Three Tips For First Time Landlords

tips for first-time landlords

Owning and renting real estate is one of the best ways to create wealth.  If you’re just getting started in real estate investing, here are three tips for first-time landlords that will help make your real estate investment a success.

Great Tips For First-Time Landlords

First, always charge prospective tenants a small fee for processing their application to rent your property.

This is the most important of the three tips for first-time landlords.

Collecting a small fee serves two purposes.  First, it covers the actual cost of running a credit report, verifying the tenant’s income, and doing a background check.

But just as importantly, it weeds out prospective tenants who really aren’t serious about renting your property.

Experienced property managers will tell you that there are actually people who go around town pretending to be tenants and applying for property that they have no intention of renting.

Never Negotiate On The Rent

Negotiating on the long-term rent with a tenant almost always backfires on a new landlord.

That’s because if you give the tenant a reduced rent, they will come back for more . . . and more, and more.

This is the second most important of the tips for a first-time landlord.

Now, in order to not negotiate on the rent, the rent has to be based on comparable rentals in the area.  This means the landlord needs to survey the market and set a fair rate for their rental real estate.

Know The Landlord-Tenant Law

Some markets are landlord-friendly, and some are tenant-friendly.

Sometimes this varies by asset class as well.  In a given area the laws could be tenant-friendly for residential real estate, but decidedly landlord-friendly for commercial real estate.

As a first-time landlord it’s important to know the landlord-tenant law for both the market and the property class that you own, operate, and rent to tenants.

Five Tips For New Real Estate Agents

tips for new real estate agents

Whether you work in residential or commercial real estate, it an be tough getting started in the business.  Here are five great tips for new real estate agents just starting out.

Proven Tips For New Real Estate Agents

One of the most important tips for new real estate agents is to start part-time.

That doesn’t mean putting less effort into your new real estate career.  What it does mean is to make sure you have enough income coming in while you’re ramping up your new business.

The last thing you want to do is to run out of money just before the big dollar real estate sales commissions start flowing in.

Focus On One Area

The second most important tip for new real estate agents is to focus on a single area to work in.

This could mean a specific neighborhood, zip code, or even a single building in your city.  It just depends on what real estate market you are working in.

Focus On One Product Type

In real estate there are different product types or asset classes.  Single family, multi family, free standing commercial, and multi tenant retail buildings are a few examples.

The third most important tip for a new real estate agent just starting out is to focus on a single type of real estate.  Then, become an expert in that asset class for your chosen marketing area.

Do What Fits Your Personality

Most brand new agents fresh out of real estate school begin by selling resale homes.  But that’s not always the smartest choice.

Understandably new real estate agents make this choice because there is more inventory in the resale market than in any other segment.

But selling homes may not be the best fit for your personality.  Other areas of real estate include new home construction, land, commercial, and property management.

Real Estate Is A Business

Just as investing in real estate is a business, so is deciding to work as a real estate agent.

It’s important to have a business plan, and to track all of your income and expenses.  Successful real estate agents also know that it is critical to always underestimate the cash coming in, and to always have money in the bank.

After that, marketing your new real estate business is a key factor to success.

Social media, and writing and publishing real estate books are two of the many ways new agents can market themselves in the competitive real estate industry.


How To Break A Lease To Buy A House

break a lease to buy a house

Renters often times reach the point where they decide it’s time to break a lease to buy a house.

Here are a couple of ways that tenants can break a lease to buy a house that will also be a win-win situation for the tenant, landlord, and property management company.

Break A Lease To Buy A House – New Home Construction

New home builders can usually be a big help to tenants wanting to break a lease to buy a house.  As long as the house they are buying is the new home that the builder is selling.

That’s because new home construction usually has a lot of latitude in the pricing.

Granted, the tenant may need to pay termination fees to break its lease.  But the builder can sometimes reduce the price of the new home by the total amount of termination fees the tenant needs to pay to break its lease to buy a house.

Real Estate Agents Can Help Break A Lease

Another way that renters can break their lease to buy a home is with the assistance of their real estate agent.

Landlords that own income property, and property managers that handle the rented property are mainly concerned with keeping the property rented.

That’s where the help of a real estate agent can come in.

If the tenant is using a real estate agent to find a new house to buy, then the agent can also help the tenant break its lease.  The real estate agent can do this by finding a good, qualified new tenant to rent the property.

Many real estate agents will also offer to waive their leasing fee for doing this, since they’re getting paid a nice sales commission from the new home builder for selling a house for them.

How To Make The Best Offer In A Seller’s Market

make the best offer in a seller's market

There’s nothing more disappointing to a real estate buyer trying to bid in a hot real estate market than being constantly outbid.  Here are some tips on how to make the best offer in a seller’s market.

Make The Best Offer In A Seller’s Market

Nothing scares a seller more than buyer contingencies.

Obtaining financing, property inspections, and having the down payment and funds needed to close are all examples of normal contract contingencies.

But in a hot real estate market the seller can call the shots.  That’s why smart buyers know that to make the best offer in a seller’s market, the fewer contingencies the better.

It’s Not Just About Price

Sure, the sales price of the property being sold is important.  Sellers usually want to sell their home for the most money.

But before the seller can get their money, the transaction has to actually close.

So from that perspective, it’s not always about price.  It’s more about the buyer’s ability to actually close the deal rather than having it tied up in escrow and then falling out at some point.

For example, everything else being equal, a cash sale would be better than financing.

But if there is financing involved, is as much proof provided as possible that the financing won’t fall through and/or has the buyer waived that contingency?

As-Is, Where-Is

Buying a property ‘as-is’ is another technique that buyers can use to make the best offer in a seller’s market.

But this doesn’t mean you have to accept the property with all of its flaws.  Nor does it mean that the seller doesn’t have to disclose any known issues or defects.

As-is simply means that the buyer isn’t supposed to ask for any repairs or concessions from the seller if there are defects found.  But, the buyer can still walk away from the transaction.

How To Save On Housing Costs

save on housing costs

First-time home buyers frequently discover that their monthly housing costs are much, much higher than they anticipated.  So naturally they begin looking for ways to save on those housing costs.

Updating, furnishing, maintenance and utilities all add up quickly.  Add to these expenses the monthly mortgage, and even at today’s low interest rates these payments can put a strain on almost any budget.

Here are a few ways to save on housing costs.

Save On Housing Costs With Rent-To-Own

One of the more overlooked ways to save on monthly housing costs is to enter into a rent-to-own or lease purchase agreement with the seller.

This type of contract allows the buyer to become a tenant first.

First, agree to the purchase price of the house in advance. The next step is determining how much of the monthly payment is going to be applied to the purchase of the house.  The amount of the payment left over goes to the seller as monthly rental income.

There’s a right way and a wrong way to use a rent-to-own agreement to save on housing costs.

The agreement should be treated like a purchase contract, with an independent third-party such as an escrow company handling payment receipts and funding disbursements.

Sub-Renting Can Save On Housing Costs

Renting out extra space in the house is another way to keep housing costs down.

Some people rent to friends or family, others use an online service such as Airbnb and rent out to people looking for a vacation rental property.

There are both pros and cons to renting to people you know and finding good tenants that you don’t know.

But either way, home owners who rent out extra space frequently find that the extra income they receive is much more than they expected.

The additional money can add up fast, and be used for needed updating or remodeling.

Or even to pay off the mortgage balance much quicker than planned!

How To Lease Purchase Real Estate

lease purchase real estate

A lease purchase real estate agreement, sometimes also called a rent-to-own, is basically an option to buy real estate at a certain time and at a certain price.

One of the most important terms to have in a lease purchase agreement to buy real estate is that an escrow or servicing company collects the monthly payment.

After collecting the payment the escrow company accrues the portion of the payment that goes toward the purchase price into an escrow account.

Lastly, they remit the balance to the seller.

Basics of a Lease Purchase Real Estate Agreement

The seller and tenant/buyer should:

1) Agree to a future purchase price at a certain date.

2) Agree to the lease amount of the monthly payment.

3) Agree to the total monthly payment which includes the rent and the extra amount that goes toward the purchase price.

This lease purchase real estate agreement should be written and treated like any other purchase contract.

The seller and tenant/buyer should have a third-party such as an escrow company or attorney collect the total monthly payment from the tenant/buyer to the seller, accrue the funds that go toward the purchase price, and remit the balance to the seller.

Issues With A Lease Purchase Agreement

Many times people enter into a verbal lease purchase real estate agreement.  They don’t use an escrow company or third party to receive, account for, and disburse the monthly payment.  Instead, they do everything themselves.

Doing this puts both the seller and buyer/tenant at risk.  Normally people do this to try and save a little bit of money.

The two common issues that arise with a lease purchase agreement for real estate are:

1) Who pays the monthly servicing fee.

2) Determining the future price of the property.

In most cases, splitting the escrow fee between seller and tenant/buyer is the accepted course of action.

The agreed-to sales price of the property can be confirmed with an appraisal when the lease purchase real estate agreement is exercised.

Is Allowing Real Estate Pre-Possession A Smart Move?

real estate pre-possession

Real estate pre-possession means that the buyer or tenant are allowed access to the real property before the sale is closed or the lease begins.

There are pros and cons to a seller or landlord allowing real estate pre-possession.

Pros of Real Estate Pre-Possession

Probably the biggest pro of allowing a real estate pre-possession is that it creates a good working relationship between the two parties.

If you’re selling a property, allowing pre-possession can help keep the deal on track.

If you’re a leasing property manager or owner, allowing the tenant early access to take measurements and get bids from contractors can establish a good landlord-tenant relationship right from the start.

Cons of Allowing Pre-Possession of Real Estate

There are also some drawbacks to allowing a buyer or tenant early access to the property.

In the case of a real estate buyer, they may be secretly looking for a reason to cancel the purchase agreement.

Maybe they’re having second thoughts about buying your property.  Or maybe they found a better deal somewhere else.

If that’s the case a buyer will try to come up with an issue they claim was never disclosed to them.

Sometimes they will try this move even if all of the contract contingencies have been removed.  The threat of non-disclosure can create big problems for the seller both before and after close of escrow.

Allowing tenants pre-possession can also create potential problems for the property manager or landlord.

One of the biggest risks is that the tenant underestimates the cost of its tenant improvement.  Or they realize the cost of making their space move-in ready is more than they anticipated.

A tenant who has second thoughts will then try to raise all sorts of issues with the landlord.

They will try to turn minor issues into big ones.  This virtually guaranties the tenant will be a problem to deal with.

Often times over the entire term of the lease!

Five Steps To Forming A REIT

forming a reit

Many active real estate investors reach the point where they consider forming a REIT.

Forming a REIT – also known as a ‘real estate investment trust’ or a group investment – can be simple and straightforward.

Here are the five key steps to follow when forming a REIT.

#1 Create an LLC when forming a REIT

An LLC – or limited liability company – is the most common legal and tax entity for holding investment real estate.  The Internal Revenue Services recognizes this structure, as do the laws of each State.

#2 Seek investors

Investors in the LLC are buying shares of the company, not the real estate itself.  Usually – but not always – the percentage of ownership equates to the amount of capital an investor contributes.

Unless you have a strong past working relationship with the investor, you will need to have an idea of what type of property is going to be acquired, and have a P&L and cash flow analysis put together.

#3 Passive vs. active investors

Like the name suggests, a passive investor is one who puts money into the LLC and does nothing else.

In addition to putting money into the LLC, active investors also contribute their skills, time or knowledge.  Sometimes this is in exchange for a greater share of the profits or cash flow, or for an increased number of shares in the LLC.

Examples of an active investor activity in a REIT include putting the mortgage into one’s name, acting as a general contractor, or managing the property.

#4 Written document

While forming an LLC is consistent from state to state, it’s best to have an attorney draw up the LLC operating agreement.  An experienced real estate attorney will help you to address any unforeseen issues that may arise down the road.

#5 Distribute profits

This is the fun part.  There’s profit made on the property appreciation when it is sold, and there’s the profit from the net monthly cash flow.

Remember, depending on what the LLC’s operating agreement says, these two income streams may or may not be distributed based on the percentage of stock held in the LLC.


How To Make Money With Vacation Rental Property

make money with vacation rental property

There are a lot of ways to make money with vacation rental property.

Some people rent out a spare bedroom while others rent out their entire house.  Some hosts even rent the place that they’re renting out on sites such as Airbnb.

Make Money With Vacation Rental Property

Here’s the #1 tip to make money with vacation rental property:

Greet Your Guests In Person

This is absolutely contrary to the smart lock trend.

The rationale for using a smart lock is that it allows guests the opportunity for late arrivals and early departures.  And that’s a good thing.

But sometimes vacation rental hosts get lazy, or they’re too busy property managing other vacation rentals.  So they use the smart lock as a crutch and don’t meet their guests in person.

Guests really appreciate a quick tour of the place and being able to put a face to the name of the host.  After that a phone call or quick text message is all that’s needed.

Top Notch Internet Service

The #2 tip to make money with vacation rental property is to offer top notch internet service.  That’s because virtually everything we do now days is on the internet.

People Skype and use Netflix all the time.  Business travelers using vacation rental property as a home base often times need a speedy connection to hook up with the server at their main office.

Both experienced hosts and first time landlords will make sure the internet in their vacation rental is superior, and then tout that fact on their listing.

Including a screen shot of a Speedtest report is also a great sales tool.

Each vacation rental property market is different.  There are always unique factors to consider when buying your first rental property.

But using these two examples of how to make money with vacation rental property will help you do just that, no matter where your vacation rental is located.

(If you’re not familiar with Airbnb, using this link will get you a $25 credit on your first visit anywhere in the world!)


Three Ways Neighbors Can Undermine Your Open House

neighbors can undermine your open house

At first glance it might seem strange that there are ways neighbors can undermine your open house.

Anybody who has been in the residential real estate business for a while knows that this is absolutely true.

Why Would Neighbors Want To Undermine A Open House?

Most people get along with their neighbors just fine.  But once you decide to sell your house and a ‘For Sale’ sign pops up, your best next door neighbor can become your worst nightmare.

Neighbors believe that when the house next to theirs is for sale, cars will be blocking the street, criminals will come to the house disguised as interested buyers, and real estate agents will be knocking in their door seeing if they’re interested in listing their house for sale.

So, as odd as it might sound, neighbors will try to make it difficult to sell your house.

Here are three ways neighbors can undermine your open house!

Ways Neighbors Can Undermine Your Open House

#1  Stealing the ‘open house’ signs – This is probably the most common way that neighbors try to sabotage an open house.

Right after the open house begins the neighbor will back-track through the neighborhood and remove all of the open house signs.  Often times they will try to sell them on the internet to make a little extra money!

#2  Spreading lies about your house – Neighbors have been known to lie in wait for people leaving an open house.

Then they will casually approach the prospective buyer.  Striking up a conversation, the neighbor will then talk about a fictitious murder in the house.  Or they will mention seeing the termite pest control truck in front of the house yesterday.

#3  Loud parties & music – Open houses are usually held on the weekends, to attract the highest number of potential buyers that are shopping around.

Unfortunately the weekends are also when your neighbor is probably home.  You’ve never heard a noise from the neighbor for as long as you’ve lived in the house.

But, oddly enough, your neighbor will pick the day of your open house to have a loud, drunken pool party with heavy metal music.