Realty Insider Blog

While home sellers curse the occurrence of foreclosures in their neighborhoods, home buyers have slowly realized the upside to the increasing number of cheap homes on the market. Regular home sellers are usually limited by the equity in their homes when setting the sales price - banks have no such limitation. Banks can, and will, reduce the price until the home sells – the sales price of a home 3 years ago is pretty much irrelevant to the bank.

While investors have been snatching up foreclosures for the last couple of years, regular homeowners and first time homebuyers have remained sitting on the fence. Reasons for the hesitation range from the notion that prices will fall even further to difficulty in obtaining financing, and lastly, unfamiliarity with the process in general.

I often get excited calls from first time homebuyers asking to see short sales or foreclosure listings they have seen online at amazing prices. Let me comment quickly on short sales: they are often a waste of time. Most of the time they don’t work out, and if they do it is usually after months of back and forth and missed deadlines. Your time is usually much better spent pursuing foreclosures. If you *love* a specific house that is a short-sale, you may want to give it a try. Odds are that it will be relisted as a foreclosure in a few months though.

Back to foreclosures… What most potential purchasers don’t realize is that a foreclosure is cheaper for a reason. They are generally all As-Is - that means truly as-is, as in no termite repairs, mold repairs, home inspection repairs and no guarantee that plumbing, electricity or HVAC will be working on the day of settlement. 

Some lenders, large ones in particular like Countrywide, will now usually allow for a 10 day inspection period where you can bring in all your inspectors and submit the results to the lender. Generally they will only agree to lender required repairs.

Complicating things further is that the utilities often are off, and in many cases may remain off during home inspections or appraisals. Some banks also charge the homebuyer to re-winterize the property after the inspection or if the contract falls through.

You can also do the inspections before you submit the offer – and many investors do. However, buyers that are not investors usually don’t want to spend $350 on inspections on a house they may or may not get (as someone else can submit an offer while they do the inspections).

As a first time homebuyer you may be able to get a home you couldn’t otherwise afford. As long as you are aware of the risks and can put up with the hurry up and wait that usually accompanies the purchase process you could get a home for a steal!

Many homebuyers use FHA loans these days - you can purchase foreclosed properties with an FHA loan. You are typically restricted to the properties that are in the better condition as the FHA appraisers(so does non-FHA appraisers) have specific guidelines to follow in regards to the condition.

There are many areas in Northern Virginia where you can get great deals on foreclosures. If you do your research you will be able to get prices 50% off 2005 prices or more. Rents have remained pretty constant, so you can sometimes break even with 20% down if you pick the right property. Millionaires will be made over the next years by people that realize the potential and have the capital to mitigate the risks.

If you are looking to buy a foreclosure for investment or as a home, please give me a call!

For some, that is the extent of their tenant qualification - tenant seemed nice and had a prefilled lease ready for me, said they would help fix the place up, gave me a personal check at move-in for two months rent and the current landlord gave glowing reviews. Excellent - no problems - being a landlord is great!

For the people that snicker, you know where I am going with this and probably won't need to read this article. For those that see nothing wrong with the above, please please please read on.

So, it is great that you managed to find a tenant. I would suggest calling the person a prospect for the time being though. There are lots of different people renting from Craig's list, so it is imperative that you check out the prospective tenant thoroughly. If you are renting out your place yourself, you are really putting yourself up as a target - problem tenants will seek out first time landlords that are lax in their tenant verification and qualification.

To weed out the riff-raff, try adding something like the following to your craigslist ad. You won't get as many responses, but those that do contact you know that you mean business:

"Sufficient credit, income, employment & rental references are required and will be verified. All adults living in the property will have to be on the rental application. $32 application fee per adult."

Make sure all prospective tenants fill out an application form and that they submit a copy of their drivers license or other valid id as well as paystubs etc. Some rental applications:

http://www.independent-pm.com/Blank%20Rental%20Listing%20_%20Rental%20Application%20(14)%20-%2008-01.pdf

http://mrlandlord.com/rentalapplication/app1.pdf

For Qualification and Verification Purposes, I suggest landlords make sure they do at least the following:

a)      Run credit on the tenants (have them order it online themselves and email you the login and password - i.e. on creditreport.com ) Print it out for your records and compare with copy of drivers license. Make sure they don't have outstanding judgments, late payments, bankruptcies etc.

b)      Be clear on who and how many will be staying in the apartment, pets etc. All adults should apply and have their references and rental history checked.

c)       Be sure to get at least 1 month's rent and one month security deposit up front (in certified funds if you don't have at least 2 weeks before you hand them the keys). DO NOT accept people that cannot afford to pay you the whole amount up front.

d)      Verify their employment (call supervisor/HR) + get copies of recent W-2's

e)      Get copies of their drivers license so you know they are who they say they are and the same person as on the lease.

f)       Make sure they understand they have to pay utilities. move-in fees, trash fees or whatever else is required.

g)      If they have dogs/cats, make sure they understand the building rules and that they pay you for example a $500 move-in deposit.

h)      Call the last 2 landlords. If they are problem tenants, the current landlord will probably lie just to get rid of them.

i) Don't make friends with your tenants. You should be courteous and friendly, but if you are looking to keep your rentals an investment, don't mix business and pleasure.

j) Don't let your tenants paint or make improvements. They may not finish, may feel you are indebted to them and ask for slack when they are late or may just do a bad job.

k) Verify all information - income, employment, name on credit report/social security number etc.

l) Use a great lease.

m) If you don't want to go through the trouble of qualifying your tenants, use a realtor and a property manager. It will save you money and lots of grief. 

Plenty of leases online you can look at:
http://www.besthomeagent.com/forms/deed_of_lease_tenant.pdf

http://www.legal.sga.vt.edu/LEASE_VRLTA_2006.doc

http://www.arlingtonva.us/Departments/CPHD/housing/housing_info/page57910.pdf

http://www.rainespropertymanagement.com/pdf/Sample%20_%20Residential%20Lease%20(11)%20-%2008-04.pdf

http://astorpropertiesllc.com/forms/sample_lease.pdf

Among additional things, make sure you provide the renter with the led based disclosure/disclaimer form as well as the led based paint pamphlet(info and download from http://mrlandlord.com/lead/.) Their may be other forms necessary from your homeowner association, local jurisdiction and state.

You will want to get a book on how to become a landlord - plenty of good ones at Barnes and Noble to help you learn how to qualify tenants and managing them for maximum profit! Also, you should have an attorney review your lease and paperwork to make sure you comply if rules and regulations.

The above may seem like overkill to some, but it takes only one bad tenant to give you unlimited hours of wasted time, destruction and lost income. So, please make sure you take the time to read up online and in books on how to find and manage good tenants.

So, what was wrong with the prospect at the beginning of the story? Well, tenants that prefill in a lease and bring to the showing is generally trying to run the show having the owner skip some of their usual due-dilligence. Never take personal checks when giving the keys - they may bounce and after you have given the keys your legal standing is diminished. The glowing reference from the current landlord? If you had a nightmare tenant that wasn't paying - and a new landlord called you for a reference - how far would you go to get rid of that tenant? (not saying you should lie - just saying that some/many would)  Then, the fixing up part - yet again sometimes a ply to make the landlord be entustiastic about a less than ideal tenant - woow, he/she will fix up my place for free! 

Ok, hope the above helps some of you get started.