Commitments to the Tenants

Commitments to the Tenants

If you have tenants in your home, you have certain responsibilities to them. If you’ve got contracts with them, you need to follow through. Take care of the house, make sure it’s livable, keep open lines of communication. You have to view it as if your sellers and your tenants are your customers. I’m tougher on the tenants because they screw up deals more often, and that’s not really an issue with the sellers, but I still always keep my end of the bargain.

Make sure that you’re keeping your Realtors, lenders and others informed at all times. Communication is key!



My goal is to get people to buy and I’ll do whatever I can to help them, but I can’t make them a responsible person or tenant. I can’t even make them close the deal. Only about half of my tenants ever get to the closing table, and many will walk away from their option fees after only a few months of tenancy. I have stopped trying to figure it out.





Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.




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Finding and Working with Buyers – An Overview of Selling on Options

Finding and Working with Buyers – An Overview of Selling on Options

The weirdest thing about prospective tenant-buyers is that you can’t tell who is going to exercise by looking at their application. Some people are borderline potentials for me but then end up paying perfectly and exercising. Others seem like great potentials, they pay on time then don’t exercise at the last minute. You just never know.

I had perfect tenants in an 18-month lease option and everything was going so smoothly I was sure that they were going to exercise the option. Then came month 17 and “We got a problem.”

The wife called in tears saying that she and her husband were getting a divorce and that she couldn’t pay the rent. She was very embarrassed and wanted a way to work things out in any way possible. Thinking she wouldn’t be able to stay, I asked if it would be possible to start showing the house right away, and she said, “No problem. By the way, I do have some jewelry.”

My ears picked up. “What kind?”

The wife said, “Diamonds and emeralds.”

I said, “What kind?”

She replied, “Well, I have my wedding ring and an emerald ring that my husband gave me for an anniversary present.”

I asked how soon I could come over, and she said, “Come on over now.” I immediately went over to the house and she showed me the two beautiful rings and then gave them to me. Now that just tugs at your heart a bit so I said, “Tell you what, I’ll keep these for you. I’m a free pawn shop. I’ll keep them a couple of years even, whatever. If you ever want them back, just pay that rent, no late fees, nothing. Just take them. I don’t want your rings.”

The wife responded, “Oh no, I’m not coming back for those.”

I said, “Well you never know. You might work it out. I want you to work it out.”

She said, “No no, you don’t understand. I’ve been divorced twice now. From him.”

She never came back for the rings and I still have them. Maybe one day I’ll have them reset for my daughter. You just never know what you’re going to get in this business.



Other considerations:

Forget everything about a tenant’s personal life. Judge only based on what is on paper. If we were all blind and deaf that might be the best way to evaluate a potential tenant properly. Just look at the facts. Personally, I don’t look too much at the credit score number but at what the accompany credit data says. If you do a background check on one person you have to do it on all applicants in order to be fair. Regarding Fair Housing issues, you need to have in writing what your qualification requirements/standards are for credit scores, income, etc. for prospective tenants. You can always have it in your contract, however, that if you find out any of there information is untrue that it is grounds for eviction.



Two of my best tenants ever – I was 21 and not even into options yet. I was just a landlord. I bought a house in a lower end area, and I had an open house. So these two huge guys with tattoos everywhere roar up on Harleys and park them on the front lawn. I ended up renting to them. They were the best tenants, perfectly clean, always paid their rent on time, and when they moved out, they left it spotless. If I had judged on the way they looked, I probably would have rejected them because I found them a little scary.



Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.



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The Due on Sale Clause and Lease Options

Lease Option Eduction and training is key to making sure you are getting the right deal. When you are giving option fee credits and you give too much - could it trigger the dreaded "due on sale" clause in the mortgage?  You can find out more about lease options and the different types by going to http://www.wendypatton.com and reading the articles page.

Lease Option Investing with Condos and Townhomes

Lease Option Eduction and training is key to making sure you are getting the right deal. When finding a lease option deal it is important to work in the median price point areas.  This is where people want to live, but which one if you have many to choose from? You can find out more about lease options and the different types by going to http://www.wendypatton.com and reading the articles page.

Lease Option Investing with High End Properties

Lease Option Eduction and training is key to making sure you are getting the right deal. Should you do high end homes?  Maybe for a Cooperative Lease Option it would be great.  You can find out more about lease options and the different types by going to http://www.wendypatton.com and reading the articles page.

More Negotiation Tips

Everyone likes to negotiate! We may say we don’t, but we all do. Think about this: If you were to offer a price for something and the seller said “Yes” right away, how do you feel? Good you got your price, but you are feeling bad because maybe they would have accepted less. Negotiating is key to getting any good deal in real estate also. Here are some ideas to help with negotiation:

1. Check your ego at the door. The best negotiators either don't care or don't show the opposite side they care about who gets credit for making the deal a success. The talent is in making the other side feel like it was their idea to finalize the agreement.
2. Summarize and confirm. At the end of any negotiation it is best to always summarize the points covered and any areas of agreement that you and the opposite side agree on. Be sure that both are in agreement. Do not leave behind loose ends. Wrap the deal up and take your next steps.


There are many good books and CDs on the market to learn more about negotiation skills. I encourage you to buy some and study different ideas. It will help you in all areas of life, but is essential in real estate investing.


Excerpt from Top 10 Negotiation Techniques for Buyers and Sellers - Tips for negotiating Real Estate, By Wendy Patton.



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Determining the Profit in a Lease Option

Lease Option investing is based on the numbers of the deal just like any other type of real estate investing.   When you are doing a sandwich lease option, it is more critical that you really know the numbers vs a Cooperative Lease Option.  The reason it is more important is because you are going to stay involved in the deal and there is more time involved and therefore the payout must be bigger.  You can find out more about lease options and the different types by going to http://www.wendypatton.com and reading the articles page.

Lease Option Credit Accounting

 When receiving a rent payment on an option and the payment includes "credits" for the buyer, do you need to keep that in a separate account?  No - any option fees are non-refundable if the buyer doesn't exercise and credited against the price of the home/down payment if they do exercise and buy the home.  It is in essence a "paper credit" to the buyer IF and WHEN they purchase the home.  

Negotiation Tips

Negotiation Tips

Everyone likes to negotiate! We may say we don’t, but we all do. Think about this: If you were to offer a price for something and the seller said “Yes” right away, how do you feel? Good you got your price, but you are feeling bad because maybe they would have accepted less. Negotiating is key to getting any good deal in real estate also. Here are some ideas to help with negotiation:


7. Offer and expect commitment. The bond that keeps deals from falling apart is the commitment to deliver on both sides. This should be offered as a level of comfort to others. Avoid deals where the other side does not show commitment to deliver. Also, if they are not motivated, move on. I like to say, “NEXT”, if the owner is not willing to negotiate on anything.


8. Don't take on the other side’s problems. In a negotiation you will often hear all of the other side's problems and reasons they can't give you what you want. It is a tactic to get their problems to become yours. It is best to deal with each problem as they are spoken about and suggest ways for the opposite side to solve them.

Excerpt from Top 10 Negotiation Techniques for Buyers and Sellers: Tips for Negotiating Real Estate, Written by Wendy Patton.

Rent-to-Own, Your Lifesaver in a Drowning Market

Rent-to-Own, Your Lifesaver in a Drowning Market


Here are some reasons rent-to-own can be beneficial for you:

1. Higher Purchase Price – Rent-to-own sales typically command a price premium over traditional saes. The buyer is paying extra for the flexibility he recieves by not having to do an outright purchase immediately.

2. Higher Rent – You may be able to charge more for monthly rent in a rent-to-own than you would for just a straight rental.

3. Cash Flow – If your monthly payments are less than the monthly rent, the difference goes into your pocket.

4. Option Fee – This upfront fee paid to you by your buyer is what secures the purchase price down the road. If the buyer closes on the home, it would be applied towards the purchase price. If the buyer elects to not purchase the home, the option fee is forfeited and still remains yours. Eitehr way you win. If you were to just rent the home, then the tenant would put down a security deposit. The option fee is different than a security deposit. A security deposit is owned by the tenant and can’t be used by the owner, except for repairing damages, unpaid rent and other provisions as mandated under state laws.

Excerpt from Rent-To-Sell: Your Hands on Guide to SELL Your Home When Buyers are Scarce.



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Your Standards

Your Standards


It is federal law requirement that landlords put their rental standards in writing. If you don’t have your standards in writing (and, unfortunately, few landlords do), you are liable to end up in a pickle if someone accuses you of violating this rule. Your standards do not have to be complex but should be able to be produced if someone at a local or federal agency, or anyone off the street, requests a copy of them. Written standards can be as simple as this:

Qualifications for Tenant Selection for Majestic Realty, LLC—Lease Options


• No landlord tenant judgements unpaid.

• Ability to pay all outstanding judgements/collections.

• Good landlord reference.

• Gross monthly income equal to three times monthly rental rate.

• If any bankruptcy, it must be discharged.

• Option fee available or must be negotiated/financed.

• Prefer they have spoken with a mortgage representative.

On my lease option standards I don’t put a credit score, but I do state that if they have a bankruptcy it must be discharged. I also don’t put length of employment, but you can. These are only my standards for lease options—my standards for my regular rentals are stricter. You must establish your standards and they must be in writing.



Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.

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Setting a Budget – How Much House Can You Afford?

Setting a Budget – How Much House Can You Afford?

The first step is talking with a mortgage broker. Even if you can’t get approved for a mortgage right now, he can still help you determine how much you can get approved for later. He has formulas that calculate the maximum amount you can qualify for in a mortgage. These formulas are based on your income and debts. Most mortgage lenders use a debt-to-income ratio (DTI) of 28/36 and FHA limits are typically 31/43. Let me explain what those numbers mean.

The first number in the debt-to-income ratio (DTI), 28 (or 31 for FHA) is called the front ratio. The front ratio is the percentage of income that can count towards housing costs, or PITI, which are Principal, Interest, Taxes and Insurance. That means that 28% (or 31% for FHA) of your gross income (before taxes are taken out) can count towards these costs.


The second number, 36 (or 43 for FHA) is called the back ratio. The back ratio includes the amounts from the front ratio (PITI) plus any other recurring debt payments, such as car loans, credit cards, student loans, child support, alimony or legal judgements. This does not count things like groceries, utilities and so forth. Again, this means that 36% (or 43% for FHA) of your gross income can count towards these costs.


Let’s take a look at an example. Suppose your annual household income is $60,000 per year. You divide that amount by 12 months, which equals $5,000 per month (before taxes). Here is how we calculate DTI.



Front Ratio

$5,000 gross monthly income X .28 (the front ratio) = $1,400

$5,000 gross monthly income X .31 (FHA front ratio) = $1,550



Back Ratio

$5,000 gross monthly income X .36 (the back ratio) = $1,800

$5,000 gross monthly income X .43 (FHA back ratio) = $2,150



Excerpt from Rent-to-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight.

Matching Motivated Sellers with Lease Options

Matching Motivated Sellers with Lease Options


As discussed previously, subject-to sellers are usually, but not always, motivated by bad debt and desperation to restore their credit. Conversely, lease option sellers have good credit, and the sellers that would even consider a lease option fall into two categories:




1) Sellers who don’t need their cash out of the home to move on.



2) Sellers who have no equity in their home—they are financed 100 percent.



I prefer a seller in the first category. Why? This seller has some cushion financially if problems arise later. The second category of seller does not have a cushion, and therefore if they get into financial trouble, they are more likely to botch up the deal—either permanently or for a period of time until things can be resolved.

 
 
Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.
 
 
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My Market isn’t drowning—Is this Still Useful for Me?

My Market isn’t drowning—Is this Still Useful for Me?

Scenario 1 – No Equity



If you need to sell your home and you have no equity, how do you do it? In other words, you owe as much on your home as it is currently worth. How can you pay the real estate agent a commission and also other closing costs? Sometimes we don’t always have the option of waiting until we can afford to sell, even in good markets.






You can try the “For Sale by Owner” route, but even in good markets that tends to have only modest success and, let’s face it, is fraught with pitfalls. Selling on a rent-to-own basis can allow you to get a higher purchase price than a conventional sale. This can help give you some room to cover the cost of selling. Plus, having a tenant-buyer in place for a year or two paying your mortgage can help pay down the principal giving you some equtiy as well.



Excerpt from Rent-to-Sell: You Hands-on Guide to SELL Your Home When Buyers are Scarce.

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How the “Credit Crunch” Affects You – the Buyer

How the “Credit Crunch” Affects You – the Buyer

While this housing slump is making it tough for home sellers, there is a balancing factor that’s making it tough for home buyers. I call it the “Credit Crunch”.




With the severe tightening of the mortgage lending industry, buyers are having a harder time getting mortgages. The subprime mess we’ve all heard about means that many buyers who could qualify for mortgages before are no longer able to. This may be your situation.

This “Credit Crunch” directly impacts you as a potential homebuyer. Unless you have A+ credit or a very large down payment, getting a mortgage may prove difficult. If you haven’t already spoken with a mortgage broker, you should do so to find out if you can currently qualify for a mortgage. If you have already spoken with a mortgage broker and you know you can’t qualify yet, you know about this “Credit Crunch”.



Many would-be buyers despair after talking to a real estate agent and a mortgage broker who tell them that they can’t help them because they can’t qualify right now. This is why you, as a buyer, would need to do something like a rent-to-own. It gives you the opportunity to get into your future home now, before you can qualify for a mortgage.

You can get your next home NOW without having to qualify for a mortgage until later. This is the solution you need until you can qualify for a mortgage. This is the solution home sellers need because they can’t find mortgage qualified buyers.






For more information on the “Credit Crunch”, read Rent-to-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight.





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Subject-To Risks and How to Avoid Them

Subject-To Risks and How to Avoid Them

The biggest controversy for a subject-to is the violation of the due on sale clause. This clause is a provision in the mortgage documents that says if the home is sold or transferred, the mortgage will be paid in full or the lender could call the loan due in full. This means that when the sellers deed the home to you, the lender can demand payment in full on the loan. However, most lenders will never know the seller transferred their title to you, as long as you make the payments on time. Most lenders are only concerned with receiving their regular loan payments in full and on time.




In my opinion, the best and most ethical way to handle a subject-to deal is to be completely honest. Let the lender know you did it. Send the lender a certified letter informing them of the ownership change. Keep proof of the letter and return receipt in your files. If the lender doesn’t respond (most won’t), then the law may hold that they have accepted the change by ignoring your letter. If they try to foreclose, then you may need to pay off the existing mortgage and refinance the property into your own name. If the property doesn’t have enough equity to justify refinancing into your own name, then it probably was not a worthwhile deal to begin with.

 
 
Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.
 
 
 
 
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Can I Possibly Avoid Foreclosure?

Can I Possibly Avoid Foreclosure?


If you are in the difficult situation of falling behind on your mortgage payments and trying to sell your home, offering it on a rent-to-own basis may help you stay out of forclosure. The last thing lenders want right now is to foreclose on your home. They have gotten pretty flexible in working with homeowners to find solutions. Be sure to include them in the process when trying to find a resolution. Critical factors to consider are:

• Monthly Payment Adjusting Up? If your monthly payment has adjusted upwards, will you be able to rent your home to a tenant-buyer for enough to cover the new payment? If not, you will have to cover the difference yourself or get the lender to agree to a reduced payment. There are lenders that will work with you on your interest rate. This is called a loan modification. They usually won’t change your balance but they might change the interest rate and length of loan. Talk to your lender to discuss your options.


• Home Prices Dropping? Do you live in one of the areas where home prices have dropped dramatically? If so, is your home worth much less than your current loan amount? If this is the case you won’t be able to sell it to a tenant-buyer for enough to pay off your mortgage. Do you have the extra money to pay off the difference? Do you need to consider foreclosure? Maybe a short sale is your solution versus a rent-to-own. A short sale is when you get your mortgage company to accept a lesser amount on the payoff of your mortgage than you owe when you sell your home. This is called “shorting” the mortgage. Many people and lenders have had to consider this alternative with the housing market decline.


• Behind on Your Payments? How much are you currently behind in payments? You will need to catch up on this one way or another to stop the foreclosure. The option fee from your tenant-buyer may be enough to cover this. If it isn’t, you might be able to use the option fee to cover part of it and then establish a catch up plan with your lender.




** I recently worked with Tax Expert, John Hyre, on a webinar about "How to Handle a 1099 from a Foreclosure". Check it out!**





Excerpt from Rent-To-Sell: Your Hands on Guide to SELL Your Home When Buyers are Scarce.



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More Negotiating Tips

More Negotiating Tips


Tired of endless back-and-forth disagreements with your buyer and/or seller? Here are a few negotiation tips that can help.



• Set your rules. Many people likely have a set of rules or values that they just won't compromise. If you find negotiations breaking your rules and going against your values, it may not be worth negotiating.



• Ask. Don't be afraid to aim high but do not make any ultimatums. Usually these types of offers are out of place. If you don’t ask the answer is always no.



• Be willing to compromise. Expect to make compromises and plan what terms you are willing to compromise on. Even if the first offer is better than you'd hoped for do not take it. Take time to “think about it” or make a minor change back. If you accept the first offer they might not feel good about the deal they made with you. Everyone wants to negotiate and feel they got a good deal.






I want to share a few companies with you that I personally work with and trust. The products and services these companies provide are specifically for the real estate investor and are meant to save and make you more money.



Negotiation Tips taken from "Top 10 Negotiation Techniques for Buyers and Sellers: Tips for Negotiating Real Estate", By Wendy Patton.





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Screening a Good Buyer

Screening a Good Buyer

Screening a buyer is extremely important, and yet some of us investors still go by instinct or illegal decisions. Screen a tenant by reviewing their application thoroughly. Check it for accuracy and make sure they did not lie to you. If someone lies to me, they are denied the occupancy. Check their name—get a copy of their driver’s license. Check their landlord history. The current landlord may want to get rid of them, but the previous landlord has nothing to hide. Call them both. Confirm it is the real landlord in one of two ways: check it on county records, or call the person and mention a different amount of rent than on the rental application.

Check their employment, too. I use the same technique when I verify their income as I do their rental amount. When I contact the employer I say “Joe put on his application that he is making $16 per hour—is this correct?” when he actually put $12 per hour. If the person you reached is his employer and not his buddy, they will correct you on this one. On occasion I will also ask the applicant for recent pay stubs to put in the file. This information is also handy to have in case you ever have to garnish wages. Be sure to verify the hours they work and time on the job as well. Also check their banking information—you might need it later.

 
 
 
Excerpt from Investing in Real Estate with Lease Options and "Subject-to" Deals.
 
 
 
Wendy Patton Official Blog

Extra Ways to Protect Yourself in a Lease Option: Place a Deed in Escrow

Extra Ways to Protect Yourself in a Lease Option: Place a Deed in Escrow

This approach can be used along with the filing of a Memorandum of Option. The seller would actually sign the deed at the same time that they sign all of the lease option contracts. However, the deed is not yet recorded on the title. Instead it is held in escrow by an attorney or title company with instructions for its release. While this approach does not protect the title against the potential filings of liens, it tends to give sellers the feeling that they have deeded, or sold, their property, so they are much less likely to try to back out later on their lease option agreement. It can also allow the investor to close on the home without the seller being present.

The instructions included with the deed in escrow specify how and when the deed can be released and recorded. For example: “When Wendy Patton pays $155,000 in certified funds to Joe Smith, this deed can be released to her. These funds must be paid by (date).”



Excerpt taken from Investing in Real Estate with Lease Options and "Subject-to" Deals Book.


Wendy Patton Official Blog

Helpful Negotiating Tips

Helpful Negotiating Tips


Everyone likes to negotiate! We may say we don’t, but we all do. Think about this: If you were to offer a price for something and the seller said “Yes” right away, how do you feel? Good you got your price, but you are feeling bad because maybe they would have accepted less. Negotiating is key to getting any good deal in real estate also. Here are some ideas to help with negotiation:

1. Be Prepared. If you enter a negotiation without the proper preparation you've already lost. This process begins with you. Be clear on what you really want out of the negotiation. Also, research the other side to get a better understanding of their needs as well as their strengths and weaknesses.


2. Ask Questions. You’ll want to do this both before and during negotiations. When you ask questions, practice silence after your question. Let them talk and listen for clues. You will learn a lot more if you zip it (your lips that is) and let them talk. You will learn so much when you listen and they talk. You want to ask them open-ended questions to give them room to talk and give you details. Try not to ask a question that requires a yes or no answer. You can learn a lot by their answers.



3. Timing is everything. Timing is an important key in any negotiation. First you must know what to ask for and then you have to know when you ask for what you want. You have to know times that you should press forward, and times that you should be patient and wait. When you are doing your best is the time to pull for what you want. Be cautious of pressing too hard because it could potentially ruin long-term relationships and prevent new relationships from forming.




Excerpt from Top 10 Negotiation Techniques for Buyers and Sellers : Tips for negotiating Real Estate, By Wendy Patton.



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Happy Independence Day to All!

"May the sun in his course visit no land more free, more happy, more lovely, than this our own country!"

 ~Daniel Webster



Enjoy these fireworks and I hope you all have a great holiday!





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Lease Option Risks and How to Avoid Them

Lease Option Risks and How to Avoid Them

The biggest risk for a lease option is the possibility of the seller having a problem financially. Although in the beginning we only lease option from financially strong sellers, there are things that could go wrong in a seller’s life. A lease option is control without ownership. Because the owner stil holds the deed to the property, if they incur a financial problem, there is a chance the title/deed could have a lien placed on it. A lien can usually be placed on a piece of real estate if a person owes someone money, when certain procedures are followed. This may cause a problem such that it may not be possible for the seller to sell the home easily. Fortunately, there are several things you can do to assist in preventing the repercussions of these things on you as the buyer.






1) Make sure the seller is solid when doing a lease option with them. If they want to check your credit, ask to check theirs too. You can also have a private investigator check them out if you are not sure.


2) Make sure you record a memorandum of option. This is a document that gives the world notice that you have an interest in the property. Then the seller can’t refinance the home or sell it to someone else.


3) Focus on and pursue primarily sellers with equity. If the seller has a lot of equity in their home, then even if something bad did happen to them, they would have some cushion to fall on.



 
 
Excerpt taken from Investing in Real Estate with Lease Options and "Subject-to" Deals.
 
 
 
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The Tool Every Investor in the Country Must Have – Pre-Paid Legal Part 2

The Tool Every Investor in the Country Must Have – Pre-Paid Legal Part 2

As promised, here is the remaining information you NEED to know.




Here is something that most people don’t know. When you buy a house the purchase agreement you sign is in no way a standard document. Purchase agreements aren’t written out by each state and then required to be used in each transaction. It doesn’t work that way. Every real estate company has their own purchase agreement, any private transaction outside a real estate company will have a unique purchase agreement. Once you sign that purchase agreement you are bound to it. How would you like to be the buyer of a house where you have to pay the seller’s unpaid property taxes for the last five years because it was written into the purchase agreement?



Too many of us don’t want to spend the money to have an attorney review a contract. We just risk it instead. Pre-Paid Legal will review an UNLIMITED number of personal documents for you, up to 10 pages each. Plus they will review one business document once a year at no extra charge. Talk about peace of mind!



Those are some of the common uses we as investors have for Pre-Paid Legal. Those types of things are integral to our business and we would use them on a regular basis. Pre-Paid Legal offers a whole lot more benefits than that for our small monthly fee. I won’t go into them all but here are two critical ones. If you or your spouse is named as a defendant or respondent in a civil or criminal action you receive 75 hours of paid attorney time, and it increases by another 75 hours for each year you renew, up to a total of 335 hours of pre-trial and trial time. That’s enough for almost every trial except O.J. Simpson’s! God forbid that this should ever come to pass, but what a wonderful safeguard to have.



The other critical service Pre-Paid Legal offers that I wanted to mention is that if you are ever audited by the IRS, which seems to happen more to us investors than the average person, you receive 50 hours of paid attorney time. Facing the IRS without the support of an attorney just isn’t something you want to do.



As real estate investors, when we buy and sell houses, we often make use of Realtors™ and mortgage brokers on our transactions. Each time we do, they get paid for their work, usually a percentage of the cost, which amounts to thousands of dollars. If you could retain a Realtor™ and a mortgage broker for $25 a month to take care of you wouldn’t you jump at the chance? Here’s the thing, attorneys charge MORE than Realtors™ or mortgage brokers! I recommend Pre-Paid Legal to every investor I know because it’s such a great deal and I make use of it myself.


Eager to become a member?  Sign up Today!



To sign up for Pre-Paid Legal or to find out more please visit: www.GotLegalPlans.com

OR

Call Michael Gott at (248) 227-3943



Excerpt taken from Pre-Paid Legal: The Tool Every Investor Must Have By Wendy Patton


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The Tool Every Investor in the Country Must Have – Pre-Paid Legal

The Tool Every Investor in the Country Must Have – Pre-Paid Legal


For a small monthly fee - with no contract required - we can get access to a battery of attorneys by using Pre-Paid Legal. How small is the monthly fee? Right around $25 bucks a month!


Ready to become a member?  Register today for Pre Paid Legal Services!



How can you use this as an investor?

For starters, you can make unlimited phone calls to have your legal questions answered and receive legal advice. How useful is that? Think about how many different ways you can use that when you are buying or selling investment deals, or even for your personal life. For example, let’s say a tenant calls you and says their apartment was broken into and wants you to fix the front door. Tenants speak in code, and more often than not, when a tenant says their apartment was broken into it really means they locked their keys inside and didn’t want to pay the fee for you letting them back in so instead they kicked in their door and claimed someone broke in.



A quick call to Pre-Paid Legal and the attorney may advise you to have the tenant file a police report and have you insist on seeing the police report before the door can be repaired or have the door fixed at their expense if they fail to provide the police report. Tenants know that filing a false report is a crime so they’ll probably think twice about following through.



Pre-Paid Legal can also write letters on your behalf. When people or businesses receive a letter from an attorney on your behalf they know that you have an attorney at your disposal and will not be easily pushed around. This can be very useful when dealing with unscrupulous contractors, for example. I have had my share of great contractors but I’ve also had to deal with some who try to take shameless advantage. If you have a contractor who consistently doesn’t show up at the job site to get their work done this costs you a lot of money in delays. A quick letter from your attorney will probably be all of the prompting that contractor needs to start showing up and getting the job done.



Or what about if the contractor underbids the job and then tries to bill you extra for their mistake? Most people end up paying this, pretty much knowing they are being taken advantage of but not knowing what they can do about it. A letter to the contractor from your attorney will let that contractor know they aren’t going to be able to take advantage of you. If a contractor tries to bill you just an extra $600 for a job that would pay for your Pre-Paid Legal costs for 2 years!





More information on Pre-Paid Legal will be coming tomorrow.



To sign up for Pre-Paid Legal or to find out more please visit: http://www.gotlegalplans.com/

OR

Call Michael Gott at (248) 227-3943


Excerpt taken from Pre-Paid Legal: The Tool Every Investor Must Have By Wendy Patton

Source

Lease Option or Lease Purchase in Oakland County, Michigan

Lease Option or Lease Purchase in Oakland County, Michigan

A doctor has a new home built for himself. His old home is worth $200,000 and he owes $125,000. He has $75,000 of equity. He is not behind on payments, and he did not need the $75,000 cash out to buy the new home. His old home is sitting vacant and the Realtor has not sold it yet. He qualified for both house payments at the bank and he can technically afford both, but who wants to make an extra house payment?

Although he is motivated to sell because he's paying out of pocket every month to own a vacant property, this type of seller is not going to simply give you the deed and let you take over the mortgage. No way is he going to give up all of his $75,000 in equity, and no way are you going to pay that much cash out of pocket.

When you lease option this house, he gets most of his equity back - although it won't happen until you sell the property. The deal might work like this: You option the property for $195,000, and make payments to the seller that equals his total mortgage payments. You sell the property on an 18-month lease option for $228,000 with payments to match. You get cash flow plus $33,000 in profit when your tenant-buyer buys the property; the seller gets his payments taken care of for a few years, and then gets the bulk of his equity out. And in the meantime, he doesn't have to worry about management, vandals, frozen pipes, and all the other things that owners of vacant houses have to deal with.


Touring a potential Lease Option home.


 
 
 
Additional resources on the topic of Lease Purchase and Lease Option.


Excerpt taken from Investing in Real Estate with Lease Options and "Subject-to" Deals, Chapter 4, Pages 59-60.

Original Location

Script for Buyer When Calling a Listing Agent About a New Construction House

Script for Buyer When Calling a Listing Agent About a New Construction House

Call the contact person from the sign or advertisement and say:




“Hi Sally, my name is ___________ and I was calling about


the home you have listed at __________ (the address). Is it


still available?”



After they say, “Yes, it is,” I would say:



“Can you tell me more about the home? How much is it and


how large is it?”



Listen to see if it is something you would be interested in. If so,


follow up with:






“I wondered if the builder would be open to something creative.”



Leave it at that and say nothing more. Your goal is for them to launch into a long explanation of what the seller will or will not do. Other times they’ll say, “Like what?”



“Well, something like a rent-to-own or a lease option. I am a rent-


to-own buyer looking for a new home in this area. Would the builder


be open to something like this?”



Like before, you will probably get several possible responses:






1. “Yes, they have mentioned that to me.” If you get a positive


response, then ask: “Great! Do you know what kind of terms


they are looking for or are they looking for an offer?”



If they are looking for terms that work for you or they are looking for an offer, make an appointment to see the home if you haven’t aready. If you are working with a real estate agent, you should tell the salesperson on-site that you have an agent and tell her who it is. Call your agent to tell him you found something you are interested in. Even though the sales person on-site can show you the home and amenities, your agent can still help you with the transaction.



If the terms are not within your budget, ask the following:



“Do you hve any other new construction listings where


your builder might have said to you, ‘ Sally, if you don’t


sell that home soon, I might have to rent it,’ Sally, can


you think of any of your listings that might work for me?”



Sally may also respond to the rent-to-own question


like this:






2. “No, they need to sell now and wouldn’t be interested


in that.”






If this is the case, jump right to the question where you ask if she has


any other listings that might work. You will need to know your price


range and what you can afford; as she will probably ask you about this


(we covered this in Chapter 3).






3. “I’m not sure. I would have to check with them.”






If this is the response, encourage the agent to talk with her builder and to


call you as soon as she knows.



4. “What are you talking about?”






If she doesn’t know what rent-to-own is, you may have to give her a brief


explanation.






5. “Why do you need a rent-to-own?”



Your best answer is to simply tell her that a mortgage won’t work for you now,


but you do want to get into a home now. Ask her if this home or another listing


of hers might be a candidate for rent-to-own. Keep your answer brief and let her


ask you more questions if she has them.



Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 76-78.



To view this post in its original location, http://www.wendypatton.com/blog/script-for-buyer-when-calling-a-listing-agent-about-a-new-construction-house

Script for Calling a Realtor about Rent-to-Own and Lease Options, Part 2

Script for Calling a Realtor about Rent-to-Own and Lease Options, Part 2

As promised, the remainder of "Script for Calling a Realtor about Rent-to-Own and Lease Options".


Use this follow-up sentence on any of the



statements below where it applies. You always


want to dig to see what else they have that might


work for you.



Sally may also respond to the rent-to-own question like this:



“No, they need to sell now and wouldn’t be interested


in that.”



If this is the case, jump right to the question where you ask if she has any other listings that might work. You will need to know your price range and what you can afford; as she will probably ask you about this (we covered this in Chapter 3).



“I’m not sure; I would have to check with them.”



If this is the response, encourage the agent to talk with her clients. Remind her that you are looking for a rent-to-own home in that area and her commission would be paid in full when you buy the home.



“What are you talking about?”



Not every agent knows what rent-to-own is so you need to give them a brief explanation. Be prepared to tell them something like, “Well I would rent the home and buy it later.” Keep it simple.



“Why do you need a rent-to-own?”



Most likely it’s because you can’t get a mortgage right now or because you don’t want to get a mortgage right now. You best answer is to simply tell her that a mortgage won’t work for you now, but you do want to get into a home now and ask her if this home or another listing of heres might be a candidate for rent-to-own. Keep your answer brief, but do be honest. If you had a bankruptcy or a foreclosure, it will be important that they know that. Don’t spring that on them later. If you had perfect credit, you probably wouldn’t need a rent-to-own in the first place.



Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 68-71.



To view this post in its original location, http://www.wendypatton.com/blog/script-for-calling-a-realtor-about-rent-to-own-and-lease-options-part-2

Script for Calling a Realtor about Rent-to-Own and Lease Options

Script for Calling a Realtor about Rent-to-Own and Lease Options

Once you have the agent on the phone, here is what I usually say:

“Hi __________ (the agent’s name), my name is

___________ (your name) and I was calling about

the home you have listed at ___________ (the street address).

Is it still available?

After they say, “Yes it is,” I would say,

“Can you tell me more about the home?  How much is it

and how large is it?”

Listen to see if it is something you would be interested in.

If so, follow up with:

“I noticed it has been listed for a while”…

(Assuming it has been listed for more than four

months).

Wait and see what they say without saying anything else.  They might say, “Yes…” and I would go on to the next question, or they might start to talk more – which is what I am hoping they will do.  I want them to start to talk and tell me more.  Maybe they will tell me why it has been listed a long time or what the status is.  You would be amazed at what others will tell you when you zip it and listen.  My next question is:

“Well, I wondered if the sellers would be open to something creative.”

Again, I leave it at that and say nothing more.  Sometimes they

will volunteer a long explanation of what the seller will or will

not do or sometimes they say, “Like what?”

“Well, something like a rent-to-own or a lease option.  I am

a rent-to-own buyer looking for a home in this area.  Would

your seller be open to something like that?”

Don’t say anything until they respond.  You’ll get one of five responses. 

“Yes, they have mentioned that to me.”  If you get a positive

response, the next question to ask is, “Great, do you know

what kind of terms they are looking for or are they looking

for an offer?”

If they are looking for terms that work for you or they are looking for an offer, make an appointment with Sally agent to look at the home.  Note:  Sally will try to become your Realtor.  This might not be bad if Sally is creative and willing to read this book along with you, but otherwise don’t sign anything to commit you to Sally except for this home.  If Sally is really good, you might want her to be your agent.  If the terms are not within your scope, then ask the following:

“Do you have any other listings where  your

seller might have said to you, ‘Sally (remember

to use their real name J), if you don’t sell my

home soon I might have to rent it?’  Sally, can

you think of any of your listings like this that

might work for me?”

To be continued until tomorrow!  Join me tomorrow as I go over possible Realtor answers. 

Excerpt taken from Rent-To-Buy: Your Hands-on Guide to BUY Your Home When Mortgage Lending is Tight, Chapter 5, Pages 68-71.

To view this post in its original location, http://www.wendypatton.com/blog/script-for-calling-a-realtor-about-rent-to-own-and-lease-options

Understanding the Steps Behind Fear Destruction and How to Create Desired Action

Steps for fear destruction:


When you feel the emotion of fear enter your mind, simply pause.

>>>>

A pause in time will carry away the initial flood of emotion.

>>>>

After the flood is gone, calmly ask…what needs to be done?

>>>>

Put each of your individual concerns on paper.

>>>>

They are now out of your head, and an individual solution can be developed for each one.


Even after a fear has been identified, and a solution developed, fear still doesn’t “disappear entirely.” It also doesn’t need to disappear entirely.
Remember that fear is so powerful that it is usually impossible to get rid of it entirely. Let’s look at our example above, where we discussed the fear of the property “not renting right away.” Even after applying the solution, and having more than enough cash reserves in place, the fear will still linger. Why? Because fear is a very powerful emotion, and it usually “sticks around” even after the solution has been implemented.

This is OK. Here is one of the most powerful things you will ever learn about fear:

There is no need to get rid of fear entirely.



It would be nice, but it’s truly impossible—so don’t even worry about that. You don’t need to get rid of it entirely. All you need to do is this…

1. Identify it, understand it, implement a solution, and reduce it…

2. To the point where you can get yourself to take the action that you desire.


This is all that is necessary. You don’t need to “get rid of your fear.” You just need to manage it, so that you can effectively reduce it beneath the “fear action threshold.” Once you reduce your fear beneath the fear action threshold, you will take action.



Wendy & Justin’s Advice on Fear: Our goal is not to get rid of fear entirely, for that is impossible. Our goal is to simply reduce our fear to the point where we will take action.





Excerpt taken from Making Hard Cash in a Soft Real Estate Market, Chapter 3, Pages 22-23.



To view this post in its original location, http://www.wendypatton.com/blog/understanding-the-steps-behind-fear-destruction-and-how-to-create-desired-action

Successfully Financing Your Real Estate Investments: Buyer Financed Construction-to-Perm Loan

A construction-to-perm loan is your second new construction financing option. You are more likely to see this type of financing for single-family home developments. In this situation, the builder is selling you the lot and a home plan he will build for you. You, as the investor, are required to obtain financing to pay for the lot and construction. A construction-to-perm loan provides you with financing during the construction process and once the home is complete, the loan modifies into a permanent end loan.

The advantage to securing your own financing is you need substantially less money out of pocket, at least initially. In this case you are not giving the builder a deposit of 10 percent to 20 percent. Your actual out-of-pocket costs can be exceptionally low. Some lenders may allow you to finance your project by lending you a high percentage of the home’s projected appraised value when completed. This can substantially decrease an investor’s down payment costs.

As an investor with limited funds available, this can provide you with a substantial saving; however, when you obtain your own financing, there are additional risks. The first risk is interest payments. A typical construction loan will have an amount of interest charged by the lending institution to pay for construction costs. Some lending institutions may allow you to roll these interest costs into your overall loan. This will minimize your out-of-pocket exposure on the transaction. However, should the construction period run longer than expected, which happens very frequently, you might incur additional interest costs or lender penalties.

The next risk is additional building and materials costs. If the builder runs into additional costs, such as higher than expected site preparation costs, increased impact fees (taxes), or unexpected increases in building costs, you can be sure these costs will be passed on to you. So although securing your own financing will have lower intial costs, it might be offset by higher carrying costs during construction. Always keep reserved funds in place to allow for the unexpected.

The third risk is responsibility. When you secure the financing for the property, the ultimate responsibility for paying that loan is on your shoulders. The bank expects that loan to be paid no matter what happens. If you select an unscrupulous builder, who either fails to build, or takes far longer and incurs far more costs to build than originally projected, the bank will still hold you accountable for that loan.



Key Advantages to Construction-to-Perm Loan

• Less money out of pocket

• End loan is already in place

• Savings on closing costs



Excerpt taken from Making Hard Cash in a Soft Real Estate Market, Chapter 15, Pages 153-154.

To view this post in its original location, http://www.wendypatton.com/blog/successfully-financing-your-real-estate-investments-buyer-financed-construction-to-perm-loan  

Successfully Financing Your Real Estate Investments: Builder Financed

In most cases, this option in which the builder secures the loan, is the best choice. If you are investing in a large resort development or a condominium tower, it will always be this way. Usually you would provide your own construction financing only when doing a single-family build. But with the negotiating power of our group, we have been able to negotiate for the builder to hold the construction financing—even when building our investors’ homes!

One benefit of having the builder carry the financing during construction is that if there are delays, such as natural disasters or construction problems, it will usually cost the developer more money and not you. No mortgage is required for you during the build cycle.

Typically, you would see the first option, in which the builder secures the financing, in a condiminium project and a planned-unit-development (PUD). A PUD is a planned community with common open space, such as a set of townhomes with amenities such as a swimming pool, fitness center, and so on. The builder must pre-sell a predetermined percentage of the units to obtain financing. As an investor, you help to fulfill the developer’s pre-selling quota, allowing the project to begin. Because the builder is securing the financing on the project, you as the investor are not required to get a loan during construction. This can be a huge advantage. In fact, if you resell the property before construction is complete, you will never have to secure your own mortgage. You, of course, always want to be prepared to close on every single property that you secure. Selling before construction is complete can be one of your intended exit strategies, but it should never be the only one.

As an added advantage for the investor, when the builder secures financing, the investor foes not make any payments or pay any interest during the construction process. This reduces your carrying costs on the project. You are also less likely to be burdened y unexpected additional charges during the construction. These items will vary from builder to builder and contract to contract. Review your contracts carefully to make sure the builder won’t be passing on any additional costs to you.



Key Advantages to Builder Secured Financing

• Not using your own credit during construction

• No interest payments during construction

• Less likely to pay for unexpected charges

• If you sell before construction is complete, you never have to get a loan





Excerpt taken from Making Hard Cash in a Soft Real Estate Market, Chapter 15, Pages 152-153.



To view this post in its original location, http://www.wendypatton.com/blog/successfully-financing-your-real-estate-investments-builder-financed

WEBINAR TONIGHT

Everyone, the Find Cash Buyers Now webinar is tonight at 8:00 PM (EASTERN).



Here are 5 Reasons why tonight's webinar is one you DO NOT want to miss:

1. Instant Buyers List: You will instantly have a list of the most qualified buyers in your area and nationwide. These are people that actually have money and don't have to use a bank to buy your real estate deals!



2. No Real Estate Commissions Paid Out: Think about it this way. Are you going to sell a home over the course of the next couple years? Yes, of course! If you use a Realtor to sell ONE home valued at $200,000 dollars it will cost you $12,000 dollars of your profit. However, if YOU sell the home to a "Cash Buyer" it won't cost you a dime. (Do the math if you sell more than one home!)



3. REO Flipping Now Possible: Flipping REO's is not easy. Period. The reason is because you have a short time period to control the property, find a buyer, and if your buyer needs to get a loan. Forget about it...headaches, deal falls apart, you go bald from stress. Not if you sell to a "Cash Buyer" who can close in 3 to 7 days.



4. Pre-Foreclosures/Short Sales & Title Seasoning: Big problem solved. If you work in this niche of real estate the toughest part of every transaction is getting the deal closed when you are selling the property to another buyer with a bank loan. With a "Cash Buyer" there is no seasoning requirements or hassles.



5. Deals Falling Apart: Over the past few years we have plenty of deals that fell apart at the last minute because the buyers financing got pulled at the last minute. Well, with a "Cash Buyer" you don't have this problem.


Register here because you know this webinar is going to make your life easier, Click here.

See you there,

Wendy





To view this post in its original location, http://www.wendypatton.com/blog/attention-webinar-tonight

Find Cash Buyers Today!

Do you want to know how to get access to a list of all Nationwide Cash Buyers in a couple clicks of your mouse? If so, the upcoming webinar on Thursday, June 17, 2010 at 8:00 PM (EASTERN) will show you how.


If you are involved in any niche of real estate (residential, commercial, wholesaling, rehabbing, lease options, short sales, or even a Real Estate agent) this webinar will be right up your alley.



Ready to get started? Register Today



See you there!

Wendy



P.S. I forgot to mention, when you register, you are also going to get 3 FREE TRAINING VIDEOS. Just register and you will be automatically sent there.

To view this post in its original location, http://activerain.com/blogsview/1697617/find-cash-buyers-now-webinar

Points to Consider for the Rental Agreement Part 2

Additional Issues to Cover in Your Rental Contract

Occupancy - The contract needs to specify that the premises will be used as a residence with a specified number of adults and children. The premises will be used for no other purpose without written permission by the owner. Having any guest staying more than 14 days will be considered a reach of the agreement unless the resident tenant recieves written consent from the landlord. I also don’t allow them to use the premises for a home business without my permission. A lot of people have home-based businesses, and that’s not a concern except if they have customers coming in and out of the home, which creates a potential liability issue. So check with your tenant to see what kind of home-based business they will have.



Pets - I make sure that they sign an agreement with me about having pets on the premises. I need to know, for example, if they have pit bulls or any other potentially dangerous animals on the property. It doesn’t matter to me if they do have pets, and in fact almost all of my tenants have pets – I just need to know about it.



Entry and Inspection - This gives you the right to enter the property at reasonable times and with reasonable notice to inspect the premises. It’s not that you are inspecting their personal lives but that you want to make sure the home and property, which do not yet legally belong to the tenant, are maintained in accordance with the rental agreement. You also may want to show the home to prospective new tenants or buyers. If the tenant decides not to exercise, you want to have the right to affix “for sale” signs on the front lawn, but you shouldn’t even step onto the lawn without calling the tenant first. This is violating their rights to peaceful enjoyment.



Assignment and Subletting - I do not let my tenants sublet or rent any portion of the premises without my prior consent. The subletter’s name is not on the rental agreement.



Joint and Several Liability - Anyone who signs the contract is 100 percent responsible for all the points within the contract up to the total amount due. I had three men who signed the agreement and all three split later. I was only able to find one of them and I told him he was 100 percent responsible for one-third, but this inclusion of joint and several liability protects the landlord from having to find all the tenants. If one can be found, that one is 100 percent responsible.



Maintenance, Repairs, and Alterations - It is the tenant’s responsibility at all times to maintain the residence and property in a clean and sanitary manner including fixtures, equipment, appliances, furniture, and all other furnishings. If they should choose not to exercise the option, the residence should be left in the same condition as originally rented, normal wear and tear excepted. Residents are responsible for changing the furnace filters and the batteries in the smoke detectors on a regular basis. Residents should be responsible for the maintenance of the property and the house costs. The tenant cannot make major changes to the structure until he owns the property. I had one resident who tore off an upper decking because he decided he didn’t want it, and I had to pay for it and then rebill him because I didn’t own that house. The resident also cannot paint, hang wallpaper, or make any other changes without my consent. I had one tenant who repainted the inside of the home navy blue, and then left after two months. I had to sue to recoup my costs for repainting the home. Residents must also be responsible for the cleaning of sewers and drains that have become blocked due to their negligence in keeping them cleaned.

If the resident damages any windows or doors, it is their responsibilty to replace those items immediately. If the resident hsn’t reparied the items within seven days, I will replace the items and charge the residents for the repairs, and these costs will be due immediately. I tell my tenants that any repair under $10 must be reported to me and any repair over $10 must be approved in writing. In other words, they don’t have an open checkbook to make any repairs they want. Make sure your tenant also doesn’t run off and do repairs and then bill you for them, such as “My furnace went out and I paid the guy $200 to fix it.” My furnace company might only charge $100. Also, the tenant may then try to take that repair bill and apply it against their rent. Make it very clear to the tenant that no repairs can be made without your consent if the repairs are over $10.



Appliances - One of the things I list on the contract is all the appliances already in the home. I make it clear to the tenant that all the appliances in the home are there for my convenience- in other words, they belong to me. If, therefore, one of the appliances stops working and they dispose of it without telling me and then leave the home with that appliance missing, I will bill them for it. If they want to remove the appliance, I have to agree to it and I will cross it off their rental agreement with my initials and the date.



Ordinances and Statutes - The tenant must abide by local zoning laws for usage of the property. For example, they can’t run a day care business at the home if it isn’t zoned that way (not to mention the excessive liability that would incur). A home-based business of web site design, however, violates no zoning laws anywhere in the country. You have the right, as the landlord, to evict immediately for any illegal operations on the premises- for example, druge usage or manufacturing.



Liability of the Tenant - The resident is responsible for any personal injury or property damage caused by the resident or tenant or the tenant’s visitors. The tenant is also responsible for damage due to negligence in caring for the property. If there is a fire, however, and all the tenant’s property is lost, the owner is not responsible to pay for that since the tenant carries his own renter’s insurance for just such an event. The tenant must keep all the sidewalks clear and clean, all access to the home free and clear, and should maintain the outside premises to be a safe enviroment.



Insurance Coverage - Because the owner’s policy does not cover the belongings of the tenant, the owner requires the tenant to carry their own insurance against the risk of damage to their personal property. This insurance must be in place before the tenant moves in.



Defaults—Landlord Remedies - Let the tenant know that failure to comply with even one part of the agreement will constitute a default of the entire agreement. This means that the owner can immediately repossess the property.



Attorney Fees - In the event that either party has to take legal action to enforce the terms of the contract, the owner will be allowed to recoup all attorney fees permitted by law.



Security Deposit Act - Make sure that the Security Deposit Act (SDA) of your own state is in your rental contract. The SDA varies by state, and you must know what the rules are for your state. You are the one providing the contract, so you are responsibly for that information.



Notices - Any notices must be in writing for your own protection, and not verbal. Notices should be sent to the residence address. If the tenant is sending you a notice, it should be sent to the address specified in the contract ( either office or post office box).



Waiver - Failure of the owner to enforce any part of the contract will not constitute a waiver of the contract. For example, if I waive the late fee one month, that doesn’t negate my right to enforce it the next month.



Holding Over - The tenant must give a 30-day written notice of intent to vacate the property.



Additional Terms and Conditions - Some further things you may want to add to your contract include:

• Vehicle limit.

• No motorcycles (some can violate the city noise ordinance).

• No working on the car on the premises. All repair work is to be done off site.

• No permanent stickers on the bathtub, and only nonabrasive cleaners to be used on the tub.

• No carpet cleaners will be used without landlord permission. The reason for this is that some of the over-the-counter cleaning solutions can actually bleach the carpet and leave a white spot.



Make Sure Your Tenants Read and Understand the Agreement

It is very important that you go through the contract line by line with the tenant so that they have heard everything out loud and are fully responsible for the contents when they sign their name. Don’t skip over any points of your contract, even if they begin to fidget because it takes awhile. You might also ask after each point, “Do you have any questions about that?” If they want to take the contract with them, then that is okay also.





Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals, Chapter 13, Pages 187-191.



To view this post in its original location, http://www.wendypatton.com/blog/points-to-consider-for-the-rental-agreement-part-2  

Points to Consider for the Rental Agreement Part 1

The rental agreement: The rental agreement specifies how long the tenant will rent the home and how much they will pay each month in rent to me. During the rental period they can purchase the home, unless otherwise specified. A rental agreement also comes in handy if ever taken to court, so that no matter what the tenant hs put into the property, the judge will let me evict if necessary rather than foreclose.

The rental agreement gives the tenant the right to occupy the property during a specified time period. It is similar to the rental agreement you signed with the owner/seller, except obviously your rental agreement with the tenant will be very pro-landlord (pro-you).

The rental agreement needs to be separate only for selling on an option. If you are the buyer, you certainly can put them into one document, but when turning the option around, you’ll want to use the three different documents. The reason is that if the tenant doesn’t pay, or the deal goes south, you will want to be able to evict them as quickly as your state allows. If you have all three agreements in one contract, some judges will look at the lease option as a sale rather than a lease, and therefore make you go through a full foreclosure or forfeiture process versus an eviction. This will take much longer, be more expensive, and may require an attorney.

Anyone who will be residing on the property over the legal age must sign the rental agreement. This includes children of legal age (determined by the state).

A cosigner can be an important safeguard if you have a weak applicant and they have a strong parent or friend who is willing to sign with them on their rental agreement. It works well for giving liability to someone else who will come through with the payments. I have a situation where a mother cosigned for her daughter. It was just a rental but the daughter had terrible credit. The mother, however, had worked for General Motors for 25 to 30 years and made a good guarantee person for me. The daughter stuck me for nearly $5,000 in unpaid rent and damages, and now the mother is paying for itout of her GM checks. In another case, the mother was a local Realtor in Michigan, and she asked me to help her daughter get a house. Her daughter had been through a rough time, and the mother was willing to cosign. I probably didn’t even run the daughter’s credit because I knew the mother was a well-known Realtor and was good for whatever might happen. The mother paid the $5,000 option fee, and the rent was $1,300. Eventually, the daughter left, owing me $3,000 in unpaid rent, and the mom had to pay if off.

I like to make all rent due on the first day of the month. If a tenant moves in on the seventh, I prorate the rent for the month. My rental agreements specify late fees of $25 for the first day late and $5 per day afterwards, and the tenant, of course, must sign the agreement to this. I can’t reiterate enough how necessary it is to have everything in writing, spelled out in detail. That way your tenant can’t say, “I never agreed to that.” All you have to do is point to the contract and say, “Here it is in black and white, and there’s your signature underneath it.” I also like to add an incentive to encourage my tenants to pay on the first of the month. My contracts state that if they make their monthly payments on time, inlcuding any unpaid option fees, then I will credit them with $100 towards the purchase price of the house.

Your other fees on the property can include a pet deposit, security deposit, cleaning fees, and the like. In a lease option, I usually do not require a security deposit, because if they have an extra $1,500 for a security deposit, which is refundable, I’d rather have them apply that to the option fee, which is nonrefundable. There are some good reasons and areas of the country where even a small security deposit is recommended. It gives the tenant something they can get back if they don’t purchase. Some judges like a small amount showing as a security deposit. None of the option fees, however, show up on the rental agreement, as the option agreement is a separate document.

Your rental agreement should state the total cost to move in. For example, if there are fees, you will add them to the first month’s rent to get the total for the rental agreement, but that is not the total overall cost since you also need to add in any security deposit. The rental fees plus the security deposit make up the total move-in costs. The rental agreement must also show the total amount of anticipated rent for the contracted period, including prorated months.

You can also state in the agreement that if the rent is more than 10 days late, the agreement may revert to a month-to-month rental (nullifying the option) at the discretion of the landlord. I generally don’t do this unless I want to get rid of the tenant, because when this alternative plan is set in motion it allows the tenant to move out at any time. Be sure your rental agreement states that the keys are due back within 24 hours if the tenant does not exercise the option and/or moves out.

Payments should be postmarked by the post office rather than a Pitney Bowes machine, as these machines can have their dates changed. In my rental contracts I also specify that any bounced checks are subject to an additional fee. Although I start out trusting my tenants and allowing them to pay with personal checks, if one check bounces, all payments after must be paid in certified funds or bank checks only. I also tell them that if their rent is late twice within a 12-month period, their monthly rent will increase by $25 per month.

You should specify to the tenant how their payments will be applied, and in what order:

1. Outstanding dishonored check fees.

2. Outstanding late fees chargeable to tenant.

3. Outstanding legal fees, court costs or both.

4. Outstanding utility bills that are the tenant’s responsibility.

5. Any damage caused by the tenant.

6. Collection agency fees.

7. Costs for re-letting the property, if applicable.

8. Option fees owed.

9. Rent.

You should apply their payment toward rent last because it is easier to evict on unpaid rent than on unpaid utilities. So use their money to pay for unpaid utilities, and if the rest doesn’t cover the rent, you can begin eviction proceedings in most states. Again, check with your local investor group or a local real estate attorney on landlord eviction laws.



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Stay tuned for Part 2 of “Points to Consider for the Rental Agreement”.



Excerpt taken from Investing in Real Estate with Lease Options and “Subject-To” Deals, Chapter 13, Pages 183-187.





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