The Importance of Good Tenants for the Income Property Investor
First in our “The Role of the Tenant for the Income Property Investor” series…
Every income property real estate investor understands that having tenants is critical. Empty income property cost money, they don’t generate it. So what’s more important than having tenants? Having the RIGHT tenants.
Potential investor often shy away from income real estate, based solely on the horror stories they have heard about bad tenants. Obviously there are no guarantees that any tenant will be trouble-free, but there are some real estate management things to watch for and some steps to take to ensure that your tenants will be the best ones available. This week, we begin a series of articles designed to help you find the perfect tenants.
The Best Location for Income Property
When you set out to purchase your next residential real estate income property, think about the location. The same house in a less-desirable area may cost substantially less than one in a better neighborhood, but run the numbers. If you have a high level of rental turnover, you’re looking at vacancy and turnover costs much higher than for a property that has little turnover. And since you’ll likely be able to command higher rental rates in the better area, it won’t be long before that cost difference is offset. Invest in the best area you can.
Tips for Finding “Those” Tenants for your income property
You know the ones… Stable, responsible, employed. It’s a violation of federal law to profile tenants based on race, ethnicity, national origin, religion, familial status, gender, and handicapped status. However, it is not only acceptable but wise to establish requirements for employment stability and financial capacity. Many income property owners require credit and criminal background checks also. But let’s talk about this for a minute. The huge number of foreclosures happening right now, particularly in Arizona, has produced a bumper crop of stable people use to owning their own homes. When they lose their home, they will seek out a rental property that is of similar quality in the same general geographic area, since those with children will not want to change school districts. Most of these people make IDEAL tenants for income property, because they know how to care for a property and they are likely mortified that they’ve had to endure a foreclosure. But, since there was a foreclosure, their credit is severely damaged. If they can demonstrate employment stability and financial capacity (by way of a substantial security deposit), these are likely to be the best tenants you will find.
Tips for Finding the Best Location to Attract “Those” Tenants for income property
Contrary to popular belief, the best locations for the income property investor are not the most highly priced rental areas. Identify the top ten most highly rated school districts in the area, and start with those areas. Among those areas, locate those with the highest percentage of foreclosures and you’ve struck income property investor gold.
Watch for more on this topic, coming soon!
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NOTE: We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing. Nothing we post however is intended to be taken as legal advice. You should always contact a legal professional for information and advice about your own unique investment scenarios.
Artisan Real Estate Group is one of the top boutique real estate firms in Arizona. We provide an end-to-end suite of services to our investor clients, including a full range of residential and commercial real estate services, investor services, property remodeling, restoration, and rehabilitation, real estate finance consultation, REO and bank-owned property services, trustee sale consultation and bidding representation, and new home builder services. Our international team specializes in helping investors from all over the world with their Arizona real estate transactions. Contact us today to find out how we can help you grow your personal wealth and investment portfolio. Artisan Real Estate Group, http://www.artisanrealestategroup.com/ or call us at (602)644-1280. Email: info@artisanrealestategroup.com
Tips on Attracting Good Tenants for the Income Property Investor
Next in our “The Role of the Tenant for the Income Property Investor” series…
You know as a residential income property investor that finding the right tenants is the key to reliable cash flow and high cap rate. There are steps you can take to ensure that the best tenants actually seek you out.
The Best Way to Advertise Your Property (hint… it’s not Craigslist!)
Many investors try to save money by finding their own tenants, using any one of the many free advertising media. If you’ve ever spent a week talking to the people who call from a Craigslist ad however, you may know this isn’t the way to go if you have a nice rental property to offer. Craigslist has its place but, without question, the highest quality of tenant comes with their own real estate agent.
No financially savvy person (and no one with reasonable and respectable financial capacity) goes into a real estate transaction – even a simple rental – without their own representation. This means you need to have your real estate partner list your rental property on the local MLS. It also means you will have to pay a commission (and probably a bonus but we’ll get there in a minute), however that small expense will pay for itself many times over when you are able to minimize vacancy , property wear or damage, and turnover costs. Listing a property on the MLS will provide the credibility that allows you to charge higher deposits and set high standards for tenant qualification. You will save literally hours that you would have spent answering phone calls and showing the property to lookie-loos who don’t have the financial capacity to rent your property.
Typical real estate commission on a rental is 3% of the total lease amount to both agents in the transaction. For example, if the lease is for one year at $1200 per month, the total lease amount is $14,400 and total commission is $864 ($432 to each agent). That’s a pretty small fee for what you get in return. If you want to have a good shot at getting the property rented quickly, don’t try to short the commission amount in any way. If you want to rise to the top of the pack, offer a bonus with an executed lease and deposit in place by a certain date. No one wants to admit it, but agents do consider these factors to some degree and, all things being equal, they will show your property early and often. Offer the agent an additional fee for each year the tenants renew their lease, and you have an even better chance of building loyalty within the real estate community.
The last advantage that listing your property with a Realtor offers is the increase in perception it provides to the potential tenant. There’s nothing worse than an investor meeting a prospective tenant late, in the t-shirt and shorts he was wearing because he just came from doing work on another property. You have better things to do with your time than showing houses. Your agent will present a reliably professional image, which reflects wonderfully on you. If the property owner cares enough to provide a professional leasing agent, the tenants will develop a higher regard and level of trust, which is something that the best tenants do seek.
Watch for more on this topic, coming soon!
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NOTE: We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing. Nothing we post however is intended to be taken as legal advice. You should always contact a licensed legal professional for information and advice about your own unique investment scenarios.
Artisan Real Estate Group is one of the top boutique real estate firms in Arizona. We provide an end-to-end suite of services to our investor clients, including a full range of residential and commercial real estate services, investor services, property remodeling, restoration, and rehabilitation, real estate finance consultation, REO and bank-owned property services, trustee sale consultation and bidding representation, and new home builder services. Our international team specializes in helping investors from all over the world with their Arizona real estate transactions. Contact us today to find out how we can help you grow your personal wealth and investment portfolio. Artisan Real Estate Group, http://www.artisanrealestategroup.com/ or call us at (602)644-1280. Email: info@artisanrealestategroup.com
How the Trustee Sale Process Works
Next in our “Leveraging Trustee Sales for Real Estate Investment” series…
If you’ve thought about investing in real estate today, you’ve probably started to consider trustee sales as a great source for purchasing foreclosure properties. Like any great source of reward, this real estate investment approach should be approached with a solid understanding of the process and an insider’s knowledge of how best to use the trustee’s sales to build your investment portfolio.
In Arizona, real estate loans are secured with a Deed of Trust. When the borrower defaults, the trustee sale process is initiated. (Read the full, detailed explanation here) Although it may sound like a relatively straightforward process, there is a lot more involved in this strategy than meets the eye.
Trustee sales are frequently not held on the day and time originally recorded for the proceeding. Often they even change locations. The reasons for this are many: the lender may need more time to accurately complete their paperwork, the property owner may have persuaded the lender to
give them more time, or a question may have emerged about the formalities or legalities of the proceeding. Either way, a change of time or venue may work to the investor’s advantage.
We should take a moment to talk about the opening bid price, typically published a day or so prior to the auction. First, the presence of an opening bid estimate may be a good clue that the sale will actually take place as scheduled. Second, this number is often fairly meaningless. The lender will often publish a low opening bid price to generate excitement about a property. The only people who get really excited about obviously low opening bids are novices. Experienced professionals will already have a pretty good idea what the property will sell for, no matter how low the opening bid is advertised.
In order to place a bid at the trustee sale, you must “qualify.” In essence, you must show the trustee prior to the start of bidding that you have available cash funds. Once bidding begins, it is important to observe other bidders to see who may be demonstrating interest. The investor must have a top bid price in mind before the auction – and adhere to that guideline – if the investment will truly produce an acceptable return for the investor.
If you are the winning bidder, you will typically have until 5:00 PM the following business day to turn your funds over to the trustee, at which time the trustee’s did will be executed and recorded, transferring title to the buyer. This is a very simple representation of the proceedings of a
trustee sale. The process is often intense, confusing, and filled with complex legal implications. It’s always a good idea to develop a close
working relationship with a trustee sale expert who can both ensure that your interests are protected and use their knowledge and experience with the system to locate the best investment properties for you.
NOTE: We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing. Nothing we post however is intended to be taken as investment, real estate, or legal advice. You should always contact a licensed investment, real estate, or legal professional for information and advice about your own unique investment scenarios.
Understanding the Arizona Foreclosure Process
Next in our “Leveraging Trustee Sales for Real Estate Investment” series…
Every savvy real estate investor knows that foreclosure properties must be a significant part of their real estate investment strategy in today’s market, however every state (and country) does it a little differently. If your goal is to invest in Arizona real estate, it is critical to understand how the foreclosure and trustee sale process works.
Although most people use the general term “mortgage,” Arizona primarily uses the Deed of Trust to secure real estate loans. In this scenario, the borrower (buyer) rather than the lender holds equitable title to the property. The Deed of Trust is the agreement between lender and borrower, allowing for the transfer of the property to a neutral third party (a trustee) to protect the lender’s interest in the property should the borrower default on the loan. Once the debt is paid in full, the trustee relinquishes all claim to title. Should the borrower default on the loan before it is paid in full, the trustee has the right to sell the property and pay any proceeds to the lender.
The trustee’s right to sell the property under a Deed of Trust is known as “foreclosure by power of sale.” This is a non-judicial process, unlike the
process for foreclosing on a mortgage, which is done via a lawsuit. Contrary to popular belief, the power of sale process is NOT overseen by the court system. Also unlike a mortgage foreclosure, the lender may purchase the property from the trustee as he is a neutral third party, conducting the sale. Foreclosure by power of sale IS regulated by Arizona statute.
Prior to the trustee’s sale, all parties must be given constructive notice of the sale. A notice of sale must be recorded with the Maricopa Country Recorder, the trustee must notify all parties by certified mail, and notices must be published in a local source (usually a newspaper) for four consecutive weeks. Sales are open to all public parties and the trustee (or his designated agent) must conduct the sale. The property is sold auction-style to the highest bidder for cash only. (If the lender purchases the property, he may do so via “credit bid,” where he cancels all or part of the debt.) The successful bidder must pay in full by 5:00 PM the following business day.
Should the bidder fail to pay by that time, the trustee has several options. He may give the bidder more time, he may postpone the sale, or he may reschedule the sale to another date, time, and/or place. If this happens, the trustee need only post notice of the change at the original sale
location, nowhere else. (Hmmmm…. Are we seeing a way to work the system a little here??)
As you can see, this process is complex and has many moving parts. Investors wishing to purchase properties through the Arizona foreclosure process should contact a licensed real estate professional with both knowledge of the process and current experience, to ensure that their interests are well protected.
NOTE: While we have outlined the “typical” process of the foreclosure and trustee’s sale in Arizona, it is important to note that, in today’s topsy-turvy real estate market, there are no hard and fast rules. You should always consult the appropriate legal, tax, or real estate professional with questions or to learn more about how these legal considerations may affect your situation.
Sourcing Foreclosure Properties for Investment
Every investor with money to spend today knows that “real estate is where it’s at.” But, if you haven’t been playing in the real estate investment market lately, you may not even recognize this crazy game. Everyone knows that foreclosure and REO properties can provide an amazing return on investment, but how can you gain the advantage over all the other investors out there?
Real Estate Signs/Ads
Many real estate agents today use sign riders indicating if a property is an REO, bank foreclosure, pre-foreclosure, etc. If you know which pockets of which areas are strong for investment, and if you have the time to drive the streets looking for signs, this method may work for you. Newspaper and Craigslist real estate ads are also popular venues for agents to advertise their property listings, however searching for the needle in the haystack among these ads takes almost as much time – and yields about as much useful information – as driving the streets in search of signs.
MLS Search
The Arizona Regional Multiple Listing Service (ARMLS) is the MLS for Phoenix, Maricopa Country, and the Valley of the Sun. It is the one, comprehensive list of properties for sale in the area. You will see many, many sites that promise you can “search the MLS just like a Realtor can,” but the truth is, only those agents who belong to the local Realtor association can actually access the MLS. These fake MLS search sites will make you register and fill your inbox with spam, but you’ll still be no closer to finding wholesale real estate deals. To truly search those fields that will lead you to great investment properties, you’ll need a pro.
Foreclosure Lists
Everyone and their brother wants to give you (or sell you) foreclosure lists, pre-foreclosure lists, REO property lists, bank repo lists, etc. You and several thousand other investors will spend your valuable time driving around, looking at great properties that have already been snatched up by an investor who knew how to play the game. There are a handful of professionals out there who spend their time every day to put together hand-picked lists of those properties that are about to go to auction that are actually great investments. Contrary to popular belief, not every foreclosure property is a good investment. Do you know how to tell the difference?
Successful real estate investors got to be that way by understanding the time value of money. Spending hours in the pursuit of investment properties on your own won’t actually save you any money, because the seller pays the buyer’s agent. So, before you spend hours of your own valuable time, consider partnering with a savvy local agent to help with your search. Choose one that specializes in working with investors. You’ll be money ahead in the long run.
NOTE: We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing. Nothing we post however is intended to be taken as investment, real estate, or legal advice. You should always contact a licensed investment, real estate, or legal professional for information and advice about your own unique investment scenarios.
Critical Questions to Ask When Selecting a Property Manager
An outstanding property manager is one of the greatest assets the real estate investor can have, especially in the residential investment property realm. A good property manager is often the difference between an outstanding return on investment (ROI) and a mediocre one. Any investor who has ever tried to save a few dollars and manage his own rental properties can attest to this fact. Real estate investors should focus their efforts on things that build and strengthen their investment portfolio and allow the expert – the property manager – to handle the critical but mundane details of managing the rental houses.
So how do you select the right property manager?
Every geographic market region is different, and critical differences even exist among property value points. Investors, especially in a new market or price point, may not realize which questions to ask when interviewing potential investment property management firms. Here are 4 important questions for you to ask when selecting your property manager.
What is your complete menu of services (and the costs that accompany each)?
If you aren’t familiar with property management or with the geographic area in question, there may be local customs or laws with which you are not familiar. Many property managers will quote you a percentage or flat fee to manage your property, but that may not include everything. For example, does the company charge an extra fee if they have to initiate legal proceedings to vacate a tenant? Are there extra fees for each service or repair call, over and above the cost of the repair? One company’s price may seem low, but you will be “nickel and dimed” for every extra. Knowing everything up front – and incorporating that fee schedule into your property management agreement – will ultimately help preserve your sanity, profitability, and relationship with your property manager.
What tools do you use to attract and recruit tenants?
In today’s residential real estate investment market, the quality of the tenant is more important than ever. Any good property manager or real estate agent/broker will understand the difference between tenants obtained through online postings, newspaper ads, local MLS services, or various other media. It may cost more upfront to use MLS listings to find tenants, however if the quality of the tenant is better, is it worth the expense? The investor shouldn’t necessarily need to know the specific answer, but your property manager had better know!
What is your litigation history with tenants, tenants’ rights groups, and property owners?
If the property manager you are interviewing takes exception to this question, run away. This is one of the very best ways to understand how a property manager operates. Bear in mind that an active litigation history is not necessarily a bad thing, and may indicate that the property manager is proactive in addressing big problems. If the company has been sued by very many property owners however, that’s may be a good indicator that you need to investigate the company more thoroughly before proceeding with them. If their litigation history is of the “healthy” kind, they will be happy to share some details with you.
What type of computer applications do you use?
In today’s digital age, most large property management firms use software packages that track all management activity. Good software will produce a wide variety of reports for the investor, and those can often be specifically modified to meet the investor’s reporting needs. With the many potential legal issues involved with residential rental properties, the investor should be cautious of any property manager who still keeps rent rolls on ledger cards. Excellent electronic record-keeping will often be the factor that resolves disputes in your favor, rather than the tenants, and will ensure that you can always get a snapshot view of your property data from the property manager.
There are many more important questions to ask when selecting a property manager. Watch for the next four questions you should ask, or contact us today if you would like to learn more about this critical topic!
NOTE: We pride ourselves on bringing you the most informative, up-to-date, and accurate information possible about the often-confusing world of real estate investing. Nothing we post however is intended to be taken as investment, real estate, or legal advice. You should always contact a licensed investment, real estate, or legal professional for information and advice about your own unique investment scenarios.
Contact Us Today
(480) 560-5757
www.ArtisanRealEstateGroup.com
Robert Jeffrey, Designated Broker
6245 N. 24th Parkway
Suite 207
Phoenix, AZ 85016
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