InvestInRealEstate101

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.

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.

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.

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.

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.