Posts Tagged ‘Real Wealth Network’

How to Find and Keep Great Tenants

Written by Apartment Management Magazine on . Posted in Blog

by Kathy Fettke | RealWealthNetwork.com

HappyTenants

Finding a great tenant begins with having great information — and lots of it. Information is a landlord’s crystal ball. And the best time to get this information is “before” the tenant signs on the dotted line.

One of Real Wealth Network’s preferred property managers calls it the “honeymoon period” because tenants will tell you more about themselves when they want something from you — such as the keys to your property. And it’s not just important for the selection process. This information can be critically important a year or two down the road, if your rental situation suddenly goes south.

This property manager, who prefers to remain anonymous, owns hundreds of properties herself. After years of dealing with both good and terrible tenants, she is a wealth of knowledge about what it takes to select the right tenants. Here is some of her advice:

Tenant Screening Priorities

1. Begin with a criminal background check and a civil background check.
Criminal background checks are good for things like arrests, convictions, and warrants, while civil background checks will let you know if applicants pay their bills on time or have any judgements against them. Civil background checks tell you more about whether they will make “good tenants” and not just “law abiding citizens”. Lexus-Nexus allows you access to a more comprehensive database of information.

2. Credit checks are important for different reasons.
Credit checks are useful, but less important than background checks because they generally won’t tell you much about the tenant’s rental history. It is useful for understanding the applicant’s credit “load” and whether bill collectors are chasing them. Even if you don’t plan to do a credit check, always have prospective tenants sign a release form for obtaining one in case you need it in the future.

Bad credit does not always mean a potential tenant won’t pay their rent. For example, someone who lost their home to foreclosure during the housing crisis may have bad credit today but if the rent is less than their mortgage was, they could become very good tenants.

3. Current landlord information is helpful but you may learn much more from previous landlords.
Current landlords may not tell you if someone has been an excellent tenant because they don’t want to lose them — or they may not tell you if they are horrible tenants because they want to get rid of them. So talking to previous landlords may get you more honest information. Ask for information on two previous landlords.

4. Make sure they are who they say they are.
Request a photo ID and several pay stubs to verify source of income. Ask about next of kin and emergency contacts.

5. Be sure understand Fair Housing rules so you don’t discriminate.
Protected classes include: race, color, sex, religion, national origin, familial status and disability. In Ohio, military personnel are also protected. So know your state rules. Attorneys and paralegals are “not” a protected class. Renting to them could put you at a disadvantage in the event of a future court battle because the landlord would have huge legal fees while the tenants would not need legal advice, or would have access to “free” legal advice. Talk to an attorney on your side to protect yourself in advance with a bullet-proof lease agreement.

The Importance of Good Marketing

It’s also important to be able to attract a large pool of candidates so you can find the right tenant and not feel desperate to just take anyone. To do that, you need quality advertising. Another property management company, Renters Warehouse, offered advice on that:

Place your ad on a website that will display contact information accurately and consistently. Renters Warehouse uses proprietary software to spread the word on hundreds of websites.

Your ad needs to be impressive in order to attract the right tenant. Use high quality or professional photos of both the inside and the outside of the rental property. The photos should be taken with good lighting, and the unit should be spotless. A video walkthrough is also a great idea along with plenty of details.

Renters Warehouse says that most prospective tenants want to know everything about an apartment before they decide to call for a viewing. If you have a pet policy, say so in the ad. If you don’t allow smoking or you need a 2-year lease, spell it out in the ad. You could also include interesting details about the rental or the neighborhood and information about an HOA.

You should also have an eye-catching headline that will showcase a few desirable or unique qualities about your rental. Use well-chosen adjectives that represent your property truthfully. If it’s a recently-renovated older home in a happening neighborhood, the title could read: “Amazing, Upgraded Home Near Shopping & Entertainment.” Or if you expect to attract a younger crowd, cater to them with “happening” words or phrases. Just be sure your description is accurate.

One final point — If you are worried about current tenants making a unit look presentable during the tenant screening process, make sure you require their cooperation with a clause in the lease. For Renters Warehouse, that clause requires cooperation within the final 60 days of the agreement. It also says that most tenants are willing to work with you on those showings, so don’t be afraid to ask. It’s important that prospective tenants get a good impression.

Renting to People Who Plan to Have Roommates

Real Wealth Network has a hot tip for landlords renting to tenants who who plan to have roommates at some point. By requiring the lessee (the person signing the main lease) to inform the landlord of any potential sublessees (people who sublet from the lessee) the landlord can know who’s living in their home at all times.

The landlord then also has a “point person” to talk to about issues.

A clause about rules in regards to renting the property on VRBO or Airbnb would also be useful so you can control if your property might have complete strangers living there for the weekend.

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The Real Wealth Network is a real estate investment club that educates members on how to diversify their real estate portfolio nationwide by sharing information on the best US markets for cash flow and future appreciation. The company also offers referrals to experienced and highly-rated brokers, property managers, and real estate professionals in those markets. You can join for free at www.realwealthnetwork.com.

RED FLAG WARNING for Commercial Property Owners – a $45B Problem

Written by Apartment Management Magazine on . Posted in Blog

By Kathy Fettke | RealWealthNetwork.com
Commercial Building

This may be the year that billions of dollars in commercial mortgages go belly up. These loans were financed in 2007 and are maturing this year. That means some commercial property owners will be faced with huge balloon payments and for some, a major headache to pay them off.

The Federal Reserve stated in its semiannual Monetary Policy Report to Congress on Tuesday that commercial property prices were becoming a “growing concern.”

Specifically, the report said, “”Commercial real estate (CRE) valuations, which have been an area of growing concern over the past year, rose further, with property prices continuing to climb and capitalization rates decreasing to historically low levels,”

While commercial property debt remains small compared to the overall economy the report said that the rising “valuation pressures may leave some smaller banks vulnerable to a sizable CRE price decline.”

According to Reuters, commercial real estate loans by U.S. banks surpassed their pre-financial crisis levels in September 2015, and at last reading for January stood at a record $1.97 trillion. Small banks hold nearly two-thirds of that total, some $1.22 trillion.

Commercial property values in the U.S. have more than doubled from their 2009 low, according to Green Street Advisors’ Commercial Property Price Index. Things started slow down in 2016, with just a 3% rise in values.

And this all comes at a time when there’s also a concern about a tidal wave of commercial loans that will come due this year. Lending standards in 2007 were lax and real estate investors jumped in with both feet, taking on huge amounts of debt in that red-hot market. Back then it was difficult to see anything but skyrocketing real estate market.

Then, the impossible happened. The residential real estate bubble burst, and property valuations plummeted back to earth, and even below the water line. We know now that many homeowners lost their property because they couldn’t make the payments or because banks simply failed.

This is the year we could begin to see the same fall-out on their commercial loans.

While commercial property in the most populated metro areas like New York City and San Francisco are seeing record high prices for real property,  the real-estate recovery has been a little lopsided.

There are many U.S. markets where valuations have not caught up yet. It’s those landlords who might have trouble refinancing their monster balloon payments, and if they can’t refinance because they are underwater on the loans, they might have to sell at a loss.

Bloomberg says that prices for suburban office buildings are still 4.8% below their peak compared to Manhatten skyscrapers that have surged 50% higher than they were at their previous peak. So when it comes time to refinance loans for buildings that aren’t worth as much, lenders may want landlords to cough up the difference… and that may not be easy to do.

Borrowers may also have to pay higher interest rates, or they may run into lenders who are now pickier about what the buildings they are willing to finance. Bloomberg writes that lenders may not be eager to finance retail properties, especially malls, as e-commerce takes a bite out of their sales.

Lenders may also have to retain a 5% stake in any loans they make to comply with the risk retention rule under the Dodd-Frank Act. That prevents them from making risky loans and selling 100% of the risk. It also makes banks more selective about the loans they grant.

The fate of the Dodd-Frank Act is uncertain however. President Trump has signed an executive order to begin the unraveling of those regulations and the risk retention rule is sure to be reviewed. But those changes won’t happen over night and maybe not in time.

So just how hard will commercial property owners get hit?

Bloomberg says the delinquency rate is expected to hit 5.75% this year,  after several years of declines. Because these mortgages are packed into bonds, there could be more bondholder losses as well.

According to Bloomberg, banks sold $250 billion worth of commercial mortgage-backed securities to institutional investors in 2007. But not all of them are maturing this year because many have already been refinanced or the properties sold. Property owners with less desirable properties and weak financials have already defaulted.

Using data from Morningstar, Bloomberg says the amount of debt that will actually come due this year now stands at about $90 billion dollars. From there, Morningstar is estimating about “half” of those remaining loans will run into refinancing roadblocks!

For people faced with this situation, it’s critical to have a back-up plan. You shouldn’t wait until the last minute or you might end up losing your property. It’s best to start working now on refinancing, or selling the property before you run out of time.

If you are looking for commercial investments, be careful about paying too much and accepting low cap rates. If you just wait a bit, you could find much better deals.

And all this is happening just as the economy is in a major shift. Baby boomers are turning 65 at a clip of 10,000 per day. Their spending habits will change and that will affect commercial property. Plus, technology and innovation is quickly making some industries obsolete practically overnight.

A commercial builder asked me if we’d like to finance the construction of an auto dealership in Sacramento, “because the auto industry has been booming.”

After researching it a bit, I told him that yes, it has been booming, but only because of easy financing. But this is the year that many leases will be returned to car dealers and we could very well see a huge glut in cars for sale. My daughter needs a new car and I told her to wait just a bit longer as we could see some steep discounts this summer.

Never base your decisions on the way things have been. In 2005, Fed Chair Ben Bernanke said, ”We’ve never had a decline in house prices on a nationwide basis. So, what I think what is more likely is that house prices will slow, maybe stabilize…”

Bernanke was dead wrong, and made the fatal mistake of not taking into consideration massive debts from easy lending that couldn’t be repaid. We are seeing some of the same debt issues today, just not in residential mortgages.

We expect to see some bargains in the commercial property world over the coming year. If you’d like to be first to know about those, join the network to get on the VIP investor list.  www.RealWealthNetwork.com

Kathy is an active real estate investor, licensed Realtor, certified coach, and former mortgage broker. She specializes in helping people build multi-million dollar real estate portfolios through creative finance and planning. With a passion for researching and sharing the most important facts on real estate and economics, Kathy is a frequent guest expert on such media as CNN, CNBC, Fox News, NPR, CBS MarketWatch and the Wall Street Journal. She is the author of the #1 best seller, Retire Rich with Rentals, and is host of The Real Wealth Show – which is a featured podcast on iTunes with listeners in 27 different countries.
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