Book: The Book on Rental Property Investing

51KOW1+0ZyL“The Book on Rental Property Investing: How to create wealth and passive income through smart buy & hold real estate investing” by Brandon Turner

  • “However, I would encourage you to start with six months of expenses for each unit you have. For example, if you own a single-family home that costs you $800 per month in expenses, I would recommend having $4,800 in reserve savings for that property. As you obtain more and more properties, you may be able to decrease this amount some, but it serves as a good starting point.”
  • “Understand that risk is a powerful but dangerous tool, so tread cautiously.
    • Build a solid educational foundation for yourself before getting in too deep.
    • Don’t skimp on the math. Always understand the numbers for any property you buy.
    • Work on your business, not in it. Treat your investments like a business—which they are.”
  • “Find what you love to do in life more than anything else, and do that for a career. If that means teaching high school math, teach high school math. If that means traveling the world, then find a job that lets you travel the world. And if that means investing in real estate for income, then invest in real estate for income.”
  • “I believe everyone can—and should—include real estate investing as part of their strategy for retirement and wealth building. However, that doesn’t always include doing it full-time and making a steady income from it.”
  • “A good friend of mine advises investors that ‘your business should bring in at least 3X of your current job before thinking of quitting your job. 1X for tax, 1X to survive, and 1X for reinvestment and unexpected events.'”
    Podcasts: “my other favorites are The Real Estate Guys Radio Show and Just Start Real Estate with Mike Simmons”
  • “your vision for where you want to go and how you plan to get there.
    • What is the end goal? Where are you headed?
    • What kind strategy do you want to use?
    • What won’t you do? (e.g. I won’t purchase condos, commercial real estate, etc.)
    • What kind of properties do you want to buy?
    • How often will you buy properties?
    • How are you going to finance it all?”
  • “Just because something seems like a good deal doesn’t mean you should buy it. The right property must fit with your plan, your budget, and your ability to manage.”
  • “Therefore, I recommend visiting a few local banks and making sure you are a good enough borrower before you ever purchase the first deal.”
  • “If you have a local real estate club or landlord association, I recommend attending their meetings and striking up conversations with as many folks as you can. Be wary of anyone who is selling any kind of mentorship or product, though.”
  • “Ask your family and friends who are renting – Who is their landlord? Does that person have a lot of properties? What are they like? Can they introduce you?”
  • “Ask a real estate agent – Great real estate agents love to be a connector of people. As a result, if you want to find a prolific landlord in your area, simply ask an experienced real estate agent if they would introduce you to some of the local players.”
  • “Once you meet someone with whom you’d like to build a relationship, rather than uncomfortably asking that person to commit to being your mentor, why not just ask them to grab a cup of coffee or some lunch? Or ask if they’ll show you their most recent property. Or offer to help them fix up a unit for free. Or ask them what kind of property they are looking for, and then go out and find it for them!”
  • “great real estate agent can help you better understand the real estate market, including which areas and property types are selling or renting well. A great agent can help you find comparable sales data (aka “comps”), so you can know the value of any property you go to look at. A good agent can help you bid on HUD (U.S. Department of Housing and Urban Development) properties, bank repos, and other properties listed on the MLS (multiple listing service), as well as set you up with automatic alerts so you’ll be notified the moment a new property that matches your qualifications hits the MLS.”
  • “Some agents are so good at what they do that they have an entire team under them that gives them support, in which case, you may never actually talk to the agent directly, just to their assistants. In my personal opinion, I would avoid this kind of situation, if possible. You want to build a relationship with an agent, not with some big shot who will barely give you the time of day.”
  • “Here are three good ways I recommend to find a good agent:
    1.             Referrals
    2.             Referrals
    3.             Referrals
    Don’t hire an agent just because you saw their name on a park bench. Don’t hire an agent just because your sister’s boyfriend’s parents’ nephew is an agent—or even if your own mom is an agent. Get referrals from others, and find out who the best agents in your town are.”
  • “Never rely on an agent to make decisions for you. Even the best agents tend to be highly optimistic about properties, and your job is to trust, but verify. Look at the data your agent provides and make your own decisions about a property, location, or market trends. An agent is one of the most valuable members of your real estate team, but they are not a substitute for poor planning or a shortcut to easy deals.”
  • “Price is the monetary amount you pay when you purchase something, but cost is the long-term monetary amount you pay over the life of a product or service.”
  • “You see, the difference between buying for cost and buying for price is subtle, but it can have a tremendous effect on your business. This principle also applies to hiring a contractor. Are you hiring on price or cost? If you are like me, price is probably the larger concern. But if you hire someone because their price is cheap, you might be setting yourself up for a lifetime of high cost on that repair.”
  • “Pick any two: Price, Quality, Service. You can’t have all three.”
  • “Go to Home Depot at 6:00 a.m. and meet the contractors who are there. These are the contractors who get up early and get their supplies before heading over to the job site. This is a strong indication that they know what they are doing and are not going to take advantage of you.”
  • “visiting supply stores (such as a plumbing supply store if you need plumbing or a lumber yard if you need something built) and ask the employees who work there who they would have work on their houses. These employees have a unique insight into the quality of materials that the contractors use, as well as into the experience level and management style of those who buy from them.”
  • “I found one of the best handymen I have after we placed a free ad on Craigslist asking for local handymen who could do occasional tasks for our real estate investment company. We received several responses, hired each to do a small task, and quickly found a great guy we now use often for small tasks.”
  • “Pricing for bookkeepers can be all over the board, depending on what you need done and the experience level of the bookkeeper, but typically, good bookkeepers can be found in the $20 to $50 per hour range.”
  • “I recommend finding a good CPA immediately, even if you have no properties yet, because a good CPA will help you choose the best tax-saving strategy for buying and holding your properties.
    A great CPA can save you more money than they cost, but they are not cheap. Plan on spending between $100 and $300 per hour, depending on your location, for a qualified CPA.”
  • “I recommend finding a CPA who specializes in helping real estate entrepreneurs, and ideally a CPA who owns real estate.”
  • “As with a CPA, having an attorney who either invests in real estate themselves or specializes in this kind of work is best. Be sure to interview your attorney to find out what they are good at and how much they charge, and as always, ask for referrals!”
  • “Attorney rates typically start at $200 per hour and can climb as high as $600 an hour, depending on experience and what they are doing for you.”
  • “I recommend finding an insurance broker, rather than just an agent at a specific company. A broker can shop around at different companies for the best rate and coverage, and can switch your policy if necessary without your having to take your business elsewhere.”
  • “A great property manager can mean the difference between success and failure for your investment.”
  • “In addition, most property managers make a significant portion of their revenue on the turnover between tenants, so they are incentivized not to do a good job.”
  • “Property management fees differ depending on the size of the property and its location, usually ranging between 8% and 12% of the monthly rent, with 10% being the most common for single-family and small multifamily properties.”
  • “Also, as I just mentioned, management companies have a “placement” fee that is typically equal to one-half of the first month’s rent (or even the entire first month’s rent) upon a lease signing. Some management companies also charge a “renewal fee” each year when the tenant renews their lease, but this is not as common.”
  • “Once you know the typical vacancy rate, as a percentage, you can break that percentage down into a monetary amount. For example, if a property rents for $1,000 per month, and you believe the property will have a 5% vacancy rate, you simply multiply $1,000 by .05 to get $50. This is the amount you will want to include for your vacancy expense each month.”
  • “Therefore, when determining the cost of repairs, you will need to look at the property itself to decide how much you should allocate for repairs. Personally, I like to assume between 5% and 15%, depending on the condition and age of the property.”
  • “The following chart lists 13 of the major capital expenditures that a typical property has, then looks at the total replacement cost for that item and how long that item will likely last. This tells us how much per year we should be saving to replace that item. We can then break that figure down into a monthly price.
    Capital Expense
    Total Replacement Cost
    Lifespan (years)
    Cost per Year
    Cost per Month
    Roof
    $5,000
    25
    $200
    $16.67
    Water Heater
    $600
    10
    $60
    $5.00
    All Appliances
    $1,000
    10
    $100
    $8.33
    Driveway/Parking Lot
    $5,000
    50
    $100
    $8.33
    HVAC
    $3,000
    20
    $150
    $12.50
    Flooring
    $2,000
    6
    $333
    $27.75
    Plumbing
    $3,000
    30
    $100
    $8.33
    Windows
    $5,000
    50
    $100
    $8.33
    Paint
    $2,500
    5
    $500
    $41.67
    Cabinets/Counters
    $3,000
    20
    $150
    $12.50
    Structure (foundation, framing)
    $10,000
    50
    $200
    $16.67
    Components (garage door, etc.)
    $1,000
    10
    $100
    $8.33
    Landscaping
    $1,000
    10
    $100
    $8.33
    TOTAL
    $41,100

    $2,193
    $182.75”

  • “These numbers can vary based on area, but in my area, property managers charge 10% of the monthly rent and 50% of the first month’s rent when a unit is turned over.”
  • “Rather than spending the time to get the exact cost of the property management based on vacancy rate, I will generally just add 1% to whatever the monthly percentage is.”
  • “the 50% rule. This rule of thumb states that a rental property’s expenses tend to be about 50% of the income, not including the mortgage principal and interest (P&I) payment. The formula looks like this:
    Cash Flow = (Total Income x .5) – Mortgage P&I”
  • “The 2% rule is simply the ratio between rental income and purchase price. ‘Meeting the 2% rule’ means that a property’s monthly rental income must equal 2% of the purchase price or greater.”
  • “Maybe you’ll discover that 1% is plenty to get you enough cash flow to create a solid return on investment. The point is this: don’t get caught up on the idea that you have to hit some mythical 2% to have a good investment.”
  • “In my experience, these purchase closing costs usually average around $1,500 for a $100,000 property, plus any fees added by your lender.”
  • To analyze a property’s total project cost, identify purchase price, purchase closing costs, pre-rent holding costs, estimated repairs. Next, figure out the financing and total cost out of pocket. Next, calculate the monthly mortgage payment. Then, determine the total income. And, determine total expenses.
  • See also: http://www.biggerpockets.com/analysis
  • “To find what is working in your town, simply connect with investors who are actively engaged in your market. What are they investing in? How are they making a profit? Discover the secret to their success, and you’ll find the path to yours.”
  • “I’m referring to the middle-class neighborhoods on the outskirts and in the suburbs. Generally, these areas are found 20 to 40 miles outside the city center, in smaller towns and communities.”
  • “Some condo associations forbid using a unit for rental purposes, especially for the first year or two. Before investing, be sure to investigate the rules outlined in the condominium map (often called a condominium plan) and the covenants, conditions, restrictions, and easements (CC&Rs).”
  • “In my experience, 90% of the deals I’ve purchased have been REOs, because they have been the best deals on the market over the past few years.”
  • “To accomplish this, I find a great deal, get a private lender or hard money lender to finance the purchase (and hopefully the rehab), and then, after a “seasoning” period of six to 12 months, I refinance the home into a long-term mortgage. I call this the BRRRR strategy (for buy, rehab, rent, refinance, repeat)”
  • “As common sense would suggest, the less work a property needs, the less risk you’ll have that something will go wrong during the rehab. At the same time, however, the less work a property needs, the more competition you’ll face.”
  • “For example, homes that have a bad smell because of pets or cigarettes are a prime candidate for me, because smells are easy to rectify. An ugly exterior paint job or a bad roof are also fairly easy (if costly) to remedy, but they scare away more potential homeowners.”
  • “As a result of their more stable nature, commercial real estate tends to offer lower returns, but this may be ideal for an investor later in their real estate career.”
  • “Commercial properties also usually require a higher down payment, 30% or more, and may encounter much longer periods of vacancy.”
  • “A diverse real estate portfolio is definitely possible, but each type of rental property requires a whole new set of rules, so I recommend starting with one type and expanding as you gain experience.”
  • “A Class A location is an area that has the newest buildings, hottest restaurants, best schools, wealthiest people, and highest-cost real estate. This is truly the best location”
  • “A Class B location might be slightly older than a Class A one, but perhaps still has decent restaurants, schools, and people.This might be your “middle class” areas, but these will attract more blue collar workers who live paycheck to paycheck.”
  • “A Class C location is likely a lower-income area with homes that are old—30 years or more. This area tends to attract people who are either on government subsidies or working low-wage jobs. You’ll likely find a lot of check-cashing businesses, pawn shops, and other such businesses in this area.”
  • “A Class D location is a war zone where you likely would not want to travel alone.”
  • “Because I am largely a ‘value add’ investor (someone looking to rehab a property to bring its value up), I tend to look for Class C properties in Class B areas, but you’ll likely find a strategy that works well for you.”
  • Crime data:
    http://www.crimereports.com/ (Free)
    http://www.neighborhoodscout.com/ (Paid)
    http://www.city-data.com/ (Free)
    http://www.usa.com/rank/ (Free)
  • “You can also call your local police station and ask to speak with an officer who can shed some light on the areas of your town with the most drug abuse problems.”
  • “To research school districts, head to GreatSchools.org and simply type in an address or zip code for your potential rental property.”
  • “To do this, you could dig around the United States Department of Labor’s website (which operates exactly how you’d imagine a government website would operate!), but I usually just head to http://www.city-data.com/ and look up your city to discover your local unemployment rate.”
  • “A higher unemployment rate just means I need to screen my tenants even better than I normally might to make sure they are in the 90% who are employed, and I need to make sure their job has a high likelihood of lasting (in other words, their job is not a temporary one).”
  • “To research population historical data, I like to head to http://www.usa.com/rank/, where you can enter your target market’s zip code to see data such as population, population growth, and population density, and to learn where your city ranks among other cities in your state.”
  • “To research housing starts and/or building permit applications, check out the U.S. Census Bureau’s new residential construction data (free) at http://www.census.gov/construction/nrc/ or the National Association of Home Builders site (paid) at http://www.nahb.org/.”
  • “You can find this data in a number of places, but I’ve found the most accurate figures at http://www.zillow.com/research/data/, where you can download a massive amount of data about nearly every zip code in America.”
  • “In my area, according to the data from Zillow, I’ve found my median monthly rental price is $839 and my median sales price is $106,846.15; therefore, my price-to-rent ratio is .7%.”
  • “So keep in mind that although this data does have some use, especially in comparing one area with another, you must take this information with a grain of salt and look at properties with specifics, not averages, or you might miss out on a great location simply because of bad data.”
  • “best—approach to finding an area’s vacancy rate is by calling up a local property manager or large landlord (in number of units, not body fat!) and asking them. They should know this number off the top of their head and can probably give you a more accurate picture than either of the other options listed here. Property managers can tell you specifics about which streets or neighborhoods have a higher or lower vacancy, as well as other nuances about locations.”
  • “What is a good vacancy rate? The truth is that there is no standard right or wrong number, but according to the U.S. Census Bureau[v], in 2014, the nationwide average was 7.6%, compared with a record high of 10.6% in 2009 and record low of 5.0% in 1981.”
  • “A great agent who is fast and motivated is the key to success on the MLS. Because there is such high competition for properties on the MLS, you need someone who is responsive and will get the job done.”
  • “With the help of your agent, be sure to set up automatic alerts about properties when they come on the market or drop in price.”
  • “Look for properties that can be changed slightly to increase their value dramatically. For example, I’m sure I’ve mentioned this before in this book, but I’ll say it again: I love finding two-bedroom houses and turning them into three-bedroom homes.”
  • “Perhaps only one in 100 deals are worth buying, so you need to look at 100 properties (on paper or screen) before you offer on one. And because most properties for which you submit an offer will not work out, you need to offer often and fail often. That’s right: fail often. A wise investor once told me that if he gets more than one in ten offers accepted, he knows he is offering too much!”
  • “Therefore, the longer a property sits on the MLS without an offer, the better chance you’ll have of getting a great deal. And the longer it sits on the MLS, the more searchers forget about it. It’s no longer the “cute new kid in school.” It’s just another overpriced property that most people are ignoring, and as a result, it might just be your ticket to getting a deal put together that makes financial sense (and cents!).”
  • “Just remember that homes that have some kind of “problem” are the ones that 90% of the home buyers out there are avoiding, so focus in on those for the best chance at a deal.”
  • “One, during this season, banks are in a hurry to unload their properties before the new year, and two, there is less competition for properties!”
  • “There are a number of different contact lists you can buy and mail to, but the most common is the “absentee” list. This means that the person on record for owning a property does not actually live in the property. You can find and purchase these lists from companies such as ListSource.com or MelissaData.com and then send letters, postcards, or whatever you think will work best to secure you a deal. Typically, you’ll spend approximately $.60 for each postcard and approximately $1.00 for each letter, but this can depend on how much work you do yourself and how much you outsource.”
  • See: https://www.biggerpockets.com/blog/2013-05-03-driving-for-dollars-bible-part-1
  • “That’s right, evictions are part of the public record in most counties of America. In other words, you can take a trip to your local county administration office and ask to see a list of the current evictions.”
  • “Therefore, you can use Craigslist to search for rental listings that appear to have been placed by “mom and pop” landlords (not professional property management companies). Most likely, the landlord put their phone number directly in the post, so call them! Explain that you are looking to invest in real estate in their area and saw their post, and although you aren’t interested in renting it, you may be interested in buying a property. Even if they don’t want to sell that particular property, there is a chance they will have something else they do want to sell or they know someone else who does. Worst case scenario, you build a relationship with a local investor. Maybe you’ll even gain a mentor out of the deal!”
  • “Therefore, in my experience, three- or four-bedroom houses tend to make the best rentals because they attract long-term tenants, which cuts down your vacancy expenses. Furthermore, three-bedroom houses are generally the best kind of property to sell, which can be great when that time comes.”
  • “Bad smells are one of the easiest problems to fix in a property but one of the things that drives away 99% of the competition.”
  • “In my experience, getting rid of the carpet and the pad underneath will get rid of 90% of the problem immediately, so plan on hiring a couple people for a few hours to remove the smelly carpet.”
  • “Mop the floor with a mixture of bleach and water. Let it dry, and open the windows to air the place out. (It can take a day or two for the smell of bleach to disappear and let you know if the smell is truly gone.)”
  • “Make sure every crumb in the kitchen is picked up and all windows have been washed. Obviously, you will need to do this anyway, so find a professional cleaner who can come in and clean every square inch.”
  • “If the smell persists, buy some cans of Kilz Oil-Based Primer and a long-handled paint roller from the local hardware store. Pour the primer out onto the floor (this is a lot of fun, actually!) and spread it over every square inch. I will warn you: oil-based primer is strong smelling, so be sure to use a respirator (they run about $30) so you don’t pass out.”
  • “Get a good sponge and a bucket of soapy water, and scrub the walls. Often, you will be able to physically watch the smoke residue wipe away from the walls, which is an oddly satisfying experience.”
  • “Lastly, and for situations where the other approaches have not solved the problem, hire someone to spray the entire inside of the house with that Kilz Oil-Based Primer (about $200 in primer will do a whole house, plus two days of labor).”
  • “If you are unsure what is causing the bad smell in a property, bring along someone with more experience and/or be sure to get a professional inspection on the property.”
  • “The only mold I would really worry about is mold in basement walls, because it indicates water seeping in through the foundation—and that begins to scare me. Fixing a bad, leaking foundation can be incredibly complicated and expensive, so unless you are more experienced, I would steer clear of those issues.”
  • “Therefore, I don’t want to buy a property where the neighborhood will always be an unsolvable problem.”
  • “Foundation issues scare me because they can be a money pit to fix, and the cost of a solution can sometimes eclipse six figures.”
  • “Now I don’t buy properties where the neighbor could so easily affect my bottom line.”
  • “Most agents can do the entire offer process online, but I recommend sitting down with your agent if you are just getting started with real estate and having them walk you through each step of the process.”
  • “Making an offer to a private seller usually begins with a verbal offer, offered in casual conversation. It’s usually far less official at first, and it’s usually just brought up when touring the property. When I am trying to buy a home from a private seller, I like to start by asking the seller how much they would like to get. Then, after some negotiation (which I’ll cover later in this chapter), you’ll come to an agreement on price. At that point, you can pull out your official purchase and sale document and sign in all the necessary places to make it official.”
  • “A letter of intent is a simple document that lists the conditions of the purchase and sale, usually on one page, and doesn’t use all the legalese. It’s not a legal document, just a way for both parties to see the summary of what’s being offered.”
  • “purchase and sale (P&S) agreement”: “Title companies will often give away legal P&S agreements because they know that by providing this free form, you will likely end up using them for the sale closing.”, “You can also check the BiggerPockets FilePlace at BiggerPockets.com/files for other useful forms and documents.”,
  • “Finally, no matter how you obtain your P&S form, I recommend that you have a local attorney take a glance at it. You want to be sure you are covering all the necessary bases, and a lawyer can help you do that.”
  • “For example, the earnest money on a $40,000 house will probably be far less than the earnest money on a $1,000,000 apartment complex. Although there is no hard and fast rule that governs the amount required, most earnest money deposits tend to be 1% to 2% of the purchase price.”
  • “On residential homes, a ten-day inspection contingency is most common.”
  • “If you are using financing, it can help to provide a letter from the lender showing that you have already been approved for a loan (known as a pre-approval letter).”
  • “Sometimes, the secret to getting a “yes” is as simple as being the first to offer on a property.”
  • “I think the best way to do this is simple: include a letter with your offer. This doesn’t have to be anything formal, just a quick message letting the seller know who you are and what you plan to do with the house.”
  • “Always try to determine what the seller’s true motivation is. Are they looking for the absolute highest price? Are they in need of a fast closing?”
  • “A real estate agent friend of mine once told me, ‘If I submit an offer, and it doesn’t make me blush, I offered too much!'”
  • “Make your offer stand out by offering a shorter (sooner) closing date. Of course, if you are using a normal bank loan, you might not have much of a choice (banks typically take 30–45 days to get through all the paperwork to buy a property).”
  • “Instead, consider submitting two offers on a property, so the seller compares the two offers, rather than the asking price and your offer.”
  • “If you’ll be using bank financing for the purchase, be proactive and include a copy of your pre-approval letter with your offer.”
  • “An escalation clause can be included in an offer and is used when a property might have multiple bidders. It essentially says, ‘If someone else bids higher than me, this offer will automatically increase to $X above theirs, up to a certain point.'”
  • “The danger of an escalation clause, of course, is that it tells the seller exactly how high you will go! Therefore, only use an escalation clause if you know there will be multiple offers, and never make your maximum price higher than what you should pay.”
  • “Therefore, if you are offering on a property that has a lot of junk in it, make your offer stand out by offering to clean out the property for the seller.”
  • “I once offered $60,000 on a property that was listed at $80,000 and was rejected. I let it go. After the property sat on the market for three more months, the seller dropped their price down to $59,000. I offered $40,000 at that point, and my offer was accepted—$20,000 less than I had originally offered to pay!”
  • “When you’re offering on a property through the MLS, the negotiation will take place through the agents.”
  • “When offering on a property outside the MLS, through a private seller, your negotiations will likely be much more direct. In fact, you might negotiate every point on the hood of your car or sitting at the seller’s kitchen table.”
  • ““If the other party realizes that every time he asks for something, he will need to give something, he will naturally shy away from asking for more than what he needs in fear that he will be asked to give up something important in return for additional (non-essential) demands on his part.”
  • “The red herring tactic is meant to drive the negotiation to focus on something inconsequential, distracting the seller from what you really want. For example, you might really want the best price, but when you offer that low price, you also offer, and focus on, something you know the seller won’t give up, like agreeing to leave their fine dining china in the home. They may insist that the china is nonnegotiable, perhaps even be a little offended you asked, but it will make the low-priced offer appear even better. ‘This guy is crazy,’ they’ll say. ‘There is no way we’re giving you Grandma’s fine china! We’ll take the price, but we’re keeping the china.’ And you’ll smile and accept.”
  • “You can help your negotiation by making it a little more uncomfortable by instituting a penalty whenever the other party asks for a concession. A penalty could be as simple as not responding for several days or requiring your lawyer to look over the issue.”
  • “One of the best ways to do this when buying a piece of property is by having the comparable sales (comps) with you when negotiating. The seller may want $150,000 for their property, but if you can show them that other similar properties have sold recently for only between $120,000 and $130,000, you’ll take them out of their fantasyland and ground them in cold, hard facts.”
  • “Let the seller believe that they are a good negotiator and got some great concessions out of you. Let them see you bleed a little bit! For example, if your maximum allowable offer on a deal is $67,000, make $62,000 your known “max offer” and let them push you a bit higher if needed. They’ll feel good that they pushed you higher than you wanted, but you’ll still get exactly what you wanted—they just don’t know that!”
  • “ask the seller what their lowest price is. They’ll usually tell you a number, but this is never their real lowest price—this is their starting price!”
  • “Then, ask them a follow up question like ‘Okay, but what if I could pay all cash and close next week?’ They will almost always go a little lower. If you wanted to push it one more time, you could say something like ‘So, if I were to offer you [amount even lower than their new lowest price] and get you the cash you need in the next ten days, that would be unreasonable?’ No one likes to appear unreasonable, and there is a good chance they’ll respond with ‘Yeah, I could do that.'”
    “You can place financing on the property after the purchase (usually 6–12 months later, depending on the bank) and start taking advantage of the benefits of using leverage.”
  • “A typical single-family house appraisal will cost approximately $400, while a small multifamily appraisal might cost up to $1,000. If you are buying a commercial property, expect to be in for at least $4,000.”
  • “If you are still able to do so, I would definitely strongly encourage you to use a conventional loan for your next property. Very few financing strategies can live up to the low cost and stability of a conventional loan.”
  • “Instead, you’ll want to focus your search on small, local community banks. Look for banks that have a maximum of 20 different branches. Credit unions might also be a good source of portfolio lending.”
  • “Hard money lending is the process of borrowing money from a professional private lender, with the bulk of the lending decision based on the hard asset being bought.”
  • “Private lending is the process of borrowing money from nonprofessional lenders, so that the bulk of the lending decision is based on the relationship between the borrower and lender but enhanced by the hard asset being bought.”
  • “Financing through an FHA loan can get you into a property for just 3.5% down.”
  • “In BRRRR real estate investing, the property is treated like a flip, using short-term financing such as private money, hard money, a home equity loan, or cash to acquire and rehab. Then, after the property has been finished, it is rented out to a tenant. The owner then obtains a refinance on the property to pay off the short-term loan and turn the property into a stable, long-term, cash flow positive property.”
  • “The underwriter is an individual trained to look at all the puzzle pieces that the salesperson gives them and to approve or deny a loan based on those facts. The underwriter knows all the rules, laws, and regulations and can make an informed decision.”
  • “Perhaps the best way to find this, at least when looking to get a loan on a piece of property, is by asking some real estate agents who their preferred lender is.”
    “Front-end DTI is the relationship between how much your total housing payment will be and how much debt you have each month. For example, if your primary residence house payment is $1,000 per month, and you earn $3,000 in gross monthly income from your job, your current front-end DTI would be 33.3%, because $1,000/$3,000 = .333. For real estate investors trying to buy or refinance rental properties, this number is not as important as the back-end DTI.”
  • “Back-end DTI is the relationship between how much total debt you have and how much income you make. In other words, your total monthly debt payment divided by your total monthly income is your back-end DTI. So, if your total debt payment each month is $2,000 per month, and you currently earn $4,000 per month from your job (gross), your back-end DTI would be 50% (because $2,000/$4,000 = .50).”
  • “Typically, you probably want your front-end DTI to be less than 28% and your back-end DTI to be less than 36%.”
  • “the loan-to-value ratio, or LTV. This is the ratio between the total loan amount(s) and the property’s fair market value: LTV = Total Loan Amount(s)/Fair Market Value”
  • “For example, for an owner-occupied property with an FHA loan, the lender will go up to 96.5% LTV. However, on a commercial property, a lender may not want to lend above 50% LTV.
    If you are an investor, you are likely to find 70%–80% LTV the norm for investment properties.
    I have one additional note about LTV: the LTV is calculated using all the loans that have a lien on the property, including second and third mortgages.”
  • “To check your credit score, I recommend visiting CreditKarma.com, which allows you to see your score for free—actually free—no free trial, and no credit card required. (They make their money by selling credit cards. Yes, kind of ironic.)”
  • “If you are a property investor, the lender will also look at your rental income and may be able to use that income to offset your debt. However, most lenders will not give you any credit for this rental income unless you have been a landlord for more than two years (remember, they want stability).”
  • “In addition, no matter how long you’ve been a landlord, you likely will never get 100% of the rental income counted toward you. They will likely give you 70%–80% just to be safe on their end.”
  • Documents loan officer want to see: “Tax returns for previous two years
    •                  W-2s for previous two years
    •                  Pay stubs for previous two months
    •                  A personal financial statement
    •                  Bank statements
    •                  The Purchase and Sale documents for the property
    •                  Descriptions of all your properties”
  • “Furthermore, I ran this property through the BiggerPockets Rental Property Calculator and took the PDF report it generated and included that on top of the organized packet.”
  • “In many East Coast states, an attorney handles the closing process as well as the title research. In the Midwest and on the West Coast, lenders, title companies, escrow companies, and attorneys generally handle the title research and closing.”
  • “Therefore, in most deals you purchase with the help of a real estate agent, the seller will give you a pile of forms in which the seller lists anything that might be wrong with the property. You’ll want to read this document carefully, so you’ll know immediately about any issues with the property that the owner knew about.”
  • “One of the most powerful tools you can use to determine the truth about a property’s financials is the seller’s tax returns. A seller will not likely make a property look extra “cash flow-plush” for the IRS, so tax returns will likely be the most accurate representation of how the property really performs. To get these –simply ask for them! Look for any discrepancies between tax returns filed and the financial information provided by the seller, but also recognize the difference between aggressive tax write-offs and deception.”
  • “If the property is an existing rental property, be sure to dig through the lease(s) with a fine-tooth comb. After all, a lease goes with the property, so that lease between the seller and their tenant will become the lease between you and the tenant. Be sure to pay special attention to the rental rate, the length of the agreement, and any special, out-of-the-ordinary terms written into the lease.”
  • “The rent roll is a list of all current tenants, their rental amount, and other information (such as move-in date and lease term length).”
  • “If you are buying a property that is already rented, and especially if you are buying a property with multiple units, I highly recommend getting estoppel certificates from all the current tenants. An estoppel certificate is simply a form that the existing tenant fills out, letting you know what the terms of their current lease are. This can help you verify that the seller did not change the lease agreement without the tenant’s knowledge or create a fake one, just to make the income seem higher (trust me, this happens!).”
  • “Be sure to verify that the tax amount you ran your numbers with is the actual tax bill. You can usually verify this online through your local assessor’s office.”
  • “Utilities are a major expense with real estate, so verify that the numbers you used for your math homework are accurate. Either ask for specific bills or call up the local utility companies and get the information directly from the source. Also verify who pays for which utility, especially if you are purchasing a multifamily property, and always check to make sure the utility bills have all been paid.”
  • “If the property is already rented, make sure you verify the security deposit amounts to ensure you are given the correct cash at closing.”
  • “Recent or Current Maintenance on the Property – Again, this is most helpful when a property is already rented. You’ll want to get a good idea of what work has recently been completed on the property and what still needs to happen.”
  • “If the property is governed by an HOA, you’ll need to review the HOA’s declaration of covenants, conditions, and restrictions, more commonly referred to as the CC&Rs.”
  • “The easiest way to find a home inspector is by asking your real estate agent who they like to work with.”
  • “If possible, make sure the power, water, and all other utilities for the property are turned on before the inspection.”
  • “Although you do not need to be present for the inspection, I highly recommend that you are. You are paying for the inspection anyway, so get your money’s worth! Walk, crawl, climb, and touch every inch of the property as the inspector does, asking questions along the way. By doing this, you will be able to get a better idea of exactly what is wrong with the property so you can make the best decision on what you want to do with the problems you find.”
  • “Moreover, contractors may be great at fixing things, but they are not generally trained to spot problems. A contractor might see a crack in the wall and begin talking about how to patch it, whereas an inspector will dive in to find out why it cracked. This distinction is very important.”
  • “The cost of an inspection depends largely on the size of the property, but for easy reference, a typical single-family home will cost between $350 and $500 for an inspection. A small multifamily property might cost up to $1,000. Larger multifamily properties (five or more units) get more expensive the larger they are. But again, don’t think about the cost, think about the value and peace of mind you’ll get.”
  • “A home inspector can look for leaks and can test to make sure the water is running and draining well, but he can’t see inside the drain pipes to confirm that there are no major problems. For this reason, you may decide to hire a plumber or plumbing inspector to stick a camera down the sewer lines and check for problems.”
  • “If you or your inspector have concerns about asbestos being used on your property, get the house tested by a local environmental testing agency. Although asbestos can be removed, this must be done by a licensed professional trained to remove the lethal product.”
  • “If you are buying a property that was built before 1978—and especially if you plan to do major work on it—you may want to test the surface of several painted areas of the property to determine whether lead exists. You can either hire a professional to do this, or you pick up a lead-test kit from any home improvement store and do it yourself.”
  • “If your home inspector finds evidence of pests in the home, or if you simply live in an area of the country where this is common, hiring a professional pest inspector to perform a pest inspection would be wise.”
  • “When looking at a replacement cost policy, make sure the dwelling coverage (Coverage A) involves enough of a payout to rebuild, based on what contractors are charging in your area.”
  • “if the value is $200,000, and you insure for $100,000, you are at 50%. If you have a toilet overflow that causes $8,000 in damage, the insurance company would pay only 50% of the cost—$4,000, minus the deductible. This is because you were only insured at 50% value on the home. Watch for this, and make sure your house is insured to full replacement value.”
  • “Lastly, make sure you have liability coverage on the home. Common limits are $300,000, $500,000 and $1,000,000. It doesn’t cost much to get the higher coverages here, so it’s almost always worth it. If someone gets hurt and sues you, this coverage is a lifesaver.”
  • “And while we are talking about tenants, don’t let them have dangerous dogs or other pets. If you’re a serious investor, you don’t want a dog bite claim on your record. Insurance companies hate those.”
  • “You must keep your rental property expenses separate from your personal income. I’ll repeat this: don’t use your personal checking account to run your rental business! If you have the property owned by a legal entity, this could destroy any chance of protection that entity might otherwise offer. And even if you don’t have such an entity, mixing your expenses will make your bookkeeping far more complicated.”
  • “Yes, you will need both a checking and a savings account. The checking account will handle the income and expenses, while the savings account will hold the security deposit given by the tenant. At most banks, basic business checking accounts are free, as are savings accounts. (You may need to pay for checks, though.) I also recommend setting up these accounts two to three weeks before closing on the property, to ensure you have time to get the checks and/or debit cards in the mail.”
  • “At minimum, I recommend gathering the following, along with              any other forms required by your state, county, or city:
    •                  Application
    •                  Rental Minimum Qualifications Form
    •                  Month-to-Month Lease
    •                  Annual Lease
    •                  Three-Day Notice to Pay or Quit (or Five-Day Notice or whatever your state requires)
    •                  A Deposit to Hold Agreement
    •                  Property Rules and Regulations
    •                  Adverse Action Notice (explaining why someone was turned down)
    •                  Notice for Landlord or Maintenance to Enter a Unit
    •                  The Lead-Based Paint Packet
    •                  Ten-Day Notice (or whatever other notice your state allows for this purpose.) to Comply
    •                  20- or 30-Day Notice to End Tenancy (as allowed by your state)
    •                  Move-Out Packet (explaining the move-out process for tenants)
    •                  Cleaning Expectations
    •                  New Tenant Checklist
    •                  Move-In & Move-Out Condition Report
    •                  New Owner Announcement Form
    •                  Pet Addendum
    •                  Tenant Reference Questionnaire
    •                  Disposition of Deposit
    •                  Mold and Mildew Disclosure Form”
  • “As a bonus for you purchasing this book, you can get a sample copy of all these forms right now by visiting http://www.BiggerPockets.com/LandlordBookBonus.”
  • “You may choose to use a computer-based accounting software, such as QuickBooks or Quicken Rental Properties, or an online property management tool such as AppFolio.com, VerticalRent.com or Buildium.com.”
  • “Consider setting up a 30-minute meeting with a CPA to go over the methods that they would prefer for keeping track of your income and expenses.”
  • “That said, although a single-member LLC does not require its own business tax return, a multimember LLC does. Don’t make this mistake.”
  • “Imagine spending $2,000 per year on asset protection on a house that only cash flows $1,200 per year. Yes, an LLC can turn a good investment into a bad one.”
  • “That’s right, good insurance can help you avoid eating beans under a bridge with the pigeons. Get the right insurance, and get enough of it. Talk to a good insurance agent about your options, and let them know your fears. They’ll be more than happy to sell you the best policy possible.”
  • “For example, if you owe $100,000 on a property, and the property is worth $110,000, you are highly leveraged. People often look at this like it’s a bad thing, but in asset protection, it’s a huge benefit. What kind of lawyer will go after someone, spend hundreds of hours litigating, and force them to sell their rental, only to find there is no blood to be squeezed from that turnip? On the other hand, if you own a rental property free and clear, and it’s worth $110,000, suddenly the idea of suing you becomes much more exciting for an attorney, because they know there is a ton of money for them to take.”
  • “Finally, on the day of closing, I recommend setting up an appointment to walk through the property one last time. This will help you verify that everything is still the same and that nothing has changed since you made the original agreement.”
  • “During the due diligence process, start getting contractors into the property, and schedule them to begin working the day after closing. Make a plan for what should get fixed first, second, third, and so on. Get the materials list together and ready to order the day the property closes. (I don’t recommend buying the materials before closing, though.)”
  • “Although the price for management depends greatly on where you live, management is usually in the 8%–10% range, plus a fee when a new tenant moves in, usually between 50% and 100% of a month’s rent.”
  • “When you sit down with your potential property manager, I recommend starting with the following questions:
    •                  What are your management fees?
    •                  How do you communicate with owners? How frequently? What about?
    •                  How many properties do you manage?
    •                  How long have you been a property manager?
    •                  Am I locked into a management contract with you? If so, how does that work?
    •                  How many evictions do you have each month?
    •                  What kind of reserves do you/does your company require?
    •                  How long does a typical tenant stay in a property?
    •                  How long do properties usually stay vacant before being rented?
    •                  How do you screen tenants?
    •                  Do you accept people who have had an eviction on their record?
    •                  How do you handle maintenance requests?
    •                  Is there a minimum charge for a maintenance visit?
    •                  What do you do if a tenant doesn’t pay rent?
    •                  How do you market vacant properties?”
  • “The easiest way to do this is by setting rental criteria and explaining that criteria over the phone. My criteria look like this:
    •                  Their gross monthly income must be approximately three times or more the monthly rent.
    •                  Applicants must have a favorable credit history (a score of 600 or higher).
    •                  Applicants must have a source of income and be able to furnish acceptable proof of the required income.
    •                  Applicants must have good references concerning rental payment, housekeeping, and property maintenance from all previous landlords.
    •                  The number of occupants per bedroom is limited to two (per Washington State law).
    •                  Only non-smokers are considered.”
  • “You can read this list over the phone to the prospective tenant and ask them if they meet these qualifications. If they don’t, don’t rent to them.”
  • “1.I give them the address to drive by first and tell them to call me back if they are interested in seeing the inside. This eliminates the people who lose interest because of the location.
    2.I try to “batch” all the showings within one time frame. I will tell all callers that I will be at the house from 5:00 to 5:30 on Friday afternoon, for example, and if they want to see it, they should show up then. Having multiple tenants look at a property at the same time can be a little bit awkward, but it creates a sense of competition and scarcity, which allows for more applications.”
  • “Give an application to every single person who is interested, even if you are not interested in them (this is another measure to ensure you will not be charged with discrimination). Encourage them to fill it out there, though the applicant will usually want to fill it out later and drop it off or mail it to you. I try to discourage this, because it adds a lot of time, but sometimes the tenant will want to think about it, so have a plan in place to deal with this.”
  • “Always, I repeat, always take an application fee with the application. Don’t even bother processing any part of the application unless the tenant has paid the application fee. The amount you charge must be reasonable and reflect the actual cost of you running the application, plus reasonable compensation for your time doing so. I recommend finding out what the local property management companies charge and charging a similar amount. Currently, I charge $35 per adult. Be sure to check with your state laws and make sure there are no laws dictating how much you can charge.”
  • “I make it a policy to never rent to a person with an eviction on their record or a recent felony (within seven years).”
  • “The important questions to ask are these:
    •                  How much do they currently make?
    •                  How long have they worked there?
    •                  Is this job considered temporary?
    Next, call their previous landlords. Don’t simply call their current landlord, because many landlords will lie or embellish the truth in an effort to get rid of bad tenants. Instead, call all their previous landlords for at least the past five years. Be sure to conduct a background check and credit check to see if any other addresses appear that might indicate they conveniently “forgot” to list a landlord they rented from.”
  • “•                  How long did the tenant rent from you?
    •                  What was their monthly rent?
    •                  Did the tenant give proper notice when vacating?
    •                  Did the tenant receive their security deposit back?
    •                  Would you rent to this tenant again?”
  • “When you deny an applicant, clearly documenting your reasons for doing so is important to avoid discrimination complaints. Always inform the tenant with a written notice. I always send a letter to the tenant stating that they did not meet the minimum requirements for tenancy for “such and such” reason. Be sure to keep a copy of all records pertaining to the prospective tenant so you can back up your reasons for denying them in the future, should you need to.”
  • “Therefore, it is important to require a deposit to hold the vacant property. This deposit is nonrefundable and should be due within 24 hours of the tenant being accepted. Simply let the approved applicant know that you cannot hold the property indefinitely, so if they want to guarantee their position, they must pay the deposit within 24 hours.”
  • “This deposit will become the tenant’s security deposit (which I will get to later), so it’s not an unexpected or extra cost for the applicant. When you collect this deposit, be sure to sign two copies of a “deposit to hold agreement” that states what the deposit is for and what the terms are. Essentially, this document will declare that the applicant has until a certain, clearly specified date to sign a lease agreement. If an agreement is not signed by that date, the deposit is forfeited to the landlord.”
  • “You can get a state-specific lease agreement from a number of sources, such as EZLandlordForms.com, USLegalForms.com, a local paper supply company such as Staples or Office Depot, or your attorney. Don’t simply download a free lease off the Internet. Each state has different rules and laws that govern the landlord-tenant policies in that state, so chances are that a lease found for free online may not be legally binding for you. Don’t skimp on the quality of your lease.”
  • “The U.S. Environmental Protection Agency requires that you give your tenant a pamphlet called “Protecting Your Family from Lead in the Home” if your property was built before 1978. Check with your local attorney for other state-specific forms you may be required to provide.”
  • “If a tenant moves in in the middle of the month, I don’t prorate the amount they pay for that first month. Instead, I prorate the second month to match the first. In other words, every tenant pays a full month’s rent when they move in, but when the time comes to pay the rent on the first of the following month, they will pay only for the amount of days they lived in the home the previous month.”
  • “One final note on the rent, only accept rent in certified funds, such as a money order or a cashier’s check. Don’t take cash, and don’t accept personal checks, especially for the first month’s rent. You do not want to move a tenant in and find out weeks later that the check was bad, forcing you to evict. This is a wise policy to have all around in your relationship with your tenants: certified funds only.”
  • “•                  PayNearMe.com or PayLease.com – These similar services allow tenants without bank accounts to pay at local businesses like Wal-Mart or 7-11.  Currently, the tenant must pay a small fee ($4) for this service, but it is generally free (or low cost) to the landlord.
    •                  Dwolla- Similar to PayPal, tenants can use Dwolla to pay rent directly from their checking account for free. This was a little bit cumbersome to get set up, but once I got it going the process works pretty great. The only trouble I’ve had is that some banks don’t work with Dwolla (usually small community banks) so prepared for such an instance.
    •                  Intuit Payment Network- Intuit, the company behind TurboTax and QuickBooks, offers a payment solution that is extremely easy to use and that allows tenants to pay their rent directly from their checking account. Currently, payments are just $.50 each and we use this when the tenant’s bank doesn’t work with Dwolla.”
  • “The move-in condition report is simply a paper that the tenant will sign that documents, in detail, the condition of the property.”
  • “The move-in condition report is designed to protect both your interests and the interests of the tenant when the time comes for the tenant to move out.”
  • “For the same reason, I also recommend taking photos (or a video) of the property before handing over the keys. This will be further evidence in the future when the tenant moves out.”
  • “A third option used by landlords to track their income and expenses is online rental property software such as VerticalRent, Buildium, or Appfolio. These products are designed to help you manage your property (keeping track of tenants, leases, reminders, repairs, etc.), but each also contains basic accounting features. These programs let you prepare and print numerous reports, such as a rent roll and end-of-year tax statements. Most of these programs charge a monthly fee to manage your properties, so be sure to shop around to determine which would work best for you and your portfolio. For example, Buildium and VerticalRent are designed a little more for the smaller investor, while Appfolio is designed for the investor with dozens (or hundreds) of units.”
  • “Although some issues can be fixed by the landlord themselves (replacing a burned-out light bulb, installing a new heating element), many issues will require a qualified appliance repair person. Unless a new appliance is needed, the typical cost to fix this sort of issue is between $50 and $100 per hour, and most repairs can be handled in one hour. If you do need a new appliance, consider buying a used one. Used appliance stores exist in almost every town and, especially in the case of stoves, can provide units that are just as good as new (though I never buy used dishwashers).”
  • Water leak under sink: “I estimate that 90% of water leaks are caused by the drain pipe not fitting together correctly. This is a fairly easy thing for you to learn how to fix (watch some YouTube videos to find out how) or hire a plumber, which should cost approximately $100.”
  • “They break all the time! I believe this is mostly because tenants put things into them that never belong in a garbage disposal. (“I didn’t know I wasn’t supposed to put whole chicken bones down there!”) For this reason, I try to remove garbage disposals from my properties whenever possible.”
  • Toilet water leaks: “Typically, these kind of problems can be fixed with less than $20 in parts and an hour of labor by a plumber, handyman, or you.”
  • “If your tenant clogs their toilet, this is not your responsibility. Problems that are caused by the tenant are the tenant’s responsibility, so inform them that they need to call a plumber to deal with the issue. Or call a plumber yourself and bill the tenant for the cost. However, if the drains seem to be clogged in the bathtub or bathroom sink as well, this is a good indication that the problem may lie with your drain pipe, such as a collapsed pipe or a tree root that has grown through it.”
  • “However, items such as smoke detectors, heat, appliances, plumbing, these are your responsibilities to maintain. I recommend that you get a copy of your state’s landlord-tenant laws and read them thoroughly to understand what is, and is not, required in your area.”
  • “preventative maintenance. In other words, these are tasks that need to be accomplished on a regular basis, usually annually, whether or not anything is broken.”
  • “Interior
    •                  Change furnace filters (probably more than once per year)
    •                  Vacuum dust from fridge coils
    •                  Replace smoke detector batteries
    •                  Check to make sure carbon monoxide detector is installed and working
    •                  Sweep the fireplace
    •                  Ensure that lint from the dryer vent has a clear path to outside
    •                  Flush water heater
    •                  Check expiration date on fire extinguisher
    •                  Repair any broken grout or caulk in bathroom
    •                  Tighten any handles, knobs, racks, etc.
    •                  Remove showerheads and clean sediment
    •                  Check weather stripping on all doors and windows, and repair as needed
    Exterior
    •                  Clean gutters and remove all leaves and junk from inside
    •                  Check siding and roofing for visible signs of problems
    •                  Check sump pump and make sure it is still operational
    •                  Test garage door opener, including auto-reverse function
    •                  Check window screens and repair as necessary
    •                  Look for signs of termites or other bugs
    •                  Check trees for power line interference
    •                  Recaulk any doors or windows as needed
    •                  Trim up the landscaping
    •                  Inspect the crawl space; look for bugs and water leaks
    •                  Touch up peeling or damaged paint.
    •                  Fertilize the lawn
    •                  Close off any openings to the crawlspace
    •                  Check water valves (in both the fall and spring)
    •                  Wash exterior with garden hose and mildew cleaner”
  • “Simply talk with the tenant and let them know, “Hey, this is not working out. Let’s just go our separate ways, okay?” This rarely works, but it’s worth a conversation. Maybe they feel they are stuck between a rock and a hard place, because they have a lease and they don’t want to break it, but they also can’t afford the rent. By letting them know that you are okay with them leaving, maybe they’ll take you up on the offer.”
  • “Option three is commonly known in the landlord space as “cash for keys.” It is the act of paying your tenant to vacate the property.”
  • “An eviction could easily end up costing you $5,000 or more at the end of the day. Instead, why not offer the tenant a few hundred bucks to walk away quickly, saving their record from having an eviction on it? Of course, if you offer them money, do so on the contingency that they leave quickly (within a day or two) and that the property be “move-in ready” for the next tenant. Then, don’t hand over the cash until they have vacated, given you the keys, and signed a release letting you know they have moved out, and you have inspected the unit to make sure it wasn’t trashed.”
  • “Instead, use an attorney who is well trained in evicting tenants. After the initial notice is taped to their door or you’ve given it to them in person, and after the number of days required by your state is over, call up your attorney and explain the situation. They will likely want a copy of the lease, as well as all the information about the tenant that you have. After you hand that over, you are done. You can sit back and wait for the attorney to handle the eviction.”
  • “When a tenant moves a person into their unit, the new person must be approved by you, the landlord. In other words, they need to fill out an application, pay the screening fee, and go through the same process as any new tenant. Otherwise, you have no idea who is living in your property.”
  • “If you notice that a tenant has moved someone else into their unit without telling you first, you must address this promptly. Send a letter that states the problem and give them a short time frame in which to fix it. Include an application and insist that it is filled out. If the tenant ignores you, post a legal notice to comply, in accordance with your state’s laws, and then evict them if they don’t. Again, this is all about training the tenant.”
  • “So should you accept pets?
    For me, the answer is generally no. However, there are times when I will accept them, and the logic may seem a bit backward: the nicer the property, the greater chance I’ll allow a pet. In my experience, dirty people have dirty pets, but clean people have clean pets. In general, nicer properties attract nicer tenants, who take better care of their pets.”
  • “I never allow pets in a multifamily property, period. Although I might like tenant A and could allow them to get a cat, which likely wouldn’t be a problem, tenant B will see that I allow pets and move in a big, angry German Shepherd. Then I’d have to be the jerk who makes them get rid of their dog and must try to explain why I allowed the other tenant to have a pet but not them.
    If the home is a nice single-family home, I may allow a pet under a few conditions:
    1.             The tenants are high-quality tenants. I’ve seen their car. I’ve seen their previous house. They have great references.
    2.             I usually set a 20-pound limit for dogs, to keep out the big, dangerous breeds.
    3.             If finding a non-pet tenant seems hard. If I have a number of vacancies, I may allow a pet to help me fill the vacancy faster. Stable people tend to have pets, and I want stable people, so I might trade the risk of a pet to get a house filled faster. As an added bonus, good, stable tenants tend to have pets and have a hard time finding rentals that will take them. Therefore, those tenants tend to stay a lot longer.
    4.             I always charge a nonrefundable pet fee when the tenant moves in. Right now, that fee is $300 per pet. This may seem steep, but trust me, “animal people” will pay it. I might give a slight discount if it’s two cats or a small dog and a small cat (like $300 total), but I always charge a fee. Be sure to check with your state’s laws as to whether you can charge a nonrefundable fee for this. If not, just add it to the security deposit.
    5.             The pet must be licensed with the city and current on all its shots, and the tenant must sign my ‘pet addendum.'”
  • “Tell them that it’s fine if they move, but they must continue paying rent until their lease is done or until you get the unit re-rented to another person. Let them know that you’ll do your best to get the property rented to another family, but you can’t guarantee how long that will take.”
  • “If you are unhappy, your system is broken.”
  • “Seller financing has a few key benefits over a regular sale:
    1.             Possibly higher sales price- When selling a property with seller financing, you may be able to get a higher sales price, because the buyer is more concerned about the terms.
    2.             Lowertax bill- If you were to sell the property outright, you might be hit with a huge tax bill. Instead, with seller financing, you pay only on the income received in a given year.
    3.             Ongoing passive income- Although selling all your properties and suddenly having a million dollars in the bank might feel nice, that money will only last so long. By selling using seller financing, you turn that equity into passive monthly income that will last you long into retirement.”
  • “If you plan to use seller financing, just be sure to hire a lawyer and do your homework, because there are numerous laws that must be followed, as well as some general best practices that are beyond the scope of this book. Also, the person you sell to matters, so screen them carefully and require a sizable down payment.”
  • “Ideally, the day you list the property for sale would be the day you begin your search, or as my friend Serge Shukat told me, consider selling an asset using the 1031 exchange after you find a new deal to purchase. Also keep in mind that you can also negotiate a long escrow period on the property you are selling, giving you more time before the countdown begins.”
  • “Also keep in mind that although the IRS doesn’t specifically state what a qualified intermediary  is,  they do define what a qualified intermediary  is not.  A qualified intermediary cannot be you, your agent, your broker, your spouse, your family member, your investment banker, your employee, your business associate, or anyone who has had one of these roles in the previous two years.”

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