Archives for 2014

Read This Before Getting in the Rental Business

Repairs to HouseYears ago I had a conversation with a friend about some repairs on one of his rentals.  It went something like this:

Me: “Brett, I have some bad news today.  The garage door on one of your rental units warped and fell off its hinges.  I had a professional check it out, and they said it was beyond saving.  It will cost about $700 to replace.”

Brett: “That is too bad.  You know how to stop that from happening, right?”

Me: “How is that?”

Brett: “Get out of the rental business.”

The phrase, “get out of the rental business,” is a common joke amongst many of us who have been in the business long enough.  We know that there is only one way to stop many of the expenditures of owning rental property: never own it in the first place.  Otherwise, we take expenditures as a fact of life (as in any business).  Once you learn to handle them, this can become a very rewarding investment.

But here is the problem that I see too often: not enough people are told about the realistic expectations of owning rental property.  There is a myth going around that once you have the money to buy real estate, you can just sit back and watch the money come in.  It isn’t as easy as that.

Let’s face it; there are a lot of things that can go wrong with a rental unit:

–       Obsolescence (problems arising from a house getting older):

  • Roof starts leaking
  • Water Heater stops working
  • Toilet, Window, Faucet, HVAC problems, and more

–       Vacancy and Collection Loss

–       Tenant can mistreat the property

  • Stains in carpet
  • Uncleanliness
  • Unkept Yards
  • And more

–       Non-Payment of Rent and Eviction Lawsuits

You get the idea.  No matter how hard we try to prevent these things from happening, there is no way to stop all of them.  A good application process can weed out the really bad tenants, and a good insurance policy can stop a lot of major bills, but there are still expenditures that come about through owning a rental unit.

As a property manager, I feel like it is my duty to let owners know of these problems.  If you are thinking about getting in the rental business, but haven’t heard about the risks of this business, contact me and I can help explain it to you.  If you are in the rental business, but were never told of the risks beforehand, we can help you out as well.

I love the rental business; it is where I put the majority of my money.  If I didn’t think that it could work, I would have gotten out a long time ago.  In writing this post, I am in no way demeaning the thought of owning rental units; I just want every owner to be prepared for the business.

So here is the bottom line… owning rental properties can be a great investment, but it also carries much risk.  We, as a property management company, will do all we can to lower the cost of a rental unit while increasing the revenue.  Our presence can reduce much of the risk, but we cannot stop bad things from happening.  It is up to the owners to know how much they can risk.

Therefore, if you contact Loewen Clovis Realty to learn about our property management services, or to learn how to invest in rentals, we will not steer clear of the fact that the rental business is tough.  We will give you the full impression of the pros and the cons of the business.  By doing so, we hope that you get a realistic view of the business so that you can properly prepare.  With enough foresight and preparation, rentals can be a great addition to your portfolio.

Step 4 of Home-Buying Process: All the Tasks to Complete Closing

4.1  Escrow and Title Company
This is Step 4 of the Home-Buying Process.

This is Step 4 of the Home-Buying Process.

Once an offer is agreed upon and signed by both parties, an escrow account will need to be started.  You, the buyer, will need to give the earnest deposit to your broker, who will take it to the title company (or seller’s Qualifying Broker) that is designated in the purchase agreement.  The title company will start an escrow account by depositing your earnest money and issuing a receipt for it.

A title company will obtain the payoff amounts for existing loans and calculate prorated taxes, liens, rents, insurance policies, and utilities.  They will arrange for title insurance policies, pay off the costs and liens as agreed in the purchase contract, and close the transaction.  The will also arrange to record the transfer of title at the courthouse.

Your escrow will close when the county recorder notifies the title company that the deed has been changed from the seller’s name to the buyer’s name.

4.2  Inspections

A professional inspector is recommended to inspect the house you are buying.  Even if the house looks OK, it is highly recommended to have an inspector go through to do a more detailed inspection.  You will want to know as much as you can about the house you are buying.  Depending on how your contract is set up, you may be negotiating with the seller to pay for any major repairs that are required.

4.3  Appraisal and Survey

Your mortgage lender will designate an appraiser to determine the value of the home.  Since they have a large stake in the property you are buying, they will want to make sure it is worth the value that is being paid.

A survey is also usually ordered to determine the boundaries of the property.  This is to make sure that there are no encroachments on the property that were not disclosed.

4.4 Final Processes

Depending on the contract, lender, and house, there may be other things done before closing.  A lender can request final paperwork to make sure everything on the application is still current, insurance can be ordered, other inspections such as pest inspections, and more.

4.5 Walkthrough Before Closing

You should visit the home 1 to 2 days before closing to make sure that the repairs were done and the house is in the same condition as when you put the offer in.

4.6   Attend Closing

This is the final step to buying a house.  You will want to bring your purchase agreement, your settlement statement, a calculator, a pad of paper, mortgage commitment (if any), and any other paperwork that pertains to the house.

Congratulations, you now own a home!

*Just remember, this list is a rudimentary list of the steps to buying a house.  It is meant to familiarize you with the process of buying a home so you are not left in the dark.  There are several more details and processes that happen in the actual purchase of a house that a Realtor can help you with.  If you have any questions, contact a Realtor who you trust to get you started in the right direction.  We would be happy to assist you if you are looking for a good real estate professional.

Photo Credit: “Red Death” by Tiberiu Ana on Flickr. CC Licensed.