In Real Estate Investing, Pigs Get Fat and Hogs Get Slaughtered

 

I remember when I first got into the real estate business in 1996, my broker and I were discussing real estate investing. He told me that people sit, waiting for that one great deal, and in the meantime they miss out on the good deals. Because of their inactivity they may never end up buying anything. 

He has been in real estate for over 50 years and has been investing in commercial, residential and mobile home parks.

We hear it everyday, is the market going down? Have we hit rock bottom? Has the market started heading back up? Does anyone really know for sure?  Hindsight is always 20/20.  We do know that prices are at early 2000 levels. But, what does it all really mean anyway? Do all these questions just paralyze us into doing nothing, not making a decision to buy or to sell?  The reality is that no one really has the answers to any of these questions.  We are all attempting to make an educated guess based on a market in which none of us have ever experienced.

I started buying rentals in 1996 and continued buying in 2005.  I have bought in different types of markets, as I have kept my eyes and ears open and been able to scoop up some good deals.

But, often in real estate investing, when everyone else is buying, it’s a good time to sell.

And, when everyone is selling, it’s a good time to buy.

Investors getting into the market, thinking they are going to make a killing are usually the ones that lose their shirts.  Investors that are a bit more realistic, with the thought that they can make a comfortable profit, are often able to do just that… make a handsome profit.

What are your goals in buying? Are you hoping to flip a property today? Are you going to hold it for a period of time and use it as a rental?  These are all factors that must be considered.

Do your homework first. If the numbers don’t work on paper, they aren’t going to work at all. Don’t fall in love with an adorable house that you think would make a great rental because it’s brand new and beautiful.  It may turn out to be a terrible rental property.  Rental houses aren’t always gorgeous.  Very often they are clean, small and affordable.  See what the demand in your market is. Be smart and research first.

And remember in real estate investing, Pigs Get Fat and Hogs Get Slaughtered.

This article is authored by

Sandy Shores REALTOR®,  Melbourne/Palm Bay FL Real Estate

Brevard County Real Estate & Investing

I also buy, sell, rent, own and manage Investment Property.

Renting to Multiple Occupants Can be Sticky

I received a call from a young man on a house that I currently have available for rent. I always ask a series of questions when a prospective tenant calls on a property.

I asked how many people would be occupying the property. He told me 3. 

Is there one person that earns enough money to cover the monthly rent?

He indicated that the rent would be split three ways and each occupant would pay their portion to the landlord.

Unfortunately, I don’t care for situations like this.  As a landlord, I do not want to collect money from 3 different people living in the same house.  Sometimes one party has their money and one of the other parties or both of  other two don’t. I want one check, from one person, covering the entire monthly rent.   They can work out the money amongst themselves and figure out who owes whom what money.

What happens if one of the occupants decides to move out?  Then, the other two don’ t have enough to cover the rent?  In turn, they have to sublet the house to someone else so they can pay the bills. This can turn into another precarious situation.

Years back I purchased a rental, with the tenants in place, on a month to month lease.  They were roommates. When I went to pick up the rent, one occupant would have half of the rent, but the other wouldn’t have her half.  This went on for another month. It was like pulling teeth. Neither wanted to be responsible for pulling together the rent and paying in one lump sum. I told them they needed to have it figured out by the following month.  They could bicker amongst themselves over the money. They did begrudgingly figure it out, and I received one check from then on for the rent.

Be careful when renting a property, that you know exactly who will be paying the monthly rent. Stipulate in your lease who the responsible party will be that pays the rent. Otherwise, you may be treading on thin ice.

This article is authored by

Sandy Shores REALTOR®, Melbourne/Palm Bay FL Real Estate

Brevard County Real Estate & Investing

I also buy, sell, rent, own and manage Investment Property.

A Dog or a Cat in A Rental

I got a call yesterday from a tenant looking for a rental. I asked several questions, and then asked the very friendly caller if she had any animals.  I really don’t mind renting to tenants with pets.  We either have terrazzo floors or ceramic tile, specifically for that reason.  Today, many people have pets. And, in some situations it’s hard to find one without one.

The caller told me that she had 2 dogs and 3 cats. Ouch! Pets are okay, but that’s a zoo! Too many for me.  We talked for a while longer and then kindly parted ways.

I don’t care to have a house full of animals. and actually I prefer to rent to tenants that have dogs, and not cats.

I have had difficulty in getting the cat smell out of a property.  I’ve known owners that had to treat the concrete under their carpets (after the carpets went to the trash) to try and rid the house of the smell of cats that spray, to no avail.  It makes for an unpleasant situation.

So, for me, I’d take a dog (depending on the size and type) over a cat in a rental house in most situations.

Do you have a preference, as to whether you rent to tenants with a dog or a cat or neither?

FOOTNOTE:  This post is based on my opinion through the experiences I have had. I am sure that different owners have had different experiences with all types of animals.

This article is authored by

Sandy Shores Realtor, Melbourne FL Real Estate

Brevard County Real Estate & Investing

Palm Bay Florida Real Estate News

 

Favorable Investor Guidelines from Fannie Mae

 

 

According to the Florida Association of Realtors Fannie Mae has changed their guidelines and now real estate investors can own five to ten properties, instead of only one to four. The change goes into effect on March 1, for qualified homebuyers. 

Investors must have good credit for at least the past 12 months.

Here is a link to the new Fannie Mae guidelines. I think it will be instrumental in allowing additional investor opportunities in buying real estate across the country.

 

This article is authored by

Sandy Shores, Melbourne FL Realtor

Brevard County Real Estate & Investing

Rent to Tenants with Blemished Credit? You BET!

 

As a landlord, would you rent to tenants with poor credit? Especially in light of the current changes the real estate market is undergoing.  I SAY ABSOLUTELY!* A tenant with a foreclosure or bankruptcy?

What is the reason for the bankruptcy or the foreclosure? Did they get caught up in the sub prime mortgage mess and their taxes, insurance and interest rate adjusted up? I know many people that were comfortably paying their mortgage payments, until their interest rate adjusted and the payment went through the roof.

I have no problem with renting to tenants that have certain credit blemishes. The right ones make good long term tenants.

What was their previous payment history on their last rental? How long where they there?

How long have they been at their job? There are many good, hard working people that go to work everyday, but they just don’t earn enough money to cover all of their expenses, each month. Or some people just have poor spending habits. Often times they are unable to make their credit card payments. I am indifferent to that.

The good tenants understand they must pay their rent every month to keep a roof over their heads. Many of them make great long term tenants. I have had tenants with me for over 8 years that pay their rent every single month. They came to me with credit problems and they still have credit problems. 

Many tenants with poor credit, with a history of poor credit make excellent long term renters.  Often times they are unable to move, as they cannot save the move in money to go somewhere else. Or, they are unable to move because other landlords will not consider them because of their poor credit.

In 13 years I have rented to 4 tenants with perfect credit…not a single blemish.  Every one of those tenants broke their lease within 8 to 10 months, to buy a house or to build a house.  My rental was just a stepping stone for them. 

Vacancies can quickly deteriorate a landlord’s cash flow.  I don’t want to tenants that are going to leave in 8-12 months.  It’s wear on and tear on the house, moving in and out, and it’s time and money lost looking for another tenant.

I typically will not consider an applicant that has been evicted or has a repossession on a vehicle.  In many instances, I have seen where once evicted, it becomes a habit. And, if a tenant loses their vehicle because they can’t make the payments, how are they going to get to work, to make money, so they can pay me the rent, so I can pay the mortgage?  It’s a recipe for disaster!  

Over the past year I have rented to half a dozen people that were going into foreclosure due to interest rate adjustments. So far, they have all paid their rent on time, and I look forward to a happy future with them.

But be aware, renting your primary residence is different than placing a tenant in a house that you have never lived in and have specifically purchased to use as a rental. I have never gotten a house back from a tenant in better condition than I gave it to them in. And in 2001, when I moved to the house I’m living in today, I chose to sell my previous home, rather than turn it into a rental. The rent would have been too high, the house was too big to be a good rental, taxes and insurance were too high, and I had equity that I wanted to move to my new property.

In considering tenants with blemished credit, do your homework and be very careful. If you pick the wrong tenant, you will be faced with filing an eviction.

*Please always remember, every tenant’s situation should be looked at on a case by case basis. Everyone is different.  All of the pieces of the puzzle must fit together, to make the “right” tenant, that will care for your property and pay their rent on time.

 

This article is authored by

Sandy Shores, Brevard County Real Estate

Brevard County Real Estate Investing

Palm Bay Florida Real Estate News

Tenant Security Deposits Can Be Sticky

Florida landlords and tenants must be sure they understand the Florida Residential Landlord and Tenant Act, Florida Statutes Chapter 83.  The law is very specific about the proper handling of a tenant’s deposit.

I have known some landlords that kept every tenant’s deposit, no matter what the circumstances of the tenant move out or the condition of the property!  I have also known tenants that fought for their deposit after they moved out, even when the property was left a complete mess! 

Per Chapter 83, Part II, Section 83.49 states that whenever money is deposited or advanced by a tenant on a rental agreement as security or as advance rent the landlord shall hold the money in a separate interest bearing or non interest bearing account. It must be held in a Florida banking institute for the benefit of the tenant.  Be careful if the money goes into an interest bearing account, as special rules apply.

If the landlord intends on imposing a claim on the security deposit for early termination of lease, loss of rent, move out condition of property, upon vacating the premises the landlord must give written notice, by certified mail to the the tenant’s last known address, within 30 days of move out of his or her intention to impose a claim on the deposit.  Special verbage is required in the letter to comply with Florida law. The tenant has 15 days to object in writing to the deduction, otherwise the landlord will be authorized to deduct the claim from the deposit.

If the landlord does not send the claim in writing to the tenant within 30 days, then the landlord forfeits the right to impose a claim against the deposit. Landlords must be certain to retain their supporting documentation; certified mail receipts, etc.

If the landlord does not intend to impose a claim on the tenant’s security deposit, the landlord has 15 days to return the deposit and any interest due (if applicable).

Many landlords keep their tenant security deposits upon move out, but NEVER formally notify the tenant by certified mail! This can come back to bite them in the butt later!

As landlords, we must be certain to follow the letter of the law in dealing with tenants.  We must be sure that we understand the laws in our state as to the proper handling of security deposits.

Be sure to check the Landlord/Tenant Laws in your state.

 

This article is authored by

Sandy Shores, Brevard County Real Estate

Melbourne Florida Real Estate News

His Tenants Have Been Living Rent Free for 5 Months – Lucky Tenants!

A dear friend of mine called me the other day to tell me that he has to get rid of his tenants.  They have not paid the rent in over 5 months now – OUCH! This friend knows that he is much more tolerant than I am of a nonpaying tenant.

Eviction notices

For me, if they don’t pay, they don’t stay. Period. It’s not rocket science.

It’s a business and I treat it like a business.

You do the math. If they don’t pay their rent, then the burden falls on me  to come up with the money to pay the mortgage payment.  I can’t just stop paying, just because they do, although I know many landlords that do.

I just finished an eviction. They had been with me for 15 months. The tenant’s wife left him, probably because he couldn’t get a job.

 I didn’t get the rent, called him, then went knocking on his door, “Oh just give me till next Tuesday,” he begged.

“Well, did I hear that your wife moved out?” I knew she was the one paying the rent.

“Well yeah, but I’ll have the rent Tuesday, okay?”

“Are you working?” I asked.  “Well no.”

“Are you starting a new job?” I asked.  “Well, no.”

“Do you have someplace you can go to get the rent? Do you have family here?”  I continued. “No.”

“Okay, so how are you going to have the rent for me on Tuesday? Do you have any of it right now?” I prodded,  “Well, no, not really.”

“Well, then you’ve got to go.  I’ll give you till the end of the weekend to get out. You can go peacefully, or I’ll have to evict you.”

The tenant got most of his things out and then decided to get belligerent. He told me he had no place to go, so he was staying. Apparently, he had spoken to some of his friends, as he was getting ugly about it. “It will take you months and months to get me out.” he hissed. I had never seen this side of him before, although I do know that money difficulties can change people.

This is not the first eviction I have done, nor will it be the last I ever do, unfortunately.  It’s the nature of the beast, with multiple rental properties.  Luckily, though, they are few and far between. Thank goodness!

I served him with a 3 day notice.  He didn’t pay or respond. So, I filed the eviction papers and had my final judgement and writ of possession inside of a month.  He left. His security deposit covered the loss of rent and there were no damages to the house.  The house is back up for rent.

It’s not a game for me.  The burden of the monthly payment falls on me if the tenant doesn’t pay.  It’s a business, and I treat it like a business.

Back to my friend of over 10 years, whom I love dearly. He has a heart of gold, to his detriment.  I have helped him buy and sell over 18 investment properties.  He is so lenient that he gets himself into a mess with tenants.  He gives too much and is taken advantage of.  I advised him years ago to stop buying rental houses. He knows I feel this way about him being a landlord, as I remind him that he is too nice. Tenants LOVE him! I really do not care to do his property management for him.

So, for his tenant living in his house, rent free for the past 5 months, time is overdue for getting them out!  He has served the 3 day notice. Don’t know where they’re going to go without any money. But, they always come up with something.

Landlords must cut their losses with a non paying tenant.  Some are of the attitude that maybe they’ll pay  money they owe someday.  The further they get behind, the less likelihood that the landlord will get their rent.

GET THEM OUT AND RE RENT TO A PAYING TENANT!

As a footnote, if you haven’t done an eviction before and are unsure of how to proceed, you may want to contact a real estate attorney that specializes in evictions.

This article is authored by Sandy Shores, Melbourne FL Realtor, Brevard County Florida’s Space Coast.

Landlords and Property Managers – Do You Collect Last Month’s Rent Upfront? Be Careful if you Do!

 

I see rentals advertised all over town.  Move in with first, last, and security deposit.  Hmmm.  That’s a lot of money.  How many people can afford to do this?  But, does the landlord understand what they’re really asking for? Not always.

As a landlord for nearly 13 years I have always required first month’s rent and a security deposit from tenant’s moving in.  The security deposit is typically about $150 to $200 more than the rent amount. So, for $800 rent, the deposit is usually $1000.

Many landlords require first month’s rent, last month’s rent and a security deposit for move in. Let’s think about this for a minute.  On an $800 rental, that’s $800 first, $800 last and $1000 security. If they have a pet that can be another $200 nonrefundable FEE. So, a perspective tenant could be looking at $2800.00 to move in.  And, that’s alot of money that many people just don’t have!

I find additional problems with doing this:

As a landlord you may be potentially ruling out over 3/4 of tenants in the market. 

As a landlord you are responsible for keeping track of the last month’s rent. Often times we hear of landlords spending the last month’s rent, and it’s gone by the end of the lease term.

If the tenant remains in the home for multiple years, and the rent continues to be raised over multiple years, the last month’s rent will no longer be enough to cover that rent.

As simple as this sounds, the last month’s rent is to be used for the last month of the lease term only and NOTHING else.

Now look at this… this has not happened to me personally, but in the past, I have seen and heard of it happening to other landlords. 

     A tenant doesn’t pay their rent, The landlord evicts for non payment of rent.  There is also some damage to the rental unit.  The lease usually provides the landlord with the right to retain the tenant’s security deposit to cover the lost rent and/or damages (with proper notification to the tenant).  But, maybe there is not enough money to cover the unpaid rent and/or damages.  So, the landlord assumes that he has a right to the tenant’s last month’s rent.  Makes sense, right?  Well maybe NOT!

BE VERY CAREFUL!

This may not be the case at all. In the past, in 2 instances, I have seen landlords in a court of law, fighting for the tenant’s last month’s rent. EVEN THOUGH THE TENANT OWED THE LANDLORD MONEY FOR UNPAID RENT AND/OR DAMAGES I HAVE SEEN JUDGES AWARD THE LAST MONTH RENT BACK TO THE TENANT! (WHAT???) I have heard them say the money is to be used for the last month of the lease term, ONLY. If the tenant is not staying the last month (but being evicted), I have seen it go back to the tenant (with money still owed to the landlord!) *see note below -and check the current laws in your area. I am certain that a judge must review every aspect of each case to make a final determination.

UNBELIEVABLE, RIGHT?

So as a landlord, you may consider collecting first, last and security from a tenant moving in, collect first and security.  If you are feeling a bit uncomfortable, then increase the security deposit.  Be careful if you decide to collect last month’s rent (and read my note below*- be sure to check with a real estate attorney in your area and follow their recommended guidelines).

 

*NOTE: I am not an attorney and I do not profess to practice law. I do not know the laws in your state nor do I profess to preach the law here in Florida. So please check with a real estate attorney. Find out what they advise in your area. Be sure the you know and understand the laws here in Florida, as well as in your state.