The bad news is tenant screening does not guarantee a tenant will always pay his or her rent on time. The good news is tenant screening will help to filter out bad applicants. Tenant screening allows you to learn an applicant may be a difficult tenant before you learn this on a first-hand basis.

Before I started doing tenant background checks I had a young couple with a two year old son. They were extremely polite, very articulate and well-dressed. They talked extensively about their jobs and how they were both recently promoted and worked for the same company for over five years. They even produced copies of pay stubs. They offered to put down a full month’s deposit and wanted to move in less than two days later. Needless to say I was impressed by this couple. I had them complete an application, accepted their deposit, signed a lease and gave them the keys to the front door.

Two months later this couple stopped paying rent. They had every excuse imaginable as to why they could not pay the rent on time and when they would pay. The date they promised to pay the rent came and went and all I got was more excuses. Eventually I decided to evict them for non payment of rent. About this time I started doing tenant credit checks. On a whim I decided to do a check on this young couple. It turned out they had been evicted five times in the previous 22 months. When they applied to rent my house, they were in the process of being evicted from their current residence which is why they needed to move in in less than two days. If I had done a tenant check, I would never have rented to this couple which would have saved me from months of frustration and lost income.

Every state has laws restricting what you can and cannot do for a background check. In addition there are federal laws that prohibit discriminating against a potential applicant based on sex, religion, age or national origin. Every landlord needs to be aware of the requirements under both state and federal law.

A bad tenant can do extensive damage to your property not including the loss of rental income. Doing a background check on a tenant can be labor intensive if you are verifying their employment, checking for prior evictions and pulling their credit. The time spent on doing a check on a tenant pales in comparison to the time spent on evicting bad tenants and paying to rehab any damages they cause to your property. Doing a tenant check costs less than renting to a bad tenant.

Technorati Tags: Landlording, Property Management

Every landlord will face a time when they will need to rehab a rental unit to get it ready to be rented or to be sold. The cost of a rehab can be very expensive. If the total cost of materials in your rehab exceeds $2,500, here is a way to reduce that cost by 20% or more.

The Home Depot, which can be found in most major metropolitan areas throughout the US, offers a program called the “Pro Bid Desk.” This program is only offered to people who plan on purchasing material in excess of $2,500 in a single purchase. If you are doing rehab on multiple properties, it would benefit you to combine the costs into a single purchase so you can exceed this $2,500 requirement.

Take your list of items that you intend to purchase including the quantity of each item to the contractor desk at Home Depot. The contractor desk is normally located at the end of the store near the lumber section. They will take your list and enter it into a computer program that is submitted to Home Depot corporate. They will return a discounted price on the materials in 24 hours or less.

The Pro Bid Desk is not restricted just to contractors which mean anyone can place a bid. The only restriction is that the initial cost of all the materials has to exceed $2,500. Home Depot looks at the retail price of the material that you are purchasing and then discounts it to a point that they still make a profit and that it encourages you to purchase from them instead of their competitors.

The percentage of the discount varies by department. Hardware, paint and lumber generally have the lowest discount at around 10%. Plumbing, flooring and kitchens have the greatest discount at around 28%. Plumbing and electrical are usually discounted around 18%.

Once you leave your list of items with the contractor desk, you will receive a call from them in 24 hours with the discounted price you will receive. You can request the store actually pull the items that you want to purchase and have them available for your contractor to pick up. For very large orders, Home Depot offers a service where they will actually deliver the items directly to your property.

In order to be a successful landlord, you need to reduce the cost of your expenses. Using the Pro Bid Desk at Home Depot is one way to reduce the cost of your repairs by up to 20%.

Technorati Tags: Landlording, Rehab

Every landlord who rents a property will eventually face the day that they must evict a tenant for non payment of rent or for violation of their lease. Every state has laws the outline the eviction process. Landlords must follow the law in order to evict a tenant. Failure to properly follow the law can result in your case being dismissed.

Most states require landlords to file a notice that is called a “payor quit” notice. This notice demands the tenant to pay the rent or vacate the property. The notice can be left on the tenant’s door and/or mailed to the tenant. Some states require that you give a three day notice while others require a seven day notice. In almost every state, providing a “pay or quit” notice is the first step in evicting a tenant.

If the tenant fails to either pay or move out by the end of the period specified in your notice, landlords can take the next step and file a dispossessory at the court house in the county where the property is located. Some states require you to file paperwork for a dispossessory in the state or magistrate court. Other states require you to file a lawsuit called either an “unlawful detainer” or “summary proceeding.”

The tenant will be served notice by the Sherriff or Marshall that you have started the eviction process. Tenants will have a set amount of time in order to respond to the notice. In my state tenants have seven days to answer. You will be assigned a court date after this time period has elapsed.

At court the judge will grant you a judgment against the tenant for non payment of rent. After getting your judgment you can petition the court for a writ (called a warrant in some states). A writ is a legal document that allows you to arrange a date and time with the Sheriff or Marshall to actually evict the tenant. When that date arrives, the Sheriff will meet you at the property and will wait while you have a crew remove all of the tenants’ possessions from the property. At this point you now have regained legal possession of your property.

Failure to follow the correct steps in the eviction process can cause you case to be dismissed. During this time the tenant is living in your unit rent free. Avoid this by following the laws in your state.

Technorati Tags: Landlording, Property Management, Real Estate Investing

Most landlords will pull a credit report on an applicant and use the information contained in the report as part of their basis in accepting or rejecting the applicant. If you reject an applicant based on information contained in their credit report then you are obligated to providing a notice for the rejection because of federal law called the Fair Credit Reporting Act (FCRA). This notice is called an “adverse action notice.”

The notice that you provide must contain certain information as outlined in the FCRA. The notice must include the name of the consumer reporting agency that provided the credit report you used in making your decision on the applicant. In addition you must provide information on the consumer’s rights under the FCRA. These rights include the ability for them to obtain a copy of the report within a specified time frame.

Even if the credit report was not the major reason for rejecting an applicant, you must still provide a notice if the report was used in any way in your decision. Even it was a small part of the consideration for rejection; you must still provide notice to the applicant.

Landlords who fail to provide notice can face legal consequences which can include fines and possibly jail time. Applicants can sue landlords in federal court for damages for failure to provide notice. If an applicant is successful in litigation against a landlord, they are entitled to recover not only damages awarded by the court but also court costs and reasonable legal fees. Applicants can also sue for punitive damages if they can show the landlord deliberately violated the FCRA.

Don’t risk being sued in court for violation of the FCRA when evaluating applicants who want to rent your property.

Technorati Tags: Landlording, Property Management, Real Estate Investing

The Fair Housing Act is also known as Title VIII of the Civil Rights Act of 1968. This act prohibits discrimination in the sale, rental, lease, or financing for real property based on race, color, religion, sex, or national origin. The Act was amended in 1988 to prohibit discrimination based on disability or familial status (presence of children under age 18 or pregnant women). Enforcement of this act is handled by the Department of Housing and Urban Development (HUD) and the Department of Justice.

When a landlord receives an application from a prospective tenant, the landlord can deny that application. If the reason the landlord denies the application is illegal then this is discrimination. The applicant can file a discrimination charge and possibly win a lawsuit against the landlord.

The Fair Housing Act is a federal law. In addition the federal law, some states have added additional protection to certain classes of individuals. These are “protected” classes that you cannot discriminate against.

The best advice for landlords is to never reject an applicant for any of these reasons: sex, race, religion, color, marital status, national origin, age, sexual orientation, source of income, or mental or physical disability. Additionally do not reject any applicant that is part of a “protected” class in your state.

If you hire a property manager, you may be liable for their actions if they discriminate against an applicant. The landlord is responsible for properly training everyone that works for them or on their behalf in processing applications. Make sure that everyone involved in the process of renting your properties are aware of their obligations under federal and state law.

Investing in real estate can result in great fortunes. Don’t risk it all by violating federal law when trying to rent your property.

Technorati Tags: Landlording, Property Management, Real Estate Investing

Investing in real estate always involves large sums of money. If you want to be successful as a landlord, you must be aware of the laws and requirements. Not knowing the rules can result in a devastating loss that most new landlords cannot afford. One of the least understood areas of landlording is security deposits.

Every landlord who rents their property to a potential tenant has the right to collect a security deposit. The security deposit provides protection for the landlord against any possible loss caused by the tenant. All landlords should collect security deposits from their tenants.

Every state has different legal requirements for the collection and handling of security deposits. It is imperative that landlords learn the requirements for the state where their property is located. The law can dictate some items such as the maximum amount you can collect, whether or not you have to pay interest, and when you must return the deposit.

Some states limit the amount you can collect for a security deposit to an amount equal to one month rent. Other states require that security deposits be held in interest bearing accounts and the interest earned on the account must be paid to the tenant when the security deposit is returned. Some states require that security deposits be held in separate accounts from your checking account and that the account number be given to the tenants. As you can see the requirements can vary greatly state by state and it is important than you understand the laws in your state.

Noncompliance with the laws in your state can result in the court ruling against you in court. In some states the penalty for non-compliance is triple the amount of the collected amount of the security deposit! The worst thing that can happen to a landlord is to end up paying a tenant who left their property owing the landlord money or damaged your property.

Real estate investing can offer great rewards. Don’t be penalized by failing to follow the rules for collecting security deposits.

Technorati Tags: Landlording, Property Management, Real Estate Investing

More millionaires have made their fortune through real estate investing than through any other form. Despite this, the path to riches in real estate investing is strewn with investors who have failed, been forced into bankruptcy or lost everything. In order to improve your chance of success as a real estate investor, you must understand these potential pitfalls so you can avoid them.

Declining Neighborhood
In ever town there are areas of the city that increase in value while there are areas that decline in value. Successful real estate investors understand their market and avoid the declining areas of the city. It may be tempting to purchase a property that is 20-50% below market value but avoid the temptation.

Areas decline because owners stop caring for their property, increased crime rates, or a declining school system. If current property owners do not take pride in the place they live then the value of that property will most likely decline over time. Avoid these areas.

Property Taxes
When real estate investors crunch the numbers to decide whether or not to purchase a property, they will usually the principal and interest payment of their mortgage. They fail to account for the annual property tax bill. Investors that fail to account for property taxes will be in for a rude awakening when they receive their tax bill at the end of the year. Most investors will panic because they do not have the necessary funds to pay for the bill.

Even if they do calculate for taxes, they may be basing their calculation on last year’s tax value. That value was probably based on an owner occupied tax rate but investors are charged much more for taxes since they do not have the exemption that owner-occupied properties realize. Your tax bill could easily be 50% to 100% more than the bill the seller paid.

Over-renovating
New investors will try to “trick out” their rental property as they do the rehab. If comparable properties have composite countertops, you will not receive much more in rent by installing granite countertops. Spending more for these extra touches will be cost that you may never be able to recoup as you probably will not be able to charge more for rent when measured with comparable properties.

Successful landlords are able to manage their expenses. They do this by not over-renovating their properties. The primary desire of any investor is to quickly renovate a property and get it ready to be rented.

Avoiding these pitfalls will put you on the path to riches as a real estate investor.

Technorati Tags: Real Estate Investing

Real estate investing has its financial advantages and its pitfalls. If you want to start investing in real estate, you should be aware of some of these myths. I will analyze and debunk two of the most common myths of real estate investing.

You can trust the owner
Every property owner that is selling a property will attempt to position their property in the best light so they can sell it for the highest dollar. They will emphasis all the positives and will gloss over all the defects. It is the investor’s responsibility to uncover all the defects and negatives of a property before purchasing.

If the property owner provides details on the rents, lease terms and payment history of existing tenants, collect this information but be sure to verify it. Real estate investors will base the decision on whether or not to purchase a property based on the financials. If you are using invalid numbers then you could end up purchasing a lemon.

Real estate investing is a get rich scheme
P.T Barnum said there is a fool born every day. Only a fool would believe that a novice can get rich quickly investing in real estate. If it was that easy then everyone would be doing it. There are many “gurus” who are willing to sell you their system of real estate investing. These gurus make promises that you can earn a small fortune in a short amount of time. But the only person getting rich is the guru as he sells his “system” of instant riches.

It is possible to amass a fortune in real estate investing but it will not happen over night. The real profits in real estate investing happen over time through appreciation, positive cash flow, tax deductions and increase in value of the property.

Now that you are aware of these myths of real estate investing, use them to your advantage as you start building your own fortune as a real estate investor.

Technorati Tags: Real Estate Investing

Landlording and property management can be a great business to get into. There are many benefits to owning and renting out homes. It does not matter if you invest in one home or have many homes to rent out. The more homes, the more benefits, and if you know how to manage the properties and use those for tax advantages, then you will be very successful in investing.

Owning a rental property can be fun and rewarding. For many investors it gives them a sense of power and control over their destiny. For others it is fun and exciting and keeps them occupied. For all it is about the long-term benefits, the profits and sometimes the taxes. In some cases there are ways that you can avoid paying taxes on a rental property that you choose to sell.

A lot of investors like the additional income they receive from tenants, especially if the rental property is paid off and the rent is all profit. If you have a fixed mortgage on the home, then your payment will not change over time with inflation. However, the rental amount will increase with inflation, causing an increase in your profit margin every few years. One tax benefit does not have to pay taxes at all if you sell the home. A 1032 can be filled out when a home is sold that allows the seller not to pay taxes on the capital gains from the sale. The rule here though is that the next home you buy it has to be purchased for more than what you sold the other home for. Basically you have to be upgrading.

Having ownership of rental proprieties come with certain plusses. Although landlording and property management is not for everyone, if you know what you are doing, then it can be rewarding. One of the greatest things is that by owning rental properties you are creating a constant cash flow when they are occupied by paying tenants. You can build a great and profitable asset portfolio of homes and in 10-15 years sell them and cash out, making a large amount of money from the equity.

If you currently own a rental property or are thinking about lanlording and property management, then you can see there are many benefits to it. Most of them are all the same across the board. States do, however, all have their own sets of rules for taxes and may have some incentives of their own, but most of them are the same, too. Finding the best home to invest in and finding good tenants are just a few things that will ensure that all the benefits that can come from owning and renting property are there. Obviously purchasing a home cheaply and being able to rent it out for more than the mortgage is ideal. The key is that the longer you can hang onto the homes, then the bigger the money profits will be for you.

Technorati Tags: Real Estate Investing, Rental Property

Landlording and property management can be a full time job especially if you have multiple properties. Many hire management companies to handle their home, but with a knowledge and drive you the investor can handle the tenant, it will build a better relationship and you can handle the property better. In turn you will have a happy tenant that will renew their lease and keep renting from you for years to come.

The benefit to having a tenant stay for many years is the positive cash flow. It provides security to you, especially if you have a mortgage on that house. It also takes the stress out of having to advertise the house every year to rent it out again. As an investor making a profit is your goal; therefore, you want long-term tenants.

When you take on the task to rent out a house, landlording and property management will become a big part of your life; after all, you want to be good to your tenants. If there is a problem, have it fixed right away. If the landscaping and pool need to be maintained, hire someone to go out and take care of those things. This can give a tenant a feeling of luxury. If the tenant stays for two years, you can offer to put a fresh coat of paint in the house and shampoo the carpets. Even updating an appliance in the home is a great incentive to the renter.

As a landlord you need to keep up with the market. Price the home to rent at a fair and affordable price. Chances are a tenant may have lost his home and so is looking for a price he can afford. Most landlords increase the rent every year, so instead lower it by $50 a month for every year the tenant stay. You do not want the tenant to ever feel like he could be renting somewhere better or cheaper. If the tenant is maybe interested in purchasing the home in a few years, then sending him vouchers every few months for a certain dollar amount toward the purchase of the home is a great idea.

As the owner of the home, you want someone to be residing in it. One of the worst things is to have vacant homes that you have to check up on consistently. Landlording and property management can be a very profitable and fun business to get into. The longer you can keep your tenants in the homes and have them renew their leases every year will provide security in your investments and take a lot of stress off of you. If you are renting out a house, then take some of these tips to try to keep the tenants around for years to come.

Technorati Tags: Landlording, Property Management