, so find out.
Deductibles
If they let the sink leak for six months and don't fix it, you have a $2000 floor problem. If you have a reputation for being soft, your tenants will probably protest or deny that they knew they had to pay.
Damage
Preventive Measures
Criminal Activities
Emergencies
One day I was talking to a tenant there—in the days when I used to chat on the phone with my tenants—and she said, "They fixed my sink the other week, but my doorknob is still loose." Follow the rules and regulations stated in the lease and make sure to attach all costs for damages to rent owed.
Maintenance Summary
However, if this happens and your property is destroyed, you have insurance to cover the costs. In addition, you have to cover taxes, insurance and mortgage interest.
The Cost of Vacancies
You could say: 'You have been paying rent faithfully and on time for two years. We will take $100 off the first month's rent if you sign another one year lease. You don't want your tenants to leave, especially the good ones.
Referral Fees
Tenants Who Maintain Their Own Places
I make sure they agree to paint the walls in a neutral color - not black, red or dark green. Remember, the biggest and best retention measure is treating customers right and returning their phone calls.
When They Want to Move Out
We say that "we will send a letter to the neighbor and tell the parents to stop harassing your child with their child." “Okay, that would be great. Sometimes they have delusions: "You see, we really want a three- or four-room apartment." We answer: "But you are just creating.
Increasing the Rent
We'll clean your carpet (or give you a ceiling fan) for being such a good tenant. So the letter continues: “Your rent is going up because taxes, insurance, expenses are also going up.
Negotiating Increases
We love you and don't want you to get hurt and go to the doctor." People want to be given reasons for requests. Half of the people who receive the letter will do nothing; half will call you.
Sending Out a New Lease
You can structure the lease to say, "Once this lease has expired, it will automatically continue in effect." This includes an automatic rent increase - that is, after 12 months the $500 rent becomes $550 (or whatever you decide). To determine the rent for your properties, I recommend that you look in the Sunday paper for rental ads for places in your neighborhood.
The Cost of Moving
If you handle the process yourself and it is not handled correctly, you risk being sued. If you want to handle postponements yourself, it's not that complicated, but it does require a lot of steps.
The Eviction Process
Your rent is now $440, but when it goes to the attorney on the 12th, you will have to pay court costs and attorney fees. If they pay money for what they owe, you should send them a special receipt that says, "We accept this money, and we still evict you [or don't evict you]." If they call and say, "I have the $550 now," you have a decision to make.
Collect What Is Owed
Avoiding Eviction
If you don't, you lose a lot of money over the next ten years - even tens of thousands of dollars. I can assure you that if you don't pay your bank or credit card company, they will come after you.
What to Do When a Tenant Just Leaves
The tenant still lives there; you broke into the apartment, violated the lease and violated the terms of the eviction. If you move their belongings out of the unit, you may be required to store them for a certain amount of time before you can sell or give them away.
Attaching Possessions
We also take pictures of the condition of the place and all the things on it. So if the tenant comes back and tries to sue and claims there were thousands of dollars worth of collectibles and furniture, we can show the pictures as evidence.
Other Ways to “Clean House”
Suing for Possession
Value of Emergency Numbers
Where is he?" We never call to say he owes money; that closes the door. But when we say he's getting money, we find out where he lives, where he works, or even where he is now.
Document Everything
Rent to own' means that the tenant rents your property with an option to buy it. It's okay that you may have to pay some sales tax; if you are a serious real estate investor, just buy another house.
Option Money versus the Security Deposit
I am now being taxed on that option money because Joe declined the option by leaving. The advantage is that it becomes a serious incentive to pay rent; people don't want to lose their option money.
Lease-Options—The Best Choice Available
In my experience, 97 percent of renters want to become homeowners, but they face obstacles: They just don't have the necessary down payment or credit, or they don't know how to go about buying a house.
Rental Rates on an Option
The Pride of Ownership
Typically, with a rent-to-own agreement, rental owners can buy their homes within a year – and we can turn over a lot of houses that way. If I check their references, I might say, “Instead of paying me $2,000 in initial option money, you only have to pay $1,000, but do all the work on site.
Handyman Specials
Other Factors to Consider
Or in one year I can renew my option for a $500 fee; plus, my payment will increase and the price will increase.
Get Investors Started with Lease-Options
Lending a Helping Hand
Lease-Option Summary
Some homeowners protest that they don't want to spend $300 to buy title insurance on $20,000 properties. If you do not insure your property for the highest value, and it is destroyed, the insurance company will reduce what they give you.
Management Insurance
You need to know if the activities you are doing are covered by your insurance policies.
Umbrella Policy
Workers’ Compensation Insurance
118 SECRETS OF A MILLIONAIRE LA NDLORD. If three, state laws require you to have workers comp insurance. If you're on my property all the time, you have to get workers' comp."
Other Insurance Issues
If John or the homeowner had workers' compensation, the issue would have been clear. My company pays about $700 a year in insurance to cover our employees (as defined by workers' comp).
Need for Legal Insurance
Your Own Will
Pre-Paid Legal Services
But if you have prepaid legal coverage, a law firm will represent you without limitation. If you sign up with Prepaid Legal Services, you get 50 hours of a tax attorney's time if you are appointed to an audit and that makes a big difference.
Legal Insurance Summary
If you are not satisfied with your assigned attorney, you can call an 800 number and customer service will make sure an attorney is taken care of for you. If you are named in a lawsuit, they will give you 75 hours of an attorney's time.
How to Find Good Deals
Bad Landlords and Management Companies
Then the tenant (who was never inspected) damages something and doesn't pay the rent. This property has not generated cash flow in two years; I'm losing money.
Finance Companies
Also, after hurricane season, it is common to find motivated sellers in parts of Florida. If a poor management company manages hundreds of units, there can be many disgruntled landlords who say,.
Driving Around
I like to buy it from the finance company after the foreclosure paperwork is done, although sometimes I put an ad in the paper before a family closing.
Buying the Property
Shopping for Interest Rates
Lease-Optioning—The “Other” Realty Investment Option
UTILITIES, A PPLIA NCES, A ND OTHER ITEMS FURNISHED BY LA NDLORD
If damage to the property, other than normal wear and tear, is caused by the negligence of the tenant or others occupying the property under his/her control, the landlord may have such repairs carried out and the tenant will be liable to the landlord for all reasonable costs incurred by the landlord as a result. CHANGES: The tenant may not make any changes, additions or improvements in or to the property without the prior written permission of the landlord.
IN CASE OF M ALFUNCTION OF EQUIPMENT, DA M AGE BY FIRE, WATER, OR ACT OF GOD: Tenant shall notif y Landlord
NOTICES: All notices under this Agreement must be in writing and must be given to the other party as follows: to Tenant of the Premises; to the Landlord, at P.O. ABSENCE OR CONNECTION: Tenant must notify Landlord of any prolonged absence from the Premises for more than seven (7) days.
TERMINATION FOR VIOLENT OR DANGEROUS BEHAVIOR
Any unclaimed balance held by Lessor during the six (6) month period shall be forfeited to Lessor. Any misrepresentation, misrepresentation or misrepresentation made by Tenant and subsequently discovered by Landlord shall, at Landlord's option, void this Lease.
TENA NTS A RE RESPONSIBLE FOR THEIR OW N SECURIT Y
Q: What fees will be deducted from the deposit if the tenant has not met all six (6) of the conditions listed above. It is expressly understood that release may be obtained only upon compliance with all other provisions of the Rental Agreement.
