Monthly Archives: April 2012

Buying REO property from banks and Fannie and HUD is much different than buying homes from Joe & Sally Homeowner.  First, the condition is usually much less.  Second, you’ll be amazed at the extra paperwork!  Usually 20-40 pages of additional addenda that have to be culled over.  Some of the items you will find in there that will affect you;

• The over-priced re-key charge for crappy locks that you will throw away as soon as the rehab is done.
• The provision that says you cannot resell for 60 or 90 days.
• The per diem fee if you don’t close on time.

And of course pay attention to your sales price, earnest money and closing dates.  Sometimes they change them in that tiny type and if you are not paying attention, well….

Whenever you buy a tenant occupied rental property there are challenges to be had.   Most tenants, and I do mean at least 90%, are good and honest and ethical.  They don’t lie about to whom the appliances belong and they don’t make up stories about how rent is paid in the past.

But…

There are those tenants that just can’t seem to to wrap their head around “the right thing to do”.  They will tell you the refrigerator belongs to them and that they paid the “other owner” rent already and that they had a larger deposit than they actually did.  So it’s very important to you, the investment property buyer, to get all of these issued clarified during the escrow period if at all possible.

Here are some items I would include in my contract;

• Rent roll.
• Delinquency roll.
• List of Security Deposits.
• Personal Property inventory.
• Estoppel Certificate.

Make sure  your would-be tenants don’t think they have one lease when you think the lease terms are different.  A common problem during any investment property turnover.

Owning rental property is challenging and rewarding.  But it’s also not for the feint of heart.  🙂  On the one hand you can get better returns in real estate than you can with many other investment vehicles.  On the other hand, just like any investment, there can be great lows to go along with the great highs.  How can you avoid the lows?

First, know what you are getting in to.  Each rental income range has it’s pluses and minuses.  Vacancies can be longer on the higher end but payment, most times, more stable.  When empty that’s a harder hit to your wallet. Newer properties require less upkeep/maintenance than older properties but that in turn cuts in to your bottom line on a monthly basis. So many things to think about and trade-off for.

Second, avoid functional obsolescence by keeping your property up to date as the months and years roll by.  Little hits here and there keep the property looking better and the tenants happier.  Happy tenants don’t leave and probably take care of the investment house better.  And in the long run, trust me on this, it’s less expensive.

Lastly, SAVE!  Keep a couple thousand in your reserves.  Maybe that’s overstating it if you own the rental property free and clear.  But if you have a mortgage I would recommend always having access to about $1,500 for any emergency repair (very, very, very seldom will you need that much) and at least 90 days worth of mortgage payments.  That should ride out 99% of the storms out there.  Don’t have quite that much but itching to pull the trigger?  Delay.  My best advice to you.