InvestInRealEstate101

The American dream is to have two kids, a car and a house with a white picket fence. Condos don’t have white picket fences. Condos have never made an inroad as a substitution for a house in fulfilling the American dream. Let me count the ways that condos are not a good investment.

Reason 1
The target market for a condo is either recent college graduates that are single or elderly retirees that don’t want to maintain a lawn. The size of these two demographics as a percentage of the population guarantees that there will never be a high demand for condos. A condo fits the needs of a very small piece of the American population. The new graduates that purchase a condo always want to trade-up to a house in a few years after getting raises in their jobs. Once they trade-up to a house they will never desire to own another condo.

Reason 2
Condos are nothing more than a glorified apartment complex. Very few people want to spend 30 years of their lives living in an environment where there is somebody living above, below, to the right and to the left of you. Neighbors who play music too loud or who cook with lots of spices make the allure of owning a condo very unappealing.

Reason 3
Condos also have the negative of having a shared exercise room. If you want to work out you have to walk to this exercise room and possibly wait until somebody finishes in order to use the equipment. If you owned a house, you could walk to the next room and work out immediately. This is another drawback of owning a condo.

Reason 4
Condos have monthly association fees that you are required to pay. These fees cover the maintenance to the exterior of the building, the common areas and for maintenance. There is a board that oversees the condo association. This board can have the authority to dictate what colors you can possibly paint your unit or whether or not you can setup a Christmas tree or whether or not you can have a plant on your balcony. Many people find these restrictions coupled with the outrageous fee enough to discourage them from owning a condo.

Reason 5
Condos have traditional experienced a much lower price appreciation than houses. In market declines the price of condos decrease much more rapidly than houses. Nobody wants to invest six figures in a place to live only to find out the value of the property has not increased five years later. People would much rather invest in something that will appreciate and condos rarely fit this requirement.

When a person enters their home, they always say “Home, Sweet Home.” You will never hear somebody say “Condo, Sweet Condo.” Condos are not a good investment.

A popular adage says “those who do not remember the past are doomed to repeat it.” A landlord that does not check a potential tenant’s credit report is doomed to renting to someone they should not have. This is why landlords should run credit checks on potential tenants. Landlords can pay six figures for a property that they will rent to people. Before you turn the keys on your six figure investment over to a tenant, shouldn’t you at least know something about the person who will be occupying your property?

A credit report is a snapshot of a person’s financial history at the time the report is run. It provides a bevy of information that a landlord can use to determine whether or not to rent to a potential tenant. Although a credit report is not a perfect indicator of whether or not the tenant will always pay his or her rent on time, it is better than having no information on the tenant.

A credit report reflects how well or how poorly a potential tenant has maintained their financial obligations. If the tenant has a history of buying something and then having the account fall into collections, this will be reflected in the report. On the other hand if the tenant consistently pays his bills on time each and every month, this will be reflected in the report. If your potential tenant fails to pay his bills, would you want him or her living in your house? If they don’t pay their VISA bill there is a high probability that they may not be paying their rent someday.

A credit report will also tell you if the potential tenant has a large number of charge-offs or collections on their report. A charge-off occurs when a company is not paid what they are owed and they give up on trying to ever collecting that money. A collection is when the company is actively trying to collect the money they are owed. If there is an abundance of collections and/or charge-offs, this tells you that the tenant has difficulty paying their bills. Why would you want someone like that occupying your property?

The last thing a credit reports shows is whether or not there are any judgments against the tenant or if they have ever filed for bankruptcy. If someone files bankruptcy it is usually because they have accumulated more debt than they can handle which forces them to file for bankruptcy. Landlords do not want to have someone who is unable to manage their finances in their property.

Credit reports are not perfect in determining whether or not an applicant will be a good tenant. Credit reports do tell you something about the financial responsibility or irresponsibility of your applicant. It is that history that you use to determine whether or not to rent to an applicant. Without knowing that history, in the future you will be doomed to being yet another collection on their credit report.

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.

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%.

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.