Roughly forty percent of the homes offered for sale in today™s market are short sales and foreclosures!  Distressed properties are well known for their value, but they also have a reputation for transactional snafus, last-minute surprises and long, drawn-out escrows.  While many inexperienced  agents advise  avoiding these properties altogether,  a better option is to find a short sale specialist  and get  educated about the most common  issues  associated with  these deals, and how to go about  avoiding them.

1.    Drawn out  escrows…  Processing delays.  When you™re buying a home (or selling one, for that matter), time is absolutely of the essence.  And buyers reasonably expect that the big time  drain in real estate is in the house hunting process itself;  as once you find a home you want to buy and the seller agrees to your price and terms, things should move pretty quickly, right?

When it comes to bank owned distressed property sales this isn’t always the case and in most instances  these transactions take anywhere from a few days to a few weeks longer than œregular sales, because of the extra signatures, supervisor-level approvals and/or investor involvement required to seal the deal.  Banks don™t have the same sense of urgency individual home sellers do, and it™s not uncommon for the people who need to sign on the dotted line to be on vacation or scattered across the country, adding days™ or weeks™ worth of time to the escrow.

And short sales are also an entirely different animal when it comes to  processing timelines. While a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale  can take anywhere from 45 days to  3  to  6 months to get the deal closed. (your agent should be able to procure an estimated processing timeline from the listing agent, however, if  your agent is a short sale specialist they should have an  idea of  the average  short sale processing timeline for the bank  involved)  

Avoid  frustration by  expecting your escrow to run long, and being pleasantly surprised if it doesn™t.  Expectation management is everything. Make sure you take these extended timelines into account when you™re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost of extending your low interest rate, if rates are rising rapidly during the time you™re waiting for the deal to be done.

2.  Bank won™t take lowball offer.  Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it™s on the market and listed as a short sale or a foreclosure doesn™t mean they™re going to give it to you for a fraction of its worth. The bank™s goal is to get a purchase price as close to the home™s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property™s condition. Fact is, many banks would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table. Working with an agent who specializes in short sales and foreclosures is key to snagging the best deal as these agents will have insight into realistically what the listing bank might accept, and how to influence their expectations. That said, their are ways of influencing the bank’s value assessment to the buyer’s benefit and an agent specializing in short sales will be able to best assist you in doing this and securing the best deal possible on the property.

Avoid the  frustration by  working with an agent who specializes in short sales and foreclosures  and one who can assist you in making a realistic offer.  Sit down with your agent, review the ˜comps™ and make a smart offer that reflects a good value for you, is within your budget and is not bizarrely out of the realm of the fair market value of the property.

3.  Last minute postponements/cancellations. These transactions have an uncanny way of being delayed at the last minute through no fault of the wanna-be buyer, and in some instances they can be  rejected entirely. You signed docs yesterday, just  loaded up the moving truck, only to  receive a  call from your broker that the deal didn™t close because the  title company which was selected by the bank  failed to have a single sheet of paper signed  (it happens). Or, you™ve been in contract (with the seller) on a short sale for  three months, and the bank refuses the sale entirely because the seller refuses to  contribute $1,000  into the deal to offset the bank’s loss, this  despite their having a flush savings account.

Avoid the  frustration by staying as flexible as possible with your moving plans as long as possible. Best practice is to plan on some overlap between the time you can be in your last place and your scheduled move-in date. Also, if you™re in contract on a short sale, you should take the point of view that you don™t have a firm deal until you get the bank™s approval of the transaction. So don™t even think about starting to make moving plans or paying for home inspections and appraisals until you know the bank has  signed off on  the deal and that the purchase price and terms they™ve approved work for both you and the seller.

4.    Bank™s black out. Make an offer on a normal home and you™re likely to know what the outcome will be within a few hours or a few days, at the outside. If things take longer because the seller is out of town or  such, the listing agent tells you that, and you at least know what™s going on.

Make an offer on a bank-owned property or a short sale?  It™s a crap shoot “ could be days, but could also, easily, be weeks or months before you know what™s going on.  And no amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller™s short sale application is being handled or what (if any) progress is being made.  And that œblack out  is very frustrating.

Avoid the  frustration by  continuing your house hunt until you have an answer back.  Maniacally pestering the listing agent for answers or harrassing your buyer™s  agent into spending hours on hold with the bank is highly unlikely to get you any insight. (With that said, it does make sense for your agent to check in regularly “ sometimes even daily “  with a short sale or REO listing agent to stay updated on any developments with the property and to make sure your offer/transaction stays in the front of their mind.)

Most of the angst in these situations arises when a buyer feels they passed on properties that would have really worked for them when they pinned their hopes on a distressed home.  You can only control your efforts and activities, not the bank™s.  So, consult with your own broker or agent about staying proactive in viewing and even pursuing other properties until you have a firm œyes from the bank on your short sale or REO offer.    Until that time, and usually for a short time after you get the bank™s approval, you have the right to back out of the transaction if you need to (make sure your broker briefs you on precisely when your right to rescind your offer or exercise contingencies “ i.e., bail “ will expire).

5.  Double standards. In a œregular equity sale with no bank involvement, both buyer and seller are obligated to meet various timelines.  Seller has to provide disclosures by X date, open the property to inspections “ with utilities on “ by Y, and close and move out by Z.  REO and short sale buyers, on the other hand, are often dismayed to find that even though the bank might take weeks or months to sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check for example when requested and in a timely manner.

Avoid the  frustration by  chalking it up to the (admittedly irritating) way things are “ the price you pay to buy from the bank.  Realize that working with the bank on the bank™s terms is unavoidable when you buy a distressed property. Then, go into the deal with realistic expectations “ including the expectation that the bank will drag its feet, despite expecting you to keep every deadline “ and you™ll be less frustrated, and less likely to make poor decisions out of frustration.

Also, make sure you do respond in a timely manner to the bank™s requests and your obligations under the contract.  I™ve seen banks capitalize on buyer delays in returning signatures and removing contingencies to accept higher offers they received in the interim.  Don™t lose your home on a technicality because you assume that the bank™s lackadaisacal timelines apply to you as well.

If you™re a  buyer, or an  investor, interested in purchasing short sale or foreclosure properties,  please give us a call or send us an email as we™d be happy to assist you by sending over a an inventory of properties matching your criteria.    

The Opland Group  Specializes in  Real Estate Sales, Luxury Home Sales, Short Salesin;    Bexley    Columbus    Delaware    Downtown    Dublin    Gahanna    Grandview Heights    Granville    Grove City    Groveport    Hilliard   Lewis Center    New Albany    Pickerington    Polaris    Powell      Upper Arlington    Westerville    Worthington  

Real estate owned or REO is a class of property owned by a lender, typically a bank, and most commonly acquired after an unsuccessful sale at a foreclosure auction. This is common because most of the properties up for sale at these auctions are worth less than the total amount owed to the bank (negative equity): the minimum bid in most foreclosure auctions equals the outstanding loan amount, the accrued interest and any fees associated with the foreclosure sale (minimum bid in Franklin and Delaware Counties is 2/3rds of appraised value however, the banks typically go in much higher than this and thus in most instances buy the properties themselves at auction).

After an unsuccessful auction, the bank will go through the process of trying to sell the property on its own. It will remove some of the liens and other expenses on the home and try to resell it to the public, either through future auctions or direct marketing through a realtor. Generally speaking, bank REO properties are in poor shape in terms of repairs and maintenance; however, real estate investors will often go after these properties as banks are not in the business of owning homes and so, in some cases, the low price can more than compensate for the condition of the property.

Below you will find links to the banks private REO Websites which include their local foreclosure  listings. You  can search  through these sites individually, or  ifyou’d prefer we can  put together a custom search for you and send you properties matching your personal criteria as they become available. Please give us a call, or send us an email with this request. Please let us know if you are also interested in considering pre-foreclosure (short sale) listings, these properties are typically in far better shape than REO properties, but prices can be just as low.

Bank of America (includes Countrywide)
 
CitiMortgage  
 
Compass Bank
 
GMAC    

HSBC  

IndyMAC    
 
JP Morgan Chase  
 
Ocwen Financial  
 
M&T Bank  
 
PNC (Formerly National City)  
 
Wachovia  
 
Wells Fargo  

Fannie Mae  
 
Freddie Mac  
 
FDIC Real Estate for Sale  
 
Homeq Servicing  

If you, or someone you know is considering  Buying or Selling a Home in Columbus, Ohio  please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!

The Opland Group  Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in;    Bexley    Columbus    Delaware    Downtown    Dublin    Gahanna    Grandview Heights   Granville   Grove City   Groveport    Hilliard   Lewis Center    New Albany   Pickerington    Polaris    Powell      Upper Arlington    Westerville    Worthington

Affordable prices and what looks like the bottom of the housing market are attracting investors to the housing markets today, as the number of consumers interested in investing in real estate  has doubled since March 2009, according to the recently released Move.com Homeownership Survey. Low prices, the extended and expanded home buyer tax credit ($8,000 for first-time buyers, $6,500 for those who have previously owned), short sales and foreclosures bargains, and the feeling that the matter has in fact hit bottom have also become the most important reasons motivating buyers to purchase a home.According to the Move.com survey, one out of eight (12.1%) homebuyers today plan to purchase a home as an investment property, compared to 5.6% seven months ago. Of those interested in buying a home for investment, 15.8% were men and 8.1% were women.Short Sale and Foreclosure buyers, accounting for 25.3% of consumers interested in purchasing a home, are a major source of potential investment activity for today™s housing market. Forty-two percent (42%) of potential short sale / foreclosure buyers regard their purchases as investments, while 57.6% plan to live in the homes themselves. Short Sale / Foreclosure investors, according to the Move.com survey, intend to convert these homes into rentals (13.2%), fix them up for re-sale (11.3%), or house a family member until the home can be sold at a profit (17.4%). Of the 42% interested in purchasing a short sale / foreclosure as an investment, survey respondents ages 35 to 49 (52.6%) were by far the largest demographic.Expected Profits Gained From Purchase Discounts and AppreciationThe Move.com survey found short sale / foreclosure buyers expect to profit from both deeply discounted purchase prices, as well as healthy appreciation rates over five years. Most short sale / foreclosure buyers (58.2%) expect to pay 20% or less than market price for these properties, while 38.5% expect a 25% or greater discount. While, 73% expect their properties to appreciate ten percent or more in five years, 28% expect their purchases to appreciate 20% or more during that same investment horizon.According to the Federal Housing Finance Administration™s Purchase Index, homes have appreciated an average of 15% nationally since 2004. According to the Move.com survey, the most important reasons motivating prospective home buyers and investors to purchase a house include concerns that prices are as low as they will go (23.6%) and the desire to take advantage of foreclosure bargains (18.7%). The second most important reasons motivating property purchases include taking advantage of the great selection of homes for sale in their community (21.2%) and concern interest rates will rise (14.2%).œThis latest Homeownership Survey validates what many had hoped to see in the housing markets “ affordable prices and ample inventories are restoring the appeal of real estate to investors while providing opportunities for first-time home buyers to enter the market, said Move, Inc., Chief Revenue Officer, Errol Samuelson. œIn today™s environment, regardless of whether you™re an investor or interested in purchasing a home to live in yourself, residential real estate is a more attractive investment today for many than it has been in recent years.Fear of Foreclosure FadesWhile foreclosure filings reached record levels in the third quarter in 2009, with one in every 136 American homes receiving a foreclosure filing, homeowners today are actually less concerned that they or someone they know may be facing foreclosure as compared to seven months ago. In March 2009, 52.5% of all survey respondents said they were concerned that they or someone they know may face foreclosure in the next 6 to 12 months. That number dipped slightly to 45.1% in October 2009. According to the survey, fear of foreclosure today is greater among women (49.3%), with people earning $50,000 or more annually (43.9%), and with people living in the South (42.6%) and West (55%). The six states today with the highest rate of foreclosures are California, Florida, Arizona, Nevada, Illinois, and Michigan. These six states accounted for 62% of the nation™s total foreclosure activity in the third quarter of this year.If you, or someone you know is considering  Buying or Selling a Home in Columbus, Ohio  please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!The Opland Group  Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in;    Bexley    Columbus    Delaware    Downtown    Dublin    Gahanna    Grandview Heights   Granville   Grove City   Groveport    Hilliard   Lewis Center    New Albany   Pickerington    Polaris    Powell      Upper Arlington    Westerville    Worthington

Think your property tax bill is too high? If so, it might be a good time to check on your assessment!

The county assessment is the basis from which property taxes are derived and the groundwork for your tax bill. In Franklin County, property is assessed every three years with 2008 being the year for this triennial update. While our local markets incurred gains in both 2005 and 2006, we™ve basically given it all back in 2007 and 2008 (however, some communities have experienced even greater losses.) As a result, Joe Testa and the Franklin County Auditor™s Office have announced a zero increase in tax valuations for their three-year update.

That said, not all markets have experienced the same levels of appreciation and/or depreciation and homeowner™s who feel that their home has been overvalued are encouraged to file a complaint with the Board of Revision before the deadline of March 31st, 2009. Homeowner™s should compare their assessed value to what they estimate their property would have sold for on January 1, 2008 (homeowner™s are encouraged to contact a Realtor to request comparable sales data and to get a professional opinion of their property™s current value). If this estimate is similar to your total assessed value, your property is accurately and equitably assessed and an appeal will likely prove unsuccessful. However, if your estimate is below the total assessed value, your property may be assessed too high and you may wish to file a complaint.  

Filing a Complaint  

Filing a complaint allows property owners to schedule a hearing before the Board of Revision (BOR), which is comprised of the County Auditor, Treasurer and President of the Board of Commissioners or their representatives. The forms required to file a complaint include the BOR Appeal Application, and the Residential Data Sheet, both of which can be found on the auditor™s site, or you may email us a request for copies to theoplandgroup@gmail.com.

The Ohio Supreme Court has ruled that a Complaint may be dismissed if the BOR Application is not filled out completely and thus homeowners must be sure to fully complete Lines 1-14 of the form before signing the document in the presence of a Notary Public. (If the owner of the property is an entity rather than an individual, the complaint form must be signed by an attorney. An additional signature should be added by a party who has personal knowledge and can verify the information contained on the complaint form.)

Homeowners must also complete and include the Residential Data Sheet to ensure the information used in determining their value is correct. * Note that this information will become part of your permanent record for future appraisals. Homeowner™s should also submit any and all documents supporting their claimed valuation and should prepare their case as thoroughly as possible. You must provide enough data to support your opinion of value and it™s suggested you include a map showing the location of your property and comparable sale properties. You should also include any other evidence which supports your reason for challenging the assessment, for example;

(1) a purchase agreement or closing statement if the property is under contract or was recently purchased

(2) an appraisal report either prepared for the appeal or for some other purpose and trended to the appropriate valuation date

(3) a Comparable Market Analysis that is recent sales data on homes that are comparable to the subject property

(4) written commercial estimates of the cost to repair problems, including photographs,

(5) or income and expense information if the property is an investment or income producing.

Once these forms have been completed and the has been evidence prepared, these documents should then be mailed to Board of Revision 373 S. High St. 20th Floor Columbus, OH 43215, or they may be submitted by facsimile to 614.462.6252. You will be notified of your hearing date by Certified Mail no less than ten days prior to the hearing.

In the interim, homeowners should review the evidence they™ve collected and prepare to present this to the board, and answer any questions they may have. Owners may wish to prepare a written comparison sheet which shows why the comparable sales they™ve selected support their opinion of value. For each comparable sale be sure to include; the address of the property, the parcel number, the date of the sale, and the sales price. Also include as much information regarding the key characteristics of the property, including the size of the lot and it™s desirable or undesirable features, the size of the home, the date it was constructed, construction quality, etc. Your written and oral testimony should be understandable, logical, and believable. The Board has extensive knowledge in many areas including appraisal practice and finance, however, it will not sift through unorganized data in order to develop your case.

If you have questions regarding this process or if you™d like to request comparable sales data on your property you are invited to call us at 614.332.6984 or email us at theoplandgroup@gmail.com.

If you, or someone you know is considering  Buying or Selling a Home in Columbus, Ohio  please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals!

The Opland Group  Specializes in Real Estate Sales, Luxury Home Sales, Short Sales in;    Bexley    Columbus    Delaware    Downtown    Dublin    Gahanna    Grandview Heights   Granville   Grove City   Groveport    Hilliard   Lewis Center    New Albany   Pickerington    Polaris    Powell      Upper Arlington    Westerville    Worthington

Being a landlord means having a multitude of legal forms on hand at all times, even if you don™t ever get to use them, however, chances are, you will need a late rent notice at one point or another. While a late rent notice sounds like a fairly simple legal form to write out, it still requires a specific wording for it to be legally binding.A few caveats here, first, rules and laws concerning collection of late rent vary wildly across the United States. Not only can laws change from state to state but they can even vary within a state as local laws can sometimes have influence. If you haven™t already, familiarize yourself with the laws in your jurisdiction so you know what your rights are and what the rights of your tenant are.As for writing a proper late rent notice, you can use a template downloaded from the Internet, but it is important to note that any template that you might use may not be completely accurate for your area. If you do decide to use a template, make sure it was written specifically for your state.First off, there is no point in writing a late rent notice if you can™t be completely sure it is seen. Therefore, the letter must either be hand delivered, not set inside a screen door, actually, physically handed to your tenant, or it can be mailed via certified mail so that your tenant has to sign for it. That way, you have provable evidence that your late rent notice was received.Next, make sure you use proper names throughout. If your tenant has a nickname or if you go by a nickname, don™t use it as this is supposed to be a formal, legal letter. In the first paragraph, make sure you spell out exactly what the letter is for, how much rent they owe, how overdue it is and if you have attempted to collect or contact them previously. Make sure that any claims you make are backed up by the lease that both of you signed. In the next paragraph, you can outline collection procedures and if there are late fees that are mounting daily or not. You need to give the total balance due at that point and tell your tenant how and where they can pay you to clear any balance owed.Finally, make sure you clearly spell out the consequences of not paying the total balance by a certain date. If you know the laws in your area for how they pertain to eviction, you can include that information, as well. Most jurisdictions allow evictions to happen much more quickly if there is a late rent or no rent situation, as opposed to other forms of eviction that require a one to three month notice.No landlord ever hopes to have to write a late rent notice as most landlords genuinely like their tenants and wish them nothing but the best, but if you need to write one, this guide should help.

One of the most difficult things a landlord ever deals with is the eviction of a tenant. Regardless of how cold hearted or callus the landlord may seem about the issue of eviction, it is a very difficult decision to make. The overall need to maintain the revenue stream and the protection of their investment of the property versus the displacement of the tenants living there.

More often  the decision to evict is mediated by the tenant™s actions. Excessive noise, property damage, failure to pay the rent are just a few of the reasons that a landlord may choose to terminate a tenancy relationship. Eviction is used as a last resort by the landlord to safeguard their investment and income in a rental property.

Landlords often seek other alternatives to prevent eviction, as it can be costly. Once the eviction process has begun the tenant has little invested in the upkeep of the property. Therefore there tends to be a greater potential for property damage and disruption to the other tenants in the complex. If the tenant refuses to leave then there is the costly process navigating the legal channels available to you as a landlord.

The best way to protect against eviction and problem tenants is to do your homework. Make sure that you check new tenants credit and rental histories thoroughly. Also use your own judgment by interviewing the potential tenants. If you take precautions the need to evict tenants should be rare, however, in the event that an eviction becomes necessary here are the necessary steps:

1. Self Help Evictions Prohibited:

You may not attempt to force your tenants to move out by using tactics such as changing the locks, shutting off utilities, or removing their belongings from your rental property. This is called a “self-help eviction” and it is illegal. In some situations, your tenant  may be able to collect monetary damages from you should you refuse them access to the property or their possessions.

2. Notice of Termination (30 Day Notice):

Depending on the reason for the eviction,  you may be required to give the tenant Notice of Termination. A thirty day notice of termination is required if  you are terminating a month-to-month lease  agreement or if you are evicting a tenant for violating one of the duties set forth in the Ohio Landlord and Tenant Law (such as damaging the property). If you are evicting a tenant for violating their duties under the law,  they have 30 days  to correct the problem. If the tenant corrects the problem, you no longer have the right to evict them.

3. Notice to Leave the Premises  (3 Day Notice):

If you have valid grounds to evict a tenant and  have provided them with the required  termination notice, then you may serve them with a Notice to Leave the Premises. This is also known as an  Eviction Notice or Notice to Vacate. If  the tenant is being evicted for nonpayment of rent or for breach of a term of their lease agreement this is not contained in the Ohio Landlord and Tenant Law  (such as violating a no-pet provision), this is the only notice that you are required to provide.

There are many requirements for this notice:

• This notice must be in writing and it must be signed by  or otherwise include the name of the party who will later file the eviction action (landlord, agent, etc.)
• It must be sent by certified mail, delivered to the tenant in person or left at the rental property.
• It must contain the following language printed or written in a conspicuous manner: You are being asked to leave the premises. If you do not leave, an eviction action may be initiated against you. If you are in  doubt regarding your legal rights and obligations as a tenant, it is recommended that you seek legal assistance.
• The notice is not  required to tell the tenant why they are being asked to leave, and it does not have to tell  them when they must leave.

If the tenant does not vacate within the three day period you CANNOT take any action to remove them at this point. The three day requirement simply means that the landlord cannot file the eviction action until three days after the the tenant has been served with the Notice to Leave the Premises.

If the tenant is being removed for failure to pay rent and  offers to make payment of future rent (the next month’s rent)  and you accept this offer, you can not go ahead with the eviction action.    

4. Eviction Lawsuit:

At anytime  proceeding the  3 days provided in the Notice to Vacate you can go to the local  Municipal Court and file an eviction lawsuit. Generally, an eviction hearing is scheduled for a date within the  following 2 weeks.

In the meantime the tenant will receive from the court a copy of a “summons in Action for Forcible Entry and Detainer” and a “complaint” which will give the reasons for the eviction.

5. Hearing:

You must attend the hearing and arrive on time. If you are late or do not show up at all a default judgment may be entered in favor of the tenant.  You  will want to bring any and all evidence you can, and if possible witnesses who can collaborate your story. If the magistrate agrees with  you that a legal reason to evict  the tenant exists,  s/he will order that  the tenant be evicted. If the magistrate decides that there is not a good reason to evict, the tenant may remain in the rental unit, but this does not dismiess  any other claims  you the landlord has against them. The tenant  may still need to come into court to deal with  an unpaid rent or damage claim.

6. Red Tag (Eviction Notice):

If the court finds that the landlord has the right to evict the tenant, s/he will have to move. The door of the property the tenant was renting will be “red tagged” by the bailiff’s office. This tag will state the date when the tenant must be out of the unit. In Franklin County, tenants  are given 5 days to move after the tagging. Usually there will be a couple of days before the bailiff tags the  door and thus the tenant usually has a couple of extra days to vacate.

7. Set-Out:

If the tenant  does not move out of the rental unit  within the allotted time, the bailiff or deputy sheriff will move them out and place their property on the street. Only the bailiff can take the tenant’s belongings out of the rental unit.        

We  offer a complete line of Property Management Services  serving individuals, institutional investors, as well as  builders and development groups, delivering to each  the dependability, luxury and time-honored services they have come to know and expect from our name and reputation. For more information on our Management Services you are invited to call us at 614.332.6984.

We™ve all seen, or at least heard about  the  TV shows that seek to teach us how to succeed  in real estate investing. While many of these programs offer a decent education on the subject matter, they often  fail to include  critical elements that can, and  will dictate the success, or failure  of your real estate investments.  Here are a few  ’Not To Dos’  for the would be investor:

1.   Buying a home on speculation. Many new investors buy homes based on speculation that the market will increase in value quickly. Never buy an investment property hoping the market will change. Make your money on the front-end  when the property make your money when the property is purchased.

 2.   Using a Realtor that does not understand iinvesting.  Talk about the  blind leading the blind! Make sure your  Realtor has some experience in real estate investing.  More importantly,  make sure they can provide accurate comparables for your local market.

 3.   Buying an investment property at 90% – 100% of the Full Market Value. Buying an investment property at or close to Full Market Value is not sound real estate investing. Remember, closing costs could run up to 4%. There are also the costs associated with carrying the property, taxes, insurance, etc.  Purchasing a property near 100% Full Market Value  is likely to wind you  upside down on your mortgage.

 4.   Not having a system for buying properties. You must have a system or formula in place to determine if a potential property is  a good deal. Most investors we work with use the MAO formula or something similar. Although you may not use it 100% of the time it™s a great formula for new investors to use as a reference point.

 5.   Not getting a home inspection. The $150 or so you invest on a home inspection will pay for itself tens times over. Get a home inspection!

 6.   Not knowing the local or state laws. Real estate laws are constantly changing.  Keeping abreast of local and state laws could save you a lot of money and prevent you from going to jail!

 7.   Not understanding the local market. One key to real estate investing is understanding your local real estate market. Why is this important?  Columbus’ Downtown and a few of it’s surrounding areas  are somewhat  rare in that  prices vary significantly  block by block and sometimes only on one side of the street. Make sure you have an agent or Realtor that understands the uniqueness of your local market when looking for comparables in your area.

8.   Trying to be cut costs by being cheap. It™s ok to bargain and to watch your budget closely but in the long run trying to cut to many  corners will  only lead to more expenses. Think about repairs and home improvement you’ve done on your own  home where you attempted to  cut corners and save money.    

9.   Taking on a big job as a new investor.  As mentioned previously, I personally don™t recommend doing a full gut rehab or any big real estate investing project as a newbie. Why? The bigger the job, the bigger the headache. You™ll always run into obstacles even on the smallest project. Don™t bite off more than you can chew as a new investor. Start small and work with a  Realtor or an experienced real estate investor.

10.   Using second rate contractors. Oh how we love “The Hook Up!” Unlicensed and uninsured contractors are always ingredients for trouble. Family members are even bigger red flags. Be sure to confirm your contractor(s) have insurance, and check with  your local  Better Business Bureau on the company you selected. Ask to see a portfolio of the company’s  work or better yet to visit the site of  some of the  projects they’ve worked on.  

11.   Not managing your contractors or GC. You must absolutely keep abreast of the project status and budget. If using a GC or General contractor, have them report to you daily on their progress and ask for an itemized list of materials purchased. A great way to manage material cost is to buy them yourself. If you choose to do so you’ll want to setup a contractor or remodeler’s account to take advantage of discounted pricing.

12.   Not having any real estate investing knowledge. You should at least know the basics of real estate investing, i.e.;  short sales, pre-foreclosures / foreclosures, subject-to, lease-options, deed-in-lieu, etc. You don™t have to be an expert, just make sure you understand the concepts and the different ways investors profit  from the  business of real estate investing.  

Becoming a landlord can be a good way to make money if you play your cards right. But it doesn’t happen overnight. Be prepared to do some homework before you get started, or you could end up losing money and put yourself in legal jeopardy.  

The price is right

If you live in an area governed by a homeowners association, make sure the association allows rentals. If renting is an option, one of your first tasks will be setting a rent price. Landlords usually get a rough idea of rents in their area by looking at newspaper classified ads.

You’ve been living in the home, so you know what it costs to run and maintain it. Can you rent it for enough to cover those costs? Can you even make a profit? If not, you might want to consider selling the property.

According to the U.S. Census Bureau, 38.4 million homes were rented during the fourth quarter of 1999 — that is about a third of all homes.

Keep in mind that local laws may cap rent amounts and rent increases, so check with your state’s housing services or consumer affairs office before making a final decision to rent out your property.

Making the leap

Joining a local apartment or landlord association  can help you stay current with landlord-tenant issues. An association can tell you where vacancies are, enable you to talk with other landlords and provide state-specific lease/rental agreements.

You can have a prospective tenant fill out any application form as long as it asks for the information you want. You need to make sure, however, that the lease or rental agreement upholds state law. Forms dealing with an eviction, a rent increase, or entering the dwelling also vary from state to state.

Know the law

Even though laws vary from state to state, there are two landlord-tenant laws that are the same everywhere: tenants have all the rights of ownership except the right to sell the property or will it to someone. And the tenant has the right to live on the property as long as he can pay the rent. But he says tenants never have the right to trash the property.

A  landlord is required to keep the property in a habitable condition, which means you have to have working locks on doors and windows, working heat and a roof that doesn’t leak. But check your states’ laws regarding landlord repair and maintenance responsibilities.

Also, know the terms of the U.S. Department of Housing and Urban Development’s Fair Housing Act, which prohibits discrimination according to race or color, national origin, religion, sex, familial status, and handicap or disability.  

Find tenants

Prior to interviewing tenants, it is important to know the discrimination laws and what questions you’re not  permitted to ask the tenant. It may not be a good idea to rush through the tenant-selection process. Compile a set of criteria or standards to help you decide who would be a good tenant. Make sure applicants know what the standards are when they apply.

You may want to set standards for  the number of occupants, rent price, pets, security deposits, who pays utilities, minimum income requirements and whether you take HUD Section 8 participants. The housing authority gives economically disadvantaged people certificates or vouchers that guarantee the government will pay a portion of their rent.

Standards to consider

When you find a prospective tenant, and they meet your criteria, the next step is to screen the applicant. This can include performing a credit report check, searching public records to see if the applicant has a felony conviction, verifying past employment and contacting previous landlords. Long-term tenancy shows stability, and a good tenant always pays on the first of the month.

It’s a good idea to ask for identification from the applicants so you can make sure the address on their ID matches the address on their application.            

The business the landlord is in is to provide housing. Many times they forget landlording is a business. There are only two times when a landlord gets in trouble, when he’s in a hurry and when he feels sorry for somebody. The bad tenants have these incredible sob stories that may or may not be true.

If you’d prefer not to find a tenant yourself, there are tenant-screening services whose cost can range from $3.95 to nearly $100 for a full report on a married couple.

Yet, even a good tenant can go bad. So is it safer to rent to a friend or relative than a stranger?

The problem with renting to friends or relatives is you tend not to look at it from a business standpoint. What you would like to have is an arm’s-length transaction. Then you are not obligated to anybody for anything.

By the same token, if you become friendly with your tenant, it’s strongly cautioned that you not allow the tenant to work on the unit, even if it’s just painting the walls.

If they make repairs on the house and somebody injures themselves, you could be liable for that.

Vacancy filled

State laws vary regarding rent due dates and collection. But if you’re lax in the beginning, you can have trouble enforcing the lease later. For example, if you accept rent late then turn around and try to enforce the initial due date, then you’ve already waived your right to require the tenant to abide by the rental agreement.

If you eventually find out that you’ve rented to a bad tenant — such as one who is in arrears on rent or posing a danger to others — don’t let the problems get worse. It’s important as a landlord that if you’ve rented to someone you should not have that you take action immediately.

If you treat being a landlord as a business, then good customer service for good tenants wouldn’t be a bad idea either. Take really good care of your good customers because it costs seven times more to find a new tenant than an old one. Perhaps give them gifts at lease renewal time to let them know they’re appreciated.

Hiring out

If you’re leasing your home out-of-state and you can’t manage the property on a regular basis, you may need to consider a property manager. Property manager duties can include cleaning and showing the place, taking maintenance calls, and collecting rent. Costs can be as much as 10 percent of the monthly rent.

Property managers are a good idea if you don’t feel comfortable handling it or if you simply don’t have the time or desire to do so. Such an arrangement might allow you to watch what happens in an eviction without having to do it yourself.

Eviction/termination

If a landlord wants to remove a tenant, he first terminates the lease and then evicts the tenant. Termination is notice from the landlord that the tenant has to move out by a certain date. There are different types of terminations that vary depending on state law.

Eviction is a legal process in which the landlord has to justify in court why the tenant has to move. Evictions are costly, and in some places you will have to hire an attorney. States have specific laws outlining the eviction process, and if the landlord doesn’t fulfill requirements, they could lose the eviction case. The most common way to lose an eviction is by filling out forms incorrectly or harassing the tenant. You can not bother a tenant once you have filed an eviction.  Evictions are frustrating and upsetting for both landlords and tenants.

The Taxpayer Relief Act of 1997 provides that you can exclude the gain on the sale of a home so long as the home is sold after 6 May 1997 and the taxpayer lived in the home for two of the past five years. The maximum amount of gain that can be excluded is $250,000, if single and $500,000, if married filing a joint return. If a taxpayer lived in the home for less than the full two years during the last five years, he can exclude a pro rata share of the allowable exclusion. For example, if a taxpayer lived in a home for one year during the previous five years, he can exclude one-half of the allowable gain, which is $125,000, if single, or $250,000, if married filing a joint return.

For the investor in residential housing, there are four major provisions to consider: (1) depreciation allowances, (2) the rental loss limitation, (3) the tax rate schedule, and (4) the tax treatment of capital gains.

Financial Operations of Rental Property

In preparing the annual individual tax return, rental income is totaled for the year, and the expenses associated with the rental operations (for example, depreciation, repairs, insurance, mortgage interest, and property taxes) are deducted to determine the taxable income or loss. Depreciation is a particularly important expense. Each year a percentage of the building’s value (but not the land) is taken as an expense to compensate for wear and tear and obsolescence, although this is not an amount that is actually paid “out of pocket.”

Depreciation

Those taxpayers purchasing residential investment property after 1986 are only eligible for straight-line depreciation over a 27.5-year period compared to the more rapid 19-year, 175-percent declining balance method available under prior law. Those currently owning rental property must generally keep using the depreciation schedule they began with.

Rental Loss Limitation

Under the current law, losses from rental property are considered as “passive investment” losses. Losses on passive investments can generally only be used to affect income from passive investments. Accordingly, owners can deduct rental losses only against other rental property income or other passive investment income. Rental losses cannot be deducted against salary, dividends, and interest income. Losses that cannot be deducted currently because of these rules may be carried forward indefinitely to future years and may be used to offset future passive income. Additionally, in the year the property is sold, past, unused losses can be used to offset gain on the sale.

There is an important exception for the small investor, however. Taxpayers with adjusted gross income of $100,000 or less may be eligible to deduct up to $25,000 of passive losses a year against salary and portfolio (investment) income. This maximum of $25,000 of annual losses is reduced or phased out, however, over an income range of $100,000 to $150,000. The available deduction is reduced $1 for each $2 of adjusted gross income above $100,000. To be eligible for this small-investor exception, the investor has to “actively participate” in the management of the property. Property management services can still be used if the owner remains involved in decision making, such as approving tenants, setting rent levels, approving terms of the lease, and approving major expenditures and repairs. At least a 10-percent ownership in the property is also required.

Regardless of when the property was purchased, rental losses that cannot be taken in a given year can be carried forward for use in later years and any remaining loss can be taken in full when the property is sold.

Investors with annual rental losses first use the losses to offset any rental income. Any remaining losses are then applied to offset up to $25,000 of other income for taxpayers who “actively participate” in the management of the property. Any remaining losses are carried forward for use in future years.

Capital Gains

Capital gains or “profits” from the sale of a rental property are taxed at different maximum rates depending on how long you held the property and when you sold it. If you sold the property after 1 January 2006, the maximum capital gain rate is 28%, provided that you held the property for longer than 12 months. Further, it is only 5% if you are in the 15% tax bracket.

With home prices retreating from fever-pitch highs, a new breed of real estate investor is eclipsing the speculator: the landlord.

More Americans are hanging out “for rent” signs. Some were forced into the business after learning they’d purchased their home for top dollar during the boom and simply can’t sell now that the market’s turned and their home is no longer worth what they paid for it. Still others are discovering their inner landlord on purpose, often  buying investment  properties  well below prices from a year or two ago.

For the first time in several years, rents are rising in many places, in part because the subprime-lending crisis is making it harder for people with marginal credit records to secure mortgages, increasing rental demand.

At the National Association of Residential Property Managers in Virginia Beach, Va., membership in the past year has increased by more than 20%. In Nashville, Tenn., Wilson Group Real Estate’s property-management-services arm has nearly doubled to 250 clients in the past year, thanks to the landlord boom.

Getting into real estate remains relatively easy. Despite the difficulties in the loan market for higher-risk, subprime borrowers, there are lots of financing options available for investment real estate, assuming your credit is good.

Keep in mind that “you’re buying an income stream, not a pretty house”. A house will attract only so much rent. If you overpay, you can raise the rent only so much before your property starts sitting vacant.

The first step is to assemble a small team of pros, especially a real estate agent knowledgeable about local rental rates and other issues that will impact your bottom line. Consider retaining a local property manager (who may just be your real estate agent or his/her company in many cases) who can help you navigate ordinances, set a fair rent, find tenants, arrange lawn services and handle worst-case scenarios, like evictions.

While most Managers tend to charge a month’s rent upfront and about 10% of the rent thereafter, our fees are significantly lower and if you’re interested in avoiding the headaches assoicated with managing the property yourself we’d invite you to send us an email at jasonopland@msn.com or give us a call at 614.332.6984.  

Property Managers

Property managers are listed in phone books or online. You will want one that has been in the business full time for years. To track rental finances, many landlords use Quicken Rental Property Manager or similar software.

Running a credit check is a must! Landlords can sign up for services from providers such as Fidelity Information Corp. (gofic.com) to get these reports for small fees.

Key Questions

Insist on references from previous landlords. Key questions to ask: Did the tenant pay on time? How much damage was done to the property?

A typical mistake is to underbudget for repairs. Keeping the home in good condition helps attract quality tenants. When you’re a landlord, you’re in the retail business, not real estate. You don’t want to lose your good customers.”

Insurance is another concern. An injury to your tenants or their guests on your property could mean a lawsuit. A good insurance agent and lawyer can help determine how best to structure your business to limit your personal liability.

Where’s My Accountant?

Rental real estate also comes with a dizzying array of tax breaks, deductions and write-offs, perhaps more so than just about any other investment. You have deductions for interest, insurance, repairs, even for the mileage accumulated driving to the bank to deposit the rent checks. It is worth the expense to hire an accountant with rental-income expertise.

Overall, aim for an annual return of at least 10% to 12%. Remember, you can earn 5% in risk-free U.S. Treasury bonds, so you should make more to compensate for the headaches of being a landlord, such as the Christmas Eve phone call informing you of a broken toilet.